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QuickLinks -- Click here to rapidly navigate through this document AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT     THIS AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and entered into as of October 31, 2000, by and among Avocent Employment Services Co. (formerly known as Polycon Investments, Inc.), a Texas corporation ("Employer"), Avocent Corporation, a Delaware corporation, and R. Byron Driver (the "Employee"). RECITALS     WHEREAS, the Employer is a direct or indirect subsidiary of Avocent Corporation engaged in the business of leasing employees to Avocent Corporation and its affiliates, including Apex Inc. ("Apex") and Cybex Computer Products Corporation ("Cybex");     WHEREAS, Avocent Corporation and its affiliates (collectively referred to in this Agreement as "Avocent") are engaged in the business of designing, manufacturing, and selling stand-alone console/ KVM switching systems, console/KVM remote access products, and integrated server cabinet solutions for the client/server computing market;     WHEREAS, Employee, Employer, and Cybex entered into that certain Employment and Noncompetition Agreement dated July 1, 1999 (the "Original Employment Agreement"); and     WHEREAS, on March 8, 2000, Apex, Cybex, and Avocent Corporation entered into an Agreement and Plan of Reorganization dated March 8, 2000 (the "Reorganization Agreement"). Pursuant to the Reorganization Agreement, (i) Apex Acquisition Corp., a wholly-owned subsidiary of Avocent, merged with and into Apex on July 1, 2000 (the "Apex Merger"), and upon the Apex Merger, Apex became a wholly-owned subsidiary of Avocent, and (ii) Cybex Acquisition Corp., a wholly-owned subsidiary of Avocent, merged with and into Cybex (the "Cybex Merger") on July 1, 2000, and upon the Cybex Merger, Cybex also became a wholly-owned subsidiary of Avocent; and     WHEREAS, for and in consideration of an increase in base pay, certain incentive bonus eligibility and awards, and an award of stock options that would not otherwise be made to Employee, Employer, Employee, Cybex, and Avocent now wish to amend and restate the Original Employment Agreement with this Amended and Restated Employment and Noncompetition Agreement. AGREEMENT     THE PARTIES HERETO AGREE AS FOLLOWS:     1.  DUTIES.  During the term of this Agreement, the Employee agrees to be employed by Employer and to serve Avocent as its Senior Vice President of Operations and Chief Operating Officer, and Employer agrees to employ the Employee and lease the Employee to Avocent to serve Avocent in such capacities. The Employee shall devote such of his business time, energy, and skill to the affairs of Avocent and Employer as shall be necessary to perform the duties of Senior Vice President of Operations and Chief Operating Officer. The Employee shall report to the President of the Employer, Cybex, and Avocent Corporation and to the Boards of Directors of the Employer, Cybex, and Avocent Corporation, and at all times during the term of this Agreement, the Employee shall have powers and duties at least commensurate with his position as Senior Vice President of Operations and Chief Operating Officer of Avocent Corporation.     2.  TERM OF EMPLOYMENT.       2.1  DEFINITIONS.  For purposes of this Agreement the following terms shall have the following meanings:     (a) "TERMINATION FOR CAUSE" shall mean termination by the Employer of the Employee's employment by the Employer by reason of the Employee's willful dishonesty towards, fraud upon, or deliberate injury or attempted injury to, the Employer or Avocent or -------------------------------------------------------------------------------- by reason of the Employee's willful material breach of this Agreement which has resulted in material injury to the Employer or Avocent.     (b) "TERMINATIONS OTHER THAN FOR CAUSE" shall mean termination by the Employer or Avocent Corporation of the Employee's employment by the Employer (other than in a Termination for Cause) and shall include any constructive termination of the Employee's employment by reason of material breach of this Agreement by the Employer or Avocent, such constructive termination to be effective upon thirty (30) days written notice from the Employee to the Employer of such constructive termination.     (c) "VOLUNTARY TERMINATION" shall mean termination by the Employee of the Employee's employment by the Employer other than (i) constructive termination as described in subsection 2.1(b), (ii) "Termination Upon a Change in Control" as described in Section 2.1(e), and (iii) termination by reason of the Employee's disability or death as described in Sections 2.5 and 2.6.     (d) "TERMINATION UPON A CHANGE IN CONTROL" shall mean (i) a termination by the Employee of the Employee's employment with the Employer or services to Avocent within six (6) months following any "Change in Control" other than any "Change in Control" contemplated by or described in the Reorganization Agreement and/or resulting from the closing of the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger (as such terms are defined in the Reorganization Agreement), or (ii) any termination by the Employer or Avocent Corporation of the Employee's employment by the Employer (other than a Termination for Cause) within eighteen (18) months following any "Change in Control" other than any "Change in Control" contemplated by or described in the Reorganization Agreement and/or resulting from the closing of the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger (as such terms are defined in the Reorganization Agreement).     (e) "CHANGE IN CONTROL" shall mean any one of the following events:      (i) Any person (other than Avocent) acquires beneficial ownership of Employer's, Cybex's, or Avocent Corporation's securities and is or thereby becomes a beneficial owner of securities entitling such person to exercise twenty-five percent (25%) or more of the combined voting power of Employer's, Cybex's, or Avocent Corporation's then outstanding stock. For purposes of this Agreement, "beneficial ownership" shall be determined in accordance with Regulation 13D under the Securities Exchange Act of 1934, or any similar successor regulation or rule; and the term "person" shall include any natural person, corporation, partnership, trust or association, or any group or combination thereof, whose ownership of Employer's, Cybex's, or Avocent Corporation's securities would be required to be reported under such Regulation 13D, or any similar successor regulation or rule.     (ii) Within any twenty-four (24) month period, the individuals who were Directors of Avocent Corporation at the beginning of any such period, together with any other Directors first elected as directors of Avocent Corporation pursuant to nominations approved or ratified by at least two-thirds (2/3) of the Directors in office immediately prior to any such election, cease to constitute a majority of the Board of Directors of Avocent Corporation.     (iii) Avocent Corporation's stockholders approve:     (1) any consolidation or merger of Avocent Corporation in which Avocent Corporation is not the continuing or surviving corporation or pursuant to which 2 -------------------------------------------------------------------------------- shares of Avocent Corporation common stock would be converted into cash, securities or other property, other than a merger or consolidation of Avocent Corporation in which the holders of Avocent Corporation's common stock immediately prior to the merger or consolidation have substantially the same proportionate ownership and voting control of the surviving corporation immediately after the merger or consolidation; or     (2) any sale, lease, exchange, liquidation or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Avocent Corporation. Notwithstanding subparagraphs (e)(iii)(1) and (e)(iii)(2) above, the term "Change in Control" shall not include a consolidation, merger, or other reorganization if upon consummation of such transaction all of the outstanding voting stock of Avocent Corporation is owned, directly or indirectly, by a holding company, and the holders of Avocent Corporation's common stock immediately prior to the transaction have substantially the same proportionate ownership and voting control of such holding company after such transaction.     (iv) Cybex's stockholders approve:     (1) any consolidation or merger of Cybex in which Cybex is not the continuing or surviving corporation or pursuant to which shares of Cybex common stock would be converted into cash, securities or other property, other than a merger or consolidation of Cybex (including a merger of Cybex into Avocent Corporation) in which the holders of Cybex's common stock immediately prior to the merger or consolidation have substantially the same proportionate ownership and voting control of the surviving corporation immediately after the merger or consolidation; or     (2) any sale, lease, exchange, liquidation or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Cybex. Notwithstanding subparagraphs (e)(iv)(1) and (e)(iv)(2) above, the term "Change in Control" shall not include a consolidation, merger, or other reorganization if upon consummation of such transaction all of the outstanding voting stock of Cybex is owned, directly or indirectly, by a holding company, and the holders of Cybex's common stock immediately prior to the transaction have substantially the same proportionate ownership and voting control of such holding company after such transaction.     2.2  BASIC TERM.  The term of employment of the Employee by the Employer shall be for the period beginning immediately prior to the closing of the Cybex Merger (as described in the Reorganization Agreement) on July 1, 2000, and ending on December 31, 2004, unless terminated earlier pursuant to this Section 2. At any time before December 31, 2004, the Employer and the Employee may by mutual written agreement extend the Employee's employment under the terms of this Agreement for such additional periods as they may agree.     2.3  TERMINATION FOR CAUSE.  Termination For Cause may be effected by the Employer at any time during the term of this Agreement and shall be effected by thirty (30) days written notification to the Employee from the Boards of Directors of Employer and Avocent Corporation stating the reason for termination. Upon Termination For Cause, the Employee immediately shall be paid all accrued salary, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, 3 -------------------------------------------------------------------------------- all to the date of termination, but the Employee shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.4  TERMINATION OTHER THAN FOR CAUSE.  Notwithstanding anything else in this Agreement, the Employer may effect a Termination Other Than For Cause at any time upon giving thirty (30) days written notice to the Employee of such termination. Upon any Termination Other Than For Cause, the Employee shall immediately be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, and all severance compensation provided in Section 4.2, but no other compensation or reimbursement of any kind.     2.5  TERMINATION BY REASON OF DISABILITY.  If, during the term of this Agreement, the Employee, in the reasonable judgment of the Board of Directors of Avocent, has failed to perform his duties under this Agreement on account of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than six (6) consecutive months, the Employer shall have the right to terminate the Employee's employment hereunder by delivery of written notice to the Employee at any time after such six month period and payment to the Employee of all accrued salary, bonus compensation in an amount equal to the average annual bonus earned by the Employee as an employee of Avocent and its affiliates and predecessors in the two (2) years immediately preceding the date of termination, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, with the exception of medical and dental benefits which shall continue through the expiration of this Agreement, but the Employee shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.6  TERMINATION BY REASON OF DEATH.  In the event of the Employee's death during the term of this Agreement, the Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs and the Employer shall pay to his estate or such beneficiaries as the Employee may from time to time designate all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, but the Employee's estate shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.7  VOLUNTARY TERMINATION.  Notwithstanding anything else in this Agreement, the Employee may effect a Voluntary Termination at any time upon giving thirty (30) days written notice to the Employer of such termination. In the event of a Voluntary Termination, the Employer shall immediately pay all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (other than pension plan or profit sharing plan benefits which 4 -------------------------------------------------------------------------------- will be paid in accordance with the applicable plan), any benefits under any plans of Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, but no other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.8  TERMINATION UPON A CHANGE IN CONTROL.  In the event of a Termination Upon a Change in Control, the Employee shall immediately be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, and all severance compensation provided in Section 4.1, but no other compensation or reimbursement of any kind. Employee acknowledges and agrees that the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger do not constitute, and shall not be construed retroactively or otherwise as constituting, a "Change in Control" as defined in Section 2.1(e) and that any future termination of Employee's employment with Employer will not constitute a "Termination Upon A Change in Control" under Section 2.1(d) or this Section 2.8 unless there is a Change in Control as defined in Section 2.1(e) of this Agreement after the date of this Agreement.     3.  SALARY, BENEFITS AND BONUS COMPENSATION.       3.1  BASE SALARY.  Effective July 1, 2000, as payment for the services to be rendered by the Employee as provided in Section 1 and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee a "Base Salary" at the rate of $180,000 per annum, payable in equal bi-weekly installments. The Base Salary for each calendar year (or proration thereof) beginning January 1, 2001 shall be determined by the Board of Directors of Avocent Corporation upon a recommendation of the Compensation Committee of Avocent Corporation (the "Compensation Committee"), which shall authorize an increase in the Employee's Base Salary in an amount which, at a minimum, shall be equal to the cumulative cost-of-living increment on the Base Salary as reported in the "Consumer Price Index, Huntsville, Alabama, All Items," published by the U.S. Department of Labor (using July 1, 2000, as the base date for computation prorated for any partial year). The Employee's Base Salary shall be reviewed annually by the Board of Directors and the Compensation Committee of Avocent Corporation.     3.2  BONUSES.  The Employee shall be eligible to receive a bonus for each calendar year (or portion thereof) during the term of this Agreement and any extensions thereof, with the actual amount of any such bonus to be determined in the sole discretion of the Board of Directors of Avocent Corporation based upon its evaluation of the Employee's performance during such year. All such bonuses shall be payable during the last month of the fiscal year or within forty-five (45) days after the end of the fiscal year to which such bonus relates. All such bonuses shall be reviewed annually by the Compensation Committee of Avocent Corporation.     3.3  ADDITIONAL BENEFITS.  During the term of this Agreement, the Employee shall be entitled to the following fringe benefits:     (a)  THE EMPLOYEE BENEFITS.  The Employee shall be eligible to participate in such of Avocent's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of or Avocent, including, without limitation, stock option plans, Section 401(k) plan, profit sharing plans, annual physical 5 -------------------------------------------------------------------------------- examinations, dental and medical plans, personal catastrophe and disability insurance, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Cybex or Avocent, the Employee's employment with the Employer (or any successor) will be deemed to have commenced on the date that Employee first commenced employment with Cybex, which was August 17, 1992.     (b)  VACATION.  The Employee shall be entitled to vacation in accordance with the Avocent Corporation's vacation policy but in no event less than three weeks during each year of this Agreement.     (c)  LIFE INSURANCE.  For the term of this Agreement and any extensions thereof, the Employer shall at its expense procure and keep in effect term life insurance on the life of the Employee, payable to such beneficiaries as the Employee may from time to time designate, in an aggregate amount equal to the lesser of (i) three times the Employee's Base Salary or (ii) $500,000. Such policy shall be owned by the Employee or by any person or entity with an insurable interest in the life of the Employee.     (d)  REIMBURSEMENT FOR EXPENSES.  During the term of this Agreement, the Employer or Avocent Corporation shall reimburse the Employee for reasonable and properly documented out-of-pocket business and/or entertainment expenses incurred by the Employee in connection with his duties under this Agreement.     4.  SEVERANCE COMPENSATION.       4.1  SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL.  In the event the Employee's employment is terminated in a Termination Upon a Change in Control, the Employee shall be paid as severance compensation his Base Salary (at the rate payable at the time of such termination) for a period of twelve (12) months from the date of termination of this Agreement, on the dates specified in Section 3.1, and an amount equal to the average annual bonus earned by the Employee as an employee of Avocent Corporation and its affiliates and predecessors in the two (2) years immediately preceding the date of termination. Notwithstanding anything in this Section 4.1 to the contrary, the Employee may in the Employee's sole discretion, by delivery of a notice to the Employer within thirty (30) days following a Termination Upon a Change in Control, elect to receive from the Employer a lump sum severance payment by bank cashier's check equal to the present value of the flow of cash payments that would otherwise be paid to the Employee pursuant to this Section 4.1. Such present value shall be determined as of the date of delivery of the notice of election by the Employee and shall be based on a discount rate equal to the interest rate of 90-day U.S. Treasury bills, as reported in The Wall Street Journal (or similar publication), on the date of delivery of the election notice. If the Employee elects to receive a lump sum severance payment, Avocent Corporation shall cause the Employer to make such payment to the Employee within ten (10) days following the date on which the Employee notifies the Employer of the Employee's election. The Employee shall also be entitled to have the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated. The Employee shall be provided with medical plan benefits under any health plans of Avocent or Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans for a period of 12 months from the date of termination of this Agreement; provided, however, that the benefits under any such plans of Employer or Avocent in which the Employee is a participant, including any such perquisites, shall cease upon employment by a new employer.     4.2  SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE.  In the event the Employee's employment is terminated in a Termination Other Than for Cause, the Employee shall be paid as severance compensation his Base Salary (at 6 -------------------------------------------------------------------------------- the rate payable at the time of such termination) for a period of twelve (12) months from the date of such termination, on the dates specified in Section 3.1, and an amount equal to the average annual bonus earned by the Employee as an employee of Avocent Corporation and its affiliates and predecessors in the two (2) years immediately preceding the date of termination. Notwithstanding anything in this Section 4.2 to the contrary, the Employee may in the Employee's sole discretion, by delivery of a notice to the Employer within thirty (30) days following a Termination Other Than for Cause, elect to receive from the Employer a lump sum severance payment by bank cashier's check equal to the present value of the flow of cash payments that would otherwise be paid to the Employee pursuant to this Section 4.2. Such present value shall be determined as of the date of delivery of the notice of election by the Employee and shall be based on a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as reported in The Wall Street Journal (or similar publication), on the date of delivery of the election notice. If the Employee elects to receive a lump sum severance payment, Avocent Corporation shall cause the Employer to make such payment to the Employee within ten (10) days following the date on which the Employee notifies the Employer of the Employee's election. The Employee shall also be entitled to have the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated.     4.3  NO SEVERANCE COMPENSATION UNDER OTHER TERMINATION.  In the event of a Voluntary Termination, Termination For Cause, termination by reason of the Employee's disability pursuant to Section 2.5, or termination by reason of the Employee's death pursuant to Section 2.6, the Employee or his estate shall not be paid any severance compensation.     5.  NON-COMPETITION OBLIGATIONS.  Unless waived or reduced by the Employer or Avocent, during the term of this Agreement and for a period of 12 months thereafter, the Employee will not, without the Employer's prior written consent, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, engage in any business activity in the United States, Canada, or Europe which is substantially similar to or in direct competition with any of the business activities of or services provided by the Employer at such time. Notwithstanding the foregoing, the ownership by the Employee of not more than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or on The Nasdaq Stock Market shall not be deemed, in and of itself, to violate the prohibitions of this Section 5.     6.  MISCELLANEOUS.       6.1  PAYMENT OBLIGATIONS.  If litigation after a Change in Control shall be brought to enforce or interpret any provision contained herein, the Employer and Avocent Corporation, to the extent permitted by applicable law and the Employer's and Avocent Corporation's Articles of Incorporation and Bylaws, each hereby indemnifies the Employee for the Employee's reasonable attorneys' fees and disbursements incurred in such litigation.     6.2  GUARANTEE.  Avocent Corporation hereby unconditional and irrevocable guarantees the payment obligations of the Employer under this Agreement, including, without limitation, the Employer's obligations under Section 6.1 hereof.     6.3  WITHHOLDINGS.  All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local, and other withholdings and similar taxes and payments required by applicable law.     6.4  WAIVER.  The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 7 --------------------------------------------------------------------------------     6.5  ENTIRE AGREEMENT; MODIFICATIONS.  Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral with respect to the subject matter hereof including without limitation, the Original Employment Agreement, and any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to the Employee from the Employer or Avocent Corporation. In particular, Employee acknowledges and agrees that the terms and conditions of this Agreement (and not the Original Employment Agreement) shall apply to all stock option awards granted to Employee under any Cybex or Avocent stock option plan (including, without limitation, Employee's September 18, 2000 stock option award from Avocent Corporation). All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought.     6.6  NOTICES.  All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given upon hand delivery to an officer of the Employer or the Employee, as the case may be, or upon three (3) days after mailing to the respective persons named below: If to the Employer/Avocent: Avocent Corporation   4991 Corporate Drive Huntsville, AL 35805 Attn: Executive Vice President Copy to General Counsel   If to the Employee:   R. Byron Driver [                   ] [                   ]     Any party may change such party's address for notices by notice duly given pursuant to this Section 6.6.     6.7  HEADINGS.  The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement.     6.8  GOVERNING LAW; VENUE.  This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama. The Employee, the Employer, and Avocent Corporation each hereby expressly consents to the exclusive venue of the state and federal courts located in Huntsville, Madison County, Alabama, for any lawsuit arising from or relating to this Agreement.     6.9  ARBITRATION.  Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in Huntsville, Alabama, in accordance with the Rules of the American Arbitration Association, and judgment upon any proper award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be three (3) arbitrators, one (1) to be chosen directly by each party at will, and the third arbitrator to be selected by the two (2) arbitrators so chosen. To the extent permitted by the Rules of the American Arbitration Association, the selected arbitrators may grant equitable relief. Each party shall pay the fees of the arbitrator selected by him and of his own attorneys, and the expenses of his witnesses and all other expenses connected with the presentation of his case. The cost of the arbitration including the cost of the record or transcripts thereof, if any, administrative fees, and all other fees and costs shall be borne equally by the parties. 8 --------------------------------------------------------------------------------     6.10  SEVERABILITY.  If a court or other body of competent jurisdiction determines that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible.     6.11  SURVIVAL OF EMPLOYER'S OBLIGATIONS.  The Employer's and Avocent Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to the Employer or Avocent Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of the Employer or Avocent Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, this Agreement shall not be assignable either by the Employer (except to an affiliate of the Employer (including Avocent Corporation) in which event the Employer shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by the Employee.     6.12  COUNTERPARTS.  This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement.     6.13  INDEMNIFICATION.  In addition to any rights to indemnification to which the Employee is entitled to under the Employer's Articles of Incorporation and Bylaws, the Employer and Avocent Corporation shall indemnify the Employee at all times during and after the term of this Agreement to the maximum extent permitted under the corporation laws of the State of Delaware and any other applicable state law, and shall pay the Employee's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.     6.14  INDEMNIFICATION FOR SECTION 4999 EXCISE TAXES.  In the event that it shall be determined that any payment or other benefit paid by the Employer or Avocent Corporation to or for the benefit of the Employee under this Agreement or otherwise, but determined without regard to any additional payments required under this Amendment (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employer and Avocent Corporation shall indemnify the Employee for such Excise Tax in accordance with the following:     (a) The Employee shall be entitled to receive an additional payment from the Employer and/or Avocent Corporation equal to (i) one hundred percent (100%) of any Excise Tax actually paid or finally or payable by the Employee in connection with the Payments, plus (ii) an additional payment in such amount that after all taxes, interest and penalties incurred in connection with all payments under this Section 2(a), the Employee retains an amount equal to one hundred percent (100%) of the Excise Tax.     (b) All determinations required to be made under this Section shall be made by the Avocent Corporation's primary independent public accounting firm, or any other nationally recognized accounting firm reasonably acceptable to the Avocent Corporation and the Employee (the "Accounting Firm"). Avocent Corporation shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Employer and the Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Employer. For purposes of making the calculations required by this Section, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G 9 -------------------------------------------------------------------------------- and 4999 of the Internal Revenue Code, provided the Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Internal Revenue Code). The payments to which the Employee is entitled pursuant to this Section shall be paid by the Employer and/or Avocent Corporation to the Employee in cash and in full not later than thirty (30) calendar days following the date the Employee becomes subject to the Excise Tax.     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.     AVOCENT EMPLOYMENT SERVICES, INC.:           By:   /s/ JULIE YARBROUGH    --------------------------------------------------------------------------------     Its: President --------------------------------------------------------------------------------           AVOCENT CORPORATION:           By:   /s/ DOYLE C. WEEKS    --------------------------------------------------------------------------------     Its: Executive Vice President --------------------------------------------------------------------------------           EMPLOYEE:           /s/ R. BYRON DRIVER    -------------------------------------------------------------------------------- R. Byron Driver 10 -------------------------------------------------------------------------------- QUICKLINKS AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT RECITALS AGREEMENT

SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT           THIS SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "Sixth Amendment") is made and dated as of June 23, 2000 among SUNRISE MEDICAL, INC., a Delaware corporation (the "Borrower"), the subsidiaries of the Borrower signatory hereto as "Subsidiary Borrowers" or "Guarantors", the lenders (the "Lenders") party hereto, and BANK OF AMERICA, N.A., as Agent (the "Agent") and amends that certain Third Amended and Restated Credit Agreement dated as of August 28, 1997 among the parties hereto, as amended by a First Amendment and Waiver to Third Amended and Restated Credit Agreement dated as of February 18, 1998, a Second Amendment to Third Amended and Restated Credit Agreement dated as of August 26, 1998, a Third Amendment to Third Amended and Restated Credit Agreement dated as of April 28, 1999, a Fourth Amendment and Waiver to Third Amended and Restated Credit Agreement dated as of August 25, 1999 and a Fifth Amendment and Waiver to Third Amended and Restated Credit Agreement (the "Fifth Amendment") dated as of September 30, 1999 (together with this Sixth Amendment, the "Agreement"). RECITALS           A.     Pursuant to the terms of the Fifth Amendment, Section 7.20 was added to the Agreement. Section 7.20 provides that the financial covenants set forth in Section 7.09, 7.10, 7.11 and 7.19 and the Collateral Release Conditions will be adjusted upon the consummation of any material asset disposition or sale and leaseback permitted under the Agreement. Since the date of the Fifth Amendment, the Borrower has completed the asset dispositions and sale and leasebacks contemplated by Section 7.20. Subject to the terms and provisions hereof, the Borrower, the Agent and the Lenders have agreed to amend Section 7.09, 7.11 and 7.19 to reflect such transactions. The parties have also agreed that no modification is needed to Section 7.10 or the Collateral Release Conditions and that Section 7.20 of the Agreement may now be deleted.           B.     The Borrower has requested, and the Lenders have agreed, that Section 7.14 of the Agreement be amended to permit the Borrower to expend not more than $250,000 to repurchase stock options from the Borrower's employees.           C.     Subject to the terms and provisions hereof, the Borrower, the Agent and the Lenders have agreed to memorialize their agreements concerning such matters pursuant to the terms of this Sixth Amendment.           NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:           1.     Terms. All terms used herein shall have the same meanings as in the Agreement unless otherwise defined herein. All references to the Agreement shall mean the Agreement as hereby amended.           2.     Amendments to Agreement. The Loan Parties, the Lenders and the Agent hereby agree that the Agreement is amended as follows:           2.1.     Amendments to Section 7. Section 7 of the Agreement is hereby amended as follows:                      (a) Section 7.09 of the Agreement is amended and restated in its entirety as follows: >            7.09 Leverage Ratio. > > Permit the Leverage Ratio, as of the end of any Fiscal Quarter, to exceed the > following ratio: > > > > > Fiscal Quarter Ending Maximum Ratio Fourth Quarter 2000 3.25 to 1 First > > Quarter 2001 3.00 to 1 Second Quarter 2001 3.00 to 1 > > > >   (b) Section 7.11 of the Agreement is amended and restated in its entirety > > as follows: > >            7.11 Debt Coverage Ratio. Permit the Debt Coverage Ratio, as of the > end of any Fiscal Quarter, to be less than the following ratio: > > > Fiscal Quarter Ending Maximum Ratio Fourth Quarter 2000 1.10 to 1 First > > Quarter 2001 1.10 to 1 Second Quarter 2001 1.25 to 1 > > > > (c) Section 7.14(a) of the Agreement is amended and restated in its entirety > > as follows: > >           (a) repurchases and redemptions by Borrower of options or other > rights to acquire shares of any class of stock of Borrower held by employees > of Borrower; provided, however, that after giving effect thereto (i) no > Default or Event of Default shall exist and (ii) the aggregate amount paid > from and after June 1, 2000 by Borrower and its Subsidiaries in connection > therewith shall not exceed $250,000; > >           (d) Section 7.19 of the Agreement is amended and restated in its > entirety as follows: > >           7.19 Minimum Consolidated EBITDA. > > Permit cumulative Consolidated EBITDA for the corresponding period set forth > below ending on the last day of any Fiscal Quarter set forth below, to be less > than the corresponding amount set forth below: > > > > > Fiscal Quarter Ending Consolidated EBITDA Fourth Quarter 2000  (4 quarters) > > $48,500,000 First Quarter 2001 (4 quarters) $53,000,000 Second Quarter 2001 > > (4 quarters) $51,500,000 > > (e) Section 7.20 of the Agreement is hereby amended and restated to read in > its entirety as follows: > > 7.20 [Reserved].           3.       Representations and Warranties. Each of the Loan Parties jointly and severally represent and warrant to the Lenders and the Agent:           3.1.       Authorization. The execution, delivery and performance of this Sixth Amendment have been duly authorized by all necessary corporate action by each of them and has been duly executed and delivered by each of them.           3.2.       Binding Obligation. This Sixth Amendment is the legally valid and binding obligation of each Loan Party, enforceable in accordance with its terms against each of them respectively, except as such enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion.           3.3.       No Legal Obstacle to Agreement. Neither the execution of this Sixth Amendment, the making by any Borrower of any borrowing under the Agreement, nor the performance of the Agreement has constituted or resulted in or will constitute or result in a breach of the provisions of any Contractual Obligation to which any Loan Party is a party, or the violation of any Requirement of Law, or result in the creation under any agreement or instrument of any security interest, lien, charge, or encumbrance upon any of the assets of any of them, except as contemplated hereby. No approval or authorization of any Governmental Agency is required by any Loan Party to permit the execution, delivery or performance by any Loan Party of this Sixth Amendment, the Agreement, or the transactions contemplated hereby or thereby, or the making of any borrowing under the Agreement.           3.4.       Incorporation of Certain Representations. The representations and warranties set forth in Article 5 of the Agreement, as amended hereby and after giving effect to all waivers herein, are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof except to the extent any such representation or warranty is expressly stated to be made as of any other date.           3.5.       Default. After giving effect to this Amendment, no default or Event of Default under the Agreement has occurred and is continuing.           3.6.       No Material Adverse Effect. Other than as disclosed to the Agent and the Lenders prior to the date hereof, no event or circumstance has occurred since September 30, 1999 which constitutes a Material Adverse Effect after giving effect to this Sixth Amendment.           4.       Conditions; Effectiveness. The effectiveness of this Sixth Amendment shall be subject to the compliance by the Borrower with its agreements herein contained, and to the delivery of the following to the Agent in form and substance satisfactory to the Agent:           4.1.       Corporate Resolutions. A copy of a resolution or resolutions passed by the Board of Directors of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as being in full force and effect on the date hereof, authorizing the amendments to the Agreement herein provided for and the execution, delivery and performance of this Sixth Amendment and any note or other instrument or agreement required hereunder.           4.2.       Authorized Signatories. A certificate, signed by the Secretary or an Assistant Secretary of the Borrower dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this Sixth Amendment and any instrument or agreement required hereunder on behalf of the Borrower.           4.3.       Attorney's Fees. Payment of all fees and expenses of the Agent's outside and in-house counsel invoiced to the Borrower.           4.4.       Other Evidence. Such other evidence with respect to the Borrower or any other person as any Lender may reasonably request to establish the consummation of the transactions contemplated hereby, the taking of all corporate action in connection with this Sixth Amendment and the Agreement and the compliance with the conditions set forth herein.           5.       Miscellaneous.           5.1.       Effectiveness of the Agreement. Except as hereby expressly amended, the Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.           5.2.       Acknowledgment of Obligations. The Borrower hereby (a) confirms and agrees, on behalf of itself and each of its Subsidiaries, that it and they are indebted to the Agent and the Lenders for all amounts due and owing under the Agreement and the other Loan Documents without defense, offset or counterclaim of any kind whatsoever and (b) reaffirms and admits, on behalf of itself and each of its Subsidiaries, the validity and enforceability of the Agreement and the other Loan Documents.           5.3.       Effectiveness of Agreement and Loan Documents.                        (a) Except as expressly amended hereby, the Loan Parties agree that each provision of the Agreement and each provision of each other Loan Document shall continue to be and shall remain, in full force and effect. This Sixth Amendment shall not be deemed or otherwise construed (a) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Agreement or any other Loan Document, (b) except as set forth herein, to be a commitment or any other undertaking by the Lenders or any of them to engage in any restructuring of any aspect of the Agreement or the Loan Documents, (c) to constitute any obligation to further amend or otherwise modify the Agreement or any Loan Document or (d) to prejudice any other right or rights which the Agent or the Lenders may now have or may have in the future under or in connection with the Agreement or the Loan Documents or any of the instruments or agreements referred to therein, as the same may be amended or modified from time to time.                        (b) This Sixth Amendment is specific in time and in intent and does not constitute, nor should it be construed as, a waiver of any other right, power or privilege under the Agreement, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement; nor does it preclude any exercise of such other right, power or privilege or the exercise of any other right, power or privilege, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement, constitute a waiver of any other default of the same or of any other term or provision.           5.4.       Counterparts. This Sixth Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This Sixth Amendment shall not become effective until each Loan Party, the counterparts, and the same shall have been delivered to the Agent.           5.5.       Jurisdiction. This Sixth Amendment, and any instrument or agreement required hereunder, shall be governed by and construed under the laws of the State of California.           IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to be duly executed and delivered as of the date first written above. > > > > > > BORROWER: > > > > > > SUNRISE MEDICAL, INC., > > > > > > as Borrower and as a Guarantor > > > > > > > > > > > > > > > > > > > > > > > > By:________________________________ > > > > > > Ted N. Tarbet > > > > > > Senior Vice President and > > > > > > Chief Financial Officer > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > GUARANTORS: > > > > > > DYNAVOX SYSTEMS, INC. > > > > > > SUNMED FINANCE INC. > > > > > > SUNRISE MARIN HOLDINGS INC. > > > > > > SUNRISE MEDICAL CCG INC. > > > > > > SUNRISE MEDICAL HHG INC. > > > > > > > > > > > > > > > > > > > > > > > > By:________________________________ > > > > > > Ted N. Tarbet > > > > > > Treasurer > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > BANK OF AMERICA, N.A., as Agent > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > >   > > > > > > > > > > > > BANK OF AMERICA, N.A., as a Lender > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > > > > > > > > ABN AMRO BANK NV Los Angeles International Branch > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > > > > > > > > UNION BANK OF CALIFORNIA, N.A. > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > > > > > > > > MORGAN GUARANTY TRUST COMPANY OF NEW YORK > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > > > > > > > > DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > >   > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________ > > > > > > > > > > > >   > > > > > > > > > > > > PNC BANK, NATIONAL ASSOCIATION > > > > > > > > > > > > By:________________________________ > > > > > > Name:______________________________ > > > > > > Title:_____________________________

EXHIBIT 10.1 OLD KENT FINANCIAL CORPORATION EXECUTIVE BENEFIT TRUST Dated: June 12, 2000 -------------------------------------------------------------------------------- TABLE OF CONTENTS       Page         SECTION 1 - Establishment of the Trust 2           1.1. Prior Trusts; Effective Date 2   1.2. OKFC Contributions 3   1.3. Irrevocable 4   1.4. Grantor Trust 4   1.5. Limited Rights of Executive 4   1.6. Determination of a Change in Control or Potential Change in Control 4   1.7. Acceptance by Trustee 5   1.8. Committee; Absence of Committee or OKFC 5                 SECTION 2 - Payments to Executives 5           2.1. Right To Payment 5   2.2. Payment Directed By OKFC 6   2.3. Direct Payment by OKFC 6   2.4. Default Payment By Trustee 7   2.5. Limit On Payments; OKFC Obligation 7   2.6. Reporting and Withholding of Taxes 7   2.7. Missing Persons 7   2.8. Severance Agreements for Trustee 7                 SECTION 3 - Insolvency Administration 8           3.1. Insolvency 8   3.2. Claims of General Creditors 8   3.3. Omitted Payments 9 i -------------------------------------------------------------------------------- SECTION 4 - Payments to OKFC 9           4.1. General Limitation 9   4.2. Cancellation Of Benefit Obligation To Executive 9   4.3. Disposition of Income 10   4.4. Return Of Excess Assets 10                 SECTION 5 - Administration of Trust and Investment of Fund 10           5.1. In General 10   5.2. Duties and Powers of Trustee 10     (a) Control, Manage, and Invest Assets 11     (b) Implement Instructions 11     (c) Records; Reports 11     (d) Payments 11     (e) Acquire and Dispose of Assets 11     (f) Reorganizations 11     (g) Voting Trusts; Protective Committees 11     (h) Extend Due Dates 12     (i) Voting Rights 12     (j) Exercise Other Rights 12     (k) Employ Agents and Advisors 12     (l) Borrow 12     (m) Insure Assets 12     (n) Incorporate 12     (o) Custodian 12     (p) Collection 13     (q) Registration and Holding of Trust Assets 13     (r) Claims 13     (s) Execute Documents 13     (t) Other Acts 13   5.3. Limitation on Duties and Powers of the Trustee 14     (a) Custody and Protection 14     (b) Acquisitions 14     (c) Dispositions 14     (d) Accountings 14     (e) Authorized Actions 14 ii --------------------------------------------------------------------------------     (f) Ministerial and Custodial Tasks 14   5.4. Accounting by Trustee 15   5.5. Compensation and Expenses 17   5.6. Insurance 17   5.7. Carrying on a Business 17   5.8. Fiduciary Duty of Trustee 18                     SECTION 6 - Investment and Investment Managers 18             6.1. Investment of Trust Assets 18     (a) Investment Authority 18     (b) Insurance Contracts 18     (c) Related Mutual Funds 18     (d) Commingled Investment 19     (e) Short Term Investment Authority 19   6.2. Investment Direction by OKFC 19   6.3. Investment Funds 19   6.4. Investment Managers 20   6.5. Investments Following Change in Control 21   6.6. Insurance Policies and Contracts 21                 SECTION 7 - Resignation and Removal of Trustee 22           7.1. Resignation of Trustee 22   7.2. Removal of Trustee 22   7.3. Appointment of Successor 23   7.4. Duties of Predecessor Trustee and Successor Trustee 23   7.5. Expenses 23                 SECTION 8 - Amendment or Termination 24           8.1. Amendment 24   8.2. Termination 24 iii -------------------------------------------------------------------------------- SECTION 9 - Liability and Indemnification 25   9.1. Liabilities Mutually Exclusive 25   9.2. Indemnification 25                 SECTION 10 - General Provisions 26           10.1. Successor to OKFC 26   10.2. Merger of Trustee 26   10.3. Nonalienation 26   10.4. Severability 26   10.5. Governing Law 26   10.6. Notices 26   10.7. Counterparts 27   10.8. Gender and Number 27   10.9. Scope of this Agreement 27   10.10. Statutory References 27   10.11. Headings 27 iv -------------------------------------------------------------------------------- OLD KENT FINANCIAL CORPORATION EXECUTIVE BENEFIT TRUST                     This Agreement ("Trust Agreement") is made this 12th day of June, 2000, by and between Old Kent Financial Corporation ("OKFC"), a Michigan corporation, and Wachovia Bank, N.A. ("Trustee").                     WHEREAS, OKFC has established and maintains the following executive compensation plans and programs: Old Kent Executive Retirement Income Plan Old Kent Executive Thrift Plan Old Kent Deferred Compensation Plan Old Kent Directors' Deferred Compensation Plan Deferred Stock Compensation Plan of Old Kent Financial Corporation Executive Severance Agreements (each a "Severance Agreement;" collectively, the "Severance Agreements") and may adopt additional executive compensation plans in the future (each current and future plan, including each Severance Agreement, an "Executive Compensation Plan;" collectively, the "Executive Compensation Plans"); and                     WHEREAS, to facilitate meeting its obligations under the first five Executive Compensation Plans listed above, OKFC has established and maintains the following trusts: Old Kent Financial Corporation Executive Retirement Income Trust Old Kent Financial Corporation Executive Thrift Trust Old Kent Financial Corporation Deferred Compensation Trust Old Kent Financial Corporation Directors' Deferred Compensation Trust Old Kent Financial Corporation Deferred Stock Compensation Trust (collectively the "Prior Trusts") and OKFC intends to establish a similar trust with respect to the Severance Agreements; and                     WHEREAS, the Executive Compensation Plans are provided only to a select group of management and highly compensated employees (each and "Executive;" collectively, the "Executives"); and                     WHEREAS, OKFC has incurred and expects in the future to incur liability under the Executive Compensation Plans with respect to one or more of the Executives, or a beneficiary ("Beneficiary") of a deceased Executive; and --------------------------------------------------------------------------------                     WHEREAS, OKFC has determined to establish a new single trust ("Trust") as the successor to the prior trusts and as a new trust with respect to the Severance Agreements and to transfer to the Trust assets of the Prior Trusts and to contribute to the Trust additional assets to be held in the Trust, subject to the claims of creditors in the event of Insolvency, as defined in Section 3, until paid pursuant to one or more of the Executive Compensation Plans or otherwise disposed of as provided herein; and                     WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement that shall not affect the unfunded status of the Executive Compensation Plans 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 Employee Retirement Income Security Act of 1974, as amended; and                     WHEREAS, it is the intention of OKFC to make future contributions to the Trust to provide a source of funds to assist OKFC in meeting liabilities under the Executive Compensation Plans;                     NOW, THEREFORE, by this Trust Agreement the parties establish the Trust and agree that the Trust shall be comprised of the assets described herein and shall be held, administered and disposed of as follows: SECTION 1 Establishment of the Trust                     1.1          Prior Trusts; Effective Date. The Prior Trusts are hereby amended and restated to become integral parts of this Trust, and all assets of the Prior Trusts shall be assets of this Trust, effective as of June 12, 2000.                     Notwithstanding this creation of a single trust for all of the Executive Compensation Plans, the Trustee at all times shall maintain separate sub-trusts or sub-accounts for each Executive with respect to each of the Executive Compensation Plans.                     Notwithstanding any other provision in this Trust Agreement, except as otherwise expressly specified herein, the provisions of this Trust Agreement shall apply separately to each sub-trust or sub-account maintained for each separate Executive 2 -------------------------------------------------------------------------------- Compensation Plan and applicable to each Executive and Beneficiary under each Executive Compensation Plan, and the accounting provisions of Section 5.4 shall be applied in that manner.                     1.2.          OKFC Contributions. OKFC, in its sole discretion, at any time and from time to time, may make additional deposits to the Trust of cash, or other property acceptable to the Trustee, to augment the principal and to be held, administered, and disposed of by the Trustee as provided in this Trust Agreement. Prior to a "Change in Control" or a "Potential Change in Control," as such terms are defined in Exhibit A attached, neither the Trustee nor any Executive or Beneficiary shall have any right to compel additional deposits.                     Immediately prior to a Change in Control or not later than thirty (30) days following a Potential Change in Control, unless otherwise agreed by an Executive with respect to amounts potentially due to the Executive, OKFC shall make an irrevocable contribution to the Trust in an amount that, together with existing assets in the Trust, will equal one hundred percent (100%) of the sum of the amounts necessary to pay each Executive the cash "Severance Benefits" and "Gross-Up Payment," as such terms are defined in the Severance Agreements, that each Executive would be entitled to receive pursuant to the applicable provisions of each Severance Agreement. For purposes of this calculation a "Qualifying Termination," as such term is defined in each Severance Agreement, shall be deemed to occur with respect to each Executive on the same date as the Change in Control or Potential Change in Control and other assumptions shall be made regarding this calculation as specified in the Severance Agreements.                     On or before the date specified in the preceding paragraph, OKFC shall also contribute all other amounts required by the Severance Agreements and each of the other Executive Compensation Plans so that with respect to each Executive Compensation Plan the amount held in the Trust will be 100% of the sum of the amounts necessary to pay each Executive and Beneficiary all amounts that each would be entitled to receive under all of the Executive Compensation Plans. Immediately prior to a Change in Control, OKFC shall contribute an additional $100,000 to the Trust to establish an account ("Expense Account") for payment of reasonable fees and expenses of the Trustee.                     With respect to all assets of the prior trusts and with respect to each future contribution by OKFC, the Committee shall notify the Trustee of the specific amount to be allocated to each Executive's account pursuant to Section 5.4, including any amount 3 -------------------------------------------------------------------------------- contributed with respect to the Executive due to a Change in Control or Potential Change in Control.                     1.3.          Irrevocable. Prior to a Change in Control or Potential Change in Control, the Trust shall be revocable by OKFC. Except as otherwise provided herein, the Trust shall be irrevocable upon a Change in Control or Potential Change in Control. In the event that a Potential Change in Control does not become a Change in Control within two years following its occurrence, the Trust shall be revocable.                     1.4.          Grantor Trust. The Trust is intended to be a grantor trust, with OKFC as the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.                     1.5.          Limited Rights of Executive. The principal of the Trust, and any earnings thereon not distributed to OKFC, shall be held separate and apart from other funds of OKFC and, except as otherwise provided herein, shall be applied exclusively for the uses and purposes of the Executives and general creditors, and the payment of related fees and expenses, as herein set forth. No Executive or Beneficiary shall have a preferred claim on, or a beneficial ownership interest in, any assets of the Trust. The rights created under the Executive Compensation Plans and this Trust Agreement shall be unsecured contractual rights of each Executive and Beneficiary. Assets held in the Trust will be subject to the claims of OKFC's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1.                     1.6.          Determination of a Change in Control or Potential Change in Control. The highest ranking officer of OKFC shall have the duty to inform the Trustee in writing of the occurrence of a Change in Control or Potential Change in Control. If any Executive (or person acting on behalf of any Executive), other than OKFC's highest ranking officer, alleges in writing to the Trustee that a Change in Control or Potential Change in Control has occurred, the Trustee shall determine, in its sole discretion, whether a Change in Control or Potential Change in Control has occurred. Unless the Trustee has actual knowledge that a Change in Control or Potential Change in Control has occurred, or has received notice from OKFC or an Executive (or person acting on behalf of an Executive) alleging that a Change in Control or Potential Change in Control has occurred, the Trustee shall have no duty to inquire whether a Change in Control or Potential Change in Control has occurred. The Trustee may in all events rely on evidence concerning the existence of a Change in Control or Potential Change in Control that the Trustee considers reasonably reliable and sufficient for a determination. 4 --------------------------------------------------------------------------------                     1.7.          Acceptance by Trustee. The Trustee accepts its duties and obligations as Trustee hereunder, agrees to accept funds delivered to it by OKFC, and agrees to hold, manage, administer, and apply all trust assets in accordance with the terms and conditions of this Trust Agreement.                     1.8.          Committee; Absence of Committee or OKFC. The Compensation Committee ("Committee") of the Board of Directors of OKFC, or another committee designated by the Board of Directors, shall have the powers, rights, and duties of the Committee described herein. The highest ranking human resources officer of OKFC will certify to the Trustee from time to time the names of the members of the Committee. The Trustee may rely on the most recent certificate without further inquiry or verification. The Trustee also may rely on minutes and other written communications, certified by the secretary or acting secretary of the Committee or the highest ranking human resources officer of OKFC, as accurately setting forth any action or decision by the Committee.                     If for any period there are no members of the Committee, or the Committee is unable to exercise its powers and duties hereunder, the Board of Directors of OKFC shall act on behalf of, and shall have all of the powers, rights, and duties otherwise reserved to, the Committee. OKFC warrants that all directions and authorizations by the Committee, or by the Board of Directors, whether for the payment of money or otherwise, will comply with the provisions of each Executive Compensation Plan and this Trust Agreement.                     In the event, following a Change in Control, that OKFC no longer exists and there is no successor to OKFC, the Trustee shall have all of the powers and duties of OKFC and the Committee hereunder and, in its sole discretion, shall determine and make all payments from Trust assets due Executives and Beneficiaries under the Executive Compensation Plans or due general creditors under Section 3. SECTION 2 Payments to Executives                     2.1.          Right To Payment . Except as otherwise provided herein, the entitlement of an Executive or Beneficiary to benefits under the applicable Executive Compensation Plan shall be determined by the Committee, and any claim for benefits by 5 -------------------------------------------------------------------------------- an Executive or Beneficiary shall be considered and reviewed under the procedures set forth in the Executive Compensation Plan.                     2.2.          Direct Payment by OKFC. Prior to a Change in Control or Potential Change in Control OKFC shall make direct payments to each eligible Executive or Beneficiary, and following a Change in Control or Potential Change in Control, OKFC may make direct payments to each eligible Executive or Beneficiary, as benefits become due under the terms of the applicable Executive Compensation Plan, in lieu of payments by the Trustee. The Committee shall notify the Trustee of its decision to make such payments directly. The Committee may direct the Trustee in writing to reimburse OKFC from the Trust Fund, and debit the account of each Executive, for amounts paid directly to the Executive or Beneficiary by OKFC. The Trustee shall reimburse OKFC for such payments promptly after receipt by the Trustee of satisfactory evidence that OKFC has made the direct payments.                     2.3.          Default Payment By Trustee. Upon receipt of a written notice from an Executive or Beneficiary that a payment is due with respect to the Executive under an Executive Compensation Plan, and that amounts due have not been paid, the Trustee may make an independent determination, in its sole and absolute discretion, whether payments are due and if so the amount and timing of payments due the eligible Executive or Beneficiary and any other eligible Executive or Beneficiary under the applicable Executive Compensation Plan. Upon reaching an independent determination that payment is due, the Trustee shall notify OKFC in writing of its conclusion. OKFC shall have twenty (20) days from the date of mailing of the notice in which to provide the Trustee with evidence satisfactory to the Trustee that OKFC has made all payments due each Executive or Beneficiary or to serve the Trustee with a summons and complaint or petition filed by OKFC in a court of competent jurisdiction naming the Trustee and each affected Executive or Beneficiary as defendants or respondents and disputing the right to payments from the Trust. If OKFC does not respond within the time specified in the preceding sentence, the Trustee may make the payment or payments due each Executive or Beneficiary in the required amount as due. OKFC waives all rights to contest any payment by the Trustee pursuant to this Section 2.4 except in the event of intentional misconduct by the Trustee.                     The Trustee shall be compensated and reimbursed from the Trust for its reasonable fees and expenses, including expenses for advice from independent accountants and attorneys retained by it, in connection with an independent determination and payment under this section. 6 --------------------------------------------------------------------------------                     Nothing in this section shall require the Trustee to undertake an independent determination or payment. The Trustee may elect to leave any claim for unpaid benefit payments to be resolved directly between OKFC and the Executive or Beneficiary.                     2.4.          Payment Directed By OKFC. Except as otherwise provided herein, following a Change in Control or Potential Change in Control, the Trustee shall make the payment or payments to each eligible Executive or Beneficiary, debiting each payment from the Executive's account.                     2.5.          Limit On Payments; OKFC Obligation. In no event shall a payment from the Trust to or with respect to an Executive under an Executive Compensation Plan exceed the amount allocated to the Executive's account at the time of the payment. The Trustee shall notify OKFC if the assets allocated to an Executive's account are insufficient to make a required payment from the Trust. OKFC shall be solely responsible for, and shall make as due, all required payments to or with respect to an Executive under the applicable Executive Compensation Plan that are not made from the Trust.                     2.6.          Reporting and Withholding of Taxes. The Trustee shall withhold, report, and remit any federal, state, or local taxes that may be required to be withheld with respect to any payment of benefits from the Trust and shall pay amounts withheld to the appropriate taxing authorities or shall determine that such amounts have been reported, withheld, and paid by OKFC.                     2.7.          Missing Persons. If the recipient entitled to any payment to be made by the Trustee from the Trust cannot be located directly by the Trustee through reasonable efforts, the Trustee shall notify the Committee of that fact. The Trustee thereafter shall have no obligation to search for or ascertain the whereabouts of any payee under this Trust Agreement.                     2.8.          Documentation and Information for Trustee. OKFC at all times shall provide the Trustee with current copies of all Executive Compensation Plans for which the Trust is established and maintained from time to time, including amendments, and shall notify the Trustee when any Executive Compensation Plan is modified or terminated. At least annually, OKFC also shall provide The Trustee with updated information concerning the amounts payable with respect to each Executive under each Executive Compensation Plan and the underlying information necessary for calculating the amounts due. 7 -------------------------------------------------------------------------------- SECTION 3 Insolvency Administration                     3.1.          Insolvency. The Trustee shall cease payment of benefits from the Trust to any Executive or Beneficiary if OKFC or any subsidiary of OKFC that employs one or more Executives (individually a "Participating Employer") is Insolvent. A Participating Employer shall be considered "Insolvent" for purposes of this Trust Agreement if the Participating Employer is (a) unable to pay its debts as they become due, (b) subject to a pending proceeding as a debtor under the United States Bankruptcy Code or (c) determined to be insolvent by a governing federal or state regulatory agency.                     3.2.          Claims of General Creditors. At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Participating Employer under federal and state law as set forth below.                               (a)          The Board of Directors and the highest ranking officer of the Participating Employer shall have the duty to inform the Trustee in writing of the Participating Employer's Insolvency. If a person claiming to be a creditor of a Participating Employer alleges in writing to the Trustee that the Participating Employer has become Insolvent, the Trustee shall determine whether the Participating Employer is Insolvent and, pending such determination, the Trustee shall discontinue payments from the Trust to Executives and Beneficiaries.                               (b)           Unless the Trustee has actual knowledge of a Participating Employer's Insolvency, or has received notice from a Participating Employer or a person claiming to be a creditor alleging that a Participating Employer is Insolvent, the Trustee shall have no duty to inquire whether a Participating Employer is Insolvent. The Trustee may in all events rely on such evidence concerning a Participating Employer's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning a Participating Employer's solvency.                               (c)          If at any time the Trustee has determined that a Participating Employer is Insolvent, the Trustee shall discontinue payments to Executives and Beneficiaries and shall hold the assets of the Trust for the benefit of the Participating Employer's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of any Executive or Beneficiary to pursue rights as a general creditor of the Participating Employer with respect to benefits due under the applicable Executive Compensation Plan or otherwise. 8 --------------------------------------------------------------------------------                               (d)          The Trustee shall resume payments from the Trust to Executives and Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Participating Employer is not Insolvent or is no longer Insolvent.                     3.3.          Omitted Payments. Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 and subsequently resumes such payments, the first payments following such discontinuance shall include the aggregate amount of all payments due to Executives and Beneficiaries under the terms of the Executive Compensation Plans for the period of such discontinuance, plus interest at the rates earned in the Kent Money Market Fund in the Old Kent Thrift Plan or a similar fund maintained by the Trustee for such period, less the aggregate amount of any payments made by OKFC in lieu of the payments provided for hereunder during the period of discontinuance. SECTION 4 Payments to OKFC                     4.1.          General Limitation. Except as otherwise provided in this Trust Agreement, including, without limitation, as provided in this Section 4 and in Sections 2.3, 3, and 8.2, OKFC shall have no right or power to direct the Trustee to return to OKFC or to divert to others any of the Trust assets before payment of all benefits has been made to the Executives and Beneficiaries pursuant to the terms of this Trust Agreement and the applicable Executive Compensation Plans.                     4.2.          Cancellation Of Benefit Obligation To Executive. Prior to a Change in Control or a Potential Change in Control, the Trustee shall liquidate (if necessary) and distribute to OKFC the Trust Fund assets allocated to an Executive's account upon written notice from the Committee certifying that the Executive is no longer entitled to benefits under one or more Executive Compensation Plans. The notice shall specify the date the Executive ceases to be entitled to benefits. The Trustee shall distribute the assets to OKFC no earlier than six (6) months subsequent to the specified date; provided, however, that if a Potential Change in Control or Change in Control occurs within the six (6) month period, the Trustee shall not make any distributions under this paragraph to OKFC, prior to satisfaction of all benefit obligations to all Executives and Beneficiaries under the Executive Compensation Plans. 9 --------------------------------------------------------------------------------                     4.3.          Disposition of Income. Prior to a Change in Control or a Potential Change in Control, all income of this Trust, net of expenses and taxes payable by the Trust, shall be returned to OKFC.                     4.4.          Return Of Excess Assets. Prior to a Change in Control or a Potential Change in Control, in the event the value of the assets in the Trust, determined as of each December 31 pursuant to the accounting procedures set forth herein, exceeds one hundred percent (100%) of the amount necessary to pay each Executive the amount the Executive could be entitled to under the applicable Executive Compensation Plan, determined as of each December 31, the Trustee shall pay to OKFC so much of the excess amount as is requested by OKFC within ninety (90) days following the applicable December 31 determination date after first assuring that the Expense Account has at least $100,000 in it. To the extent the Expense Account has less than $100,000 in it, the Trust shall first replenish the Expense Account prior to returning any excess amount to OKFC. In calculating any excess amount, the Trustee shall exclude any amounts set aside in the Expense Account. After either a Change in Control or a Potential Change in Control, the preceding sentence shall apply, but the percentage shall be increased to one hundred twenty-five percent (125%). SECTION 5 Administration of Trust and Investment of Fund                     5.1.          In General. The Trust and all Trust assets shall be administered by the Trustee pursuant to all of the express and implied duties and powers and subject to all express and implied conditions and limitations contained in or derived from the provisions of this Trust Agreement and conferred and imposed by applicable law. All rights associated with administration of the Trust and with Trust assets shall be exercised by the Trustee, the Committee, or OKFC or a person designated by the Trustee, the Committee, or OKFC, as provided herein, and in no event shall such rights be exercisable by or rest with any Executive or Beneficiary, except to the extent approval of an amendment or termination of the Trust Agreement or of the removal of the Trustee and appointment of a successor Trustee is reserved to an Executive.                     5.2.          Duties and Powers of Trustee. In addition to the duties and powers set forth in other provisions of this Trust Agreement, and subject to all applicable 10 -------------------------------------------------------------------------------- conditions and limitations, the Trustee shall have the following duties and powers with respect to the Trust:                               (a)          Control, Manage, and Invest Assets. To hold, manage, improve, repair, control and invest all real and personal property forming part of the Trust;                               (b)          Implement Instructions. To carry out the instructions of OKFC and the Committee that are consistent with the terms of this Trust Agreement and the Severance Agreements;                               (c)          Records; Reports. To maintain records and to prepare and file reports required by law to be filed by the Trustee or required by agreement with OKFC;                               (d)          Payments. To make payments and distributions from the fund as provided in this Trust Agreement, including benefits that have become payable under the applicable Severance Agreements pursuant to Section 2 or that are required to be made to the general creditors of OKFC as set forth in Section 3;                               (e)          Acquire and Dispose of Assets. To purchase, sell, convey, exchange, lease, convert, transfer, divide, repair, partition, consent to partition, or otherwise acquire or dispose of any property at any time held in trust hereunder by public or private transaction, for the consideration and upon the terms and conditions determined by the Trustee;                               (f)          Reorganizations. To take any action and to abstain from taking any action with respect to any reorganization, consolidation, merger, dissolution, recapitalization, refinancing, liquidation, bankruptcy, composition, arrangement, readjustment of the financial structure, sale, sale of assets or any other program or change affecting any property constituting a part of the Trust and in connection therewith to delegate the Trustee's discretionary powers and to pay assessments, subscriptions, and other charges from the Trust;                               (g)          Voting Trusts; Protective Committees. To deposit any property in any voting trust, or with any protective, reorganization or similar committee, or with depositories designated thereby; to delegate power thereto, and to pay or agree to pay part of the expenses and compensation and any assessments levied with respect to the deposited property; 11 --------------------------------------------------------------------------------                               (h)          Extend Due Dates. To extend the time of payment of any obligation held by it;                               (i)          Voting Rights. To exercise all voting rights with respect to property held in the Trust directly or by proxy, with or without the power of substitution, and to delegate the Trustee's powers and discretions with respect to such property to any such proxy;                               (j)          Exercise Other Rights. To exchange securities, to sell or exercise subscription, conversion, and other rights and options, and make payments from the Trust in connection therewith, with respect to any property held in the Trust;                               (k)          Employ Agents and Advisors. To engage as reasonably necessary agents, attorneys, accountants, and other persons (who also may be employed by OKFC or the Committee), to delegate duties and discretionary powers to such persons, and to reasonably rely upon information and advice furnished by such persons; provided that each delegation and acceptance of duties and powers shall be in writing; and provided further that the Trustee may not delegate its responsibilities for the management and control of the assets of the Trust;                               (l)          Borrow. To borrow money for the purposes and benefit of the Trust, without binding itself individually, and in connection with any borrowing to issue a promissory note or other evidence of the debt, and to secure repayment by pledging any property held in the Trust; provided that prior to a Change in Control, any borrowing shall be subject to approval by the Committee;                               (m)          Insure Assets. To insure Trust assets when appropriate (as determined by the Trustee in its discretion) through a policy or contract of casualty insurance;                               (n)          Incorporate. To incorporate or form another entity (or participate in an incorporation or formation of another entity) under the laws of any state for the purpose of acquiring and holding title to any property that is part of the Trust;                               (o)          Custodian. To keep on deposit with a custodian in the United States any part of the Trust; provided that prior to a Change in Control, any deposit with another custodian shall be made only with the prior approval of the Committee; 12 --------------------------------------------------------------------------------                               (p)          Collection. To demand, collect, and receive the principal, dividends, interest, other income and all other money or property due the Trust;                               (q)          Registration and Holding of Trust Assets. To register investments in its own name or in the name of a nominee; to hold any investment in bearer form; and to combine certificates representing securities with certificates of the same issue held by it in other fiduciary capacities; to deposit or to arrange for the deposit of such securities with any depository or other securities clearing entity, even though, when so deposited, such securities may be held in the name of the nominee of such depository with other securities deposited therewith by other persons; or to deposit or to arrange for the deposit of any securities issued or guaranteed by the United States government, or any agency or instrumentality thereof, including securities evidenced by book entries rather than by certificates, with the United States Department of the Treasury or a Federal Reserve Bank, even though, when so deposited, such securities may not be held separate from securities deposited therein by other persons; provided, however, that no securities held in the Trust shall be deposited with the United States Department of the Treasury or a Federal Reserve Bank or other depository in the same account as any individual property of the Trustee, and provided, further, that the books and records of the Trustee shall at all times show that all such securities are part of the Trust;                               (r)          Claims. To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, to commence or defend suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustee shall not be required to take any such action unless it shall have been indemnified by OKFC to its reasonable satisfaction against liability or expenses it may incur;                               (s)          Execute Documents. To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers granted herein; and                               (t)          Other Acts. To perform all other acts the Trustee deems necessary, suitable, or desirable for the control and management of the Trust and discharge of its duties. 13 --------------------------------------------------------------------------------                     5.3.          Limitation on Duties and Powers of the Trustee. Unless properly delegated and assumed by agreement of the Trustee, the Trustee shall not be required to exercise a duty or power of OKFC, the Committee, or any other fiduciary under this instrument.                     If an Investment Manager is appointed to manage and invest some or all of the Trust assets, the Investment Manager shall have, and the Trustee shall not have, the express and implied duties and powers under this Trust Agreement with respect to investment of Trust assets subject to the Investment Manager's control. The Trustee shall have no obligation or power to exercise discretionary authority or control with respect to investment of the assets subject to management by the Investment Manager or to render advice regarding the investment of such assets. The Trustee shall not be liable for the investment performance of the assets subject to management by the Investment Manager. The powers and duties of the Trustee with respect to such assets shall be limited to the following:                               (a)          Custody and Protection. To act as custodian of the Trust assets not transferred to the custody of the Investment Manager or another custodian, and to protect the assets in its custody from loss by theft, fire, or other cause;                               (b)          Acquisitions. To acquire additional assets for the Trust in accordance with the direction of the Investment Manager;                               (c)          Dispositions. To sell or otherwise dispose of Trust assets in accordance with the direction of the Investment Manager;                               (d)          Accountings. To account for and render accountings with respect to the Trust, except for assets held by another custodian;                               (e)          Authorized Actions. To take authorized actions for and on behalf of the Trust in accordance with the direction of the Investment Manager; and                               (f)          Ministerial and Custodial Tasks. To perform other ministerial and custodial tasks in accordance with the direction of the Investment Manager.                     If Trust assets are transferred to another custodian, that custodian shall have, and the Trustee shall not have, the duties and powers set forth under Section 5.2 with respect to those assets. 14 --------------------------------------------------------------------------------                     The Trustee shall have no liability or responsibility for any loss resulting to the Trust by reason of the sale or purchase of any investment directed by an Investment Manager or OKFC or by reason of the failure to take any action with respect to any investment that was acquired pursuant to any such direction in the absence of further directions of such Investment Manager or OKFC.                     Notwithstanding anything in this Agreement to the contrary, the Trustee shall be indemnified and saved harmless by OKFC from and against any and all liability to which the Trustee may be subjected by carrying out any investment directions of an Investment Manager or OKFC, including all expenses reasonably incurred in its defense in the event OKFC fails to provide such defense; provided, however, the Trustee shall not be so indemnified if it participates knowingly in, or knowingly undertakes to conceal, an act or omission of an Investment Manager or OKFC, having actual knowledge that such act or omission is a breach of a fiduciary duty; and provided further, that the Trustee shall not be deemed to have knowingly participated in or knowingly undertaken to conceal an act or omission of an Investment Manager or OKFC with knowledge that such act or omission was a breach of fiduciary duty by merely complying with directions of an Investment Manager or OKFC or by failure to act with respect to assets subject to the investment control of an Investment Manager or OKFC in the absence of directions from the Investment Manager or OKFC. The Trustee may rely upon any order, certificate, notice, direction or other documentary confirmation purporting to have been issued by the Investment Manager or OKFC which the Trustee believes to be genuine and to have been issued by the Investment Manager or OKFC. The Trustee shall not be charged with knowledge of the appointment or termination of the appointment of any Investment Manager by OKFC until it receives written notice thereof from OKFC.                     5.4.          Accounting by Trustee.                               (a)          Pursuant to and as agreed under Section 5.2(c), the Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between OKFC and Trustee. As soon as reasonably practicable following the close of each calendar year and each other valuation date agreed by OKFC and the Trustee, and after the removal or resignation of the Trustee, the Trustee shall deliver to the Committee an account of its administration of the Trust during such period, or during the period from the close of the last valuation period to the date of the removal or resignation, 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 15 -------------------------------------------------------------------------------- receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or valuation period, or as of the date of such removal or resignation, as the case may be.                               (b)          The Committee may object to an accounting within 180 days after it is furnished and require that it be settled by an audit by a qualified, independent certified public accountant. The auditor shall be chosen by the Trustee from a list of at least three such accountants furnished by the Committee at the time the audit is requested. Either the Committee or the Trustee may require that the account be settled by a court of competent jurisdiction, in lieu of or in conjunction with the audit. All expenses of any audit or court proceedings, including reasonable attorney fees, shall be allowed as administrative expenses of the Trust.                               (c)          If the Committee does not object to an accounting within the time provided, the account shall be deemed settled and final for the period covered by it. Notwithstanding the preceding sentence, Trustee agrees it will, at reasonable cost, revise any accounting if determined by OKFC to be necessary due to a latent error or omission and will do so at no cost to the extent the error or omission was the fault of the Trustee.                               (d)          The Trustee shall maintain a recordkeeping account in the name of each Executive which, pursuant to rules established by the Committee, will reflect with respect to each Executive:                                         (i)          Deposits made by OKFC to the Trust for the Executive, pursuant to Section 1 herein;                                         (ii)          Income, losses, and appreciation or depreciation in the value of Trust assets resulting from investment of the Trust;                                         (iii)          Payments made from the Trust to the Executive or Beneficiary and to OKFC; and                                         (iv)          Any other amounts charged to the accounts of the Executive, including administrative and investment expenses as described in Section 5.5 herein.                               Each Executive's account shall be a recordkeeping account only and shall reflect on undivided contingent interest in assets of the Trust and shall not require any actual segregation or separate investment of particular assets. To the extent 16 -------------------------------------------------------------------------------- there are assets in the Trust, other than income or excess assets to be repaid to OKFC under Section 4, that exceed the amounts necessary to pay each Executive the amount the Executive could be entitled to under the applicable Executive Compensation Plan, determined as of each December 31, the excess shall be allocated to the accounts of all Executives in proportion to the amount each Executive could be entitled to as of that date.                               (e)          OKFC and the Trustee may agree that the accounts under (d) above shall be maintained by the Committee, or such other person as may be designated by the Committee, rather than the Trustee.                     5.5.          Compensation and Expenses. OKFC shall pay directly reasonable compensation of the Trustee as may be agreed upon from time to time between the Committee and the Trustee, and all expenses, except those specifically described in the last sentence of this paragraph, reasonably incurred by the Trustee and the Committee in the administration of this Trust, including compensation of agents, actuaries, attorneys, accountants, and other persons employed by the Trustee or the Committee and including indemnification costs described in Section 9.2. To the extent such compensation and expenses remain unpaid thirty (30) days after mailing of an invoice for same by the Trustee to OKFC, the Trustee may notify OKFC of the intent to pay the amounts due from the Trust. If any amount remains unpaid fifteen (15) days after mailing of the notice of intent to pay from the Trust, the Trustee may pay such compensation and expenses from the Trust. Unpaid compensation, expenses, and indemnification costs shall be charged first against the Expense Account, until exhausted, and then against remaining trust assets proportionately to each account. Expenses solely attributable to investment of the Trust assets, such as investment manager fees, load or other commission fees, brokerage, postage, express or insurance charges, and stock transfer stamps expense, shall be paid from the Trust to the extent not paid directly by OKFC.                     5.6.          Insurance. If an insurance policy or contract is held as an asset of the Trust, the Trustee shall have all powers and incidents of ownership of the policy or contract, but shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy to anyone other than to a successor Trustee or OKFC except as a means of making payments to an Executive or Beneficiary, or to loan to any person the proceeds of any borrowing against such policy.                     5.7.          Carrying on a Business. 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 17 -------------------------------------------------------------------------------- gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.                     5.8.          Fiduciary Duty of Trustee. The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. SECTION 6 Investment and Investment Managers                     6.1.          Investment of Trust Assets.                               (a)          Investment Authority. Trust assets may be invested and reinvested in any readily marketable common and preferred stocks; bonds; notes; debentures, including convertible stocks and securities but not including any stock or security of the Trustee other than a de minimis amount held in a mutual fund; certificates of deposit or demand or time deposits, including any such deposits with the Trustee; notes; commercial paper; obligations of the United States; warrants; options; other securities; and shares of investment companies and mutual funds and in other investments specifically authorized herein. Trust assets may be invested in securities, including stock or rights to acquire stock, or obligations issued by OKFC or any successor to OKFC, to the extent de minimis amounts are held in a collective or mutual fund or similar common investment vehicle in which trust assets are invested. Trust assets also may be invested in securities, including stock or rights to acquire stock, or obligations issued by OKFC or any successor to OKFC, to the extent permitted by an Executive Compensation Plan, but such securities or obligations shall be held and accounted for only with respect to that Executive Compensation Plan and the related sub-trusts and sub-accounts.                               (b)          Insurance Contracts. Trust assets may be invested in guaranteed investment contracts and other contracts, policies and funds of insurance companies. The Trustee shall have the right to purchase an insurance policy or an annuity to fund the benefits of any Executive Compensation Plan.                               (c)          Related Mutual Funds. Trust assets may be invested and reinvested through the medium of any mutual fund that may be established and maintained 18 -------------------------------------------------------------------------------- by the Trustee or any affiliate of the Trustee or with respect to which the Trustee or any affiliate may provide investment advisory or other services for a fee.                               (d)          Short Term Investment Authority. Trust assets may be held uninvested only for such reasonable periods as are necessary to invest new assets deposited in Trust or to clear investment transactions and reinvest the proceeds. The Trustee may hold reasonable amounts of assets invested only in an appropriate daily or other short-term investment alternative for a reasonable period of time pending payment of benefits, payment of expenses or other distributions, or pending availability of other investments.                               (e)          Purchase and Sale of Options. Trust assets may be invested by purchasing put options not exceeding the number of shares of optioned stock actually held by the Trust, by selling put options and maintaining liquidity to the extent necessary pending the exercise or lapse of the option, and by selling call options, but not in a market opening or market closing transaction, not exceeding the number of shares of optioned stock actually held by the Trust.                     6.2.          Investment Direction by OKFC. Prior to a Change in Control or Potential Change in Control, OKFC, through the Committee or one or more employees delegated investment responsibility, may direct investment of all or any part of the assets among investments permitted herein. Prior to a Change in Control or Potential Change in Control, OKFC may establish guidelines, objectives, and restrictions regarding the investment of assets held in the Trust. The Trustee shall be under no duty to question, and shall not incur any liability on account of following, any direction of OKFC prior to a Change in Control. The Trustee shall be under no duty to review the investment guidelines, objectives, and restrictions established, or the specific investment directions given by OKFC, for the Trust or any separate investment account or to make suggestions to OKFC in connection therewith.                     Prior to a Change in Control or Potential Change in Control, OKFC shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by OKFC in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity.                     6.3.          Investment Funds. Prior to a Change in Control or Potential Change in Control, OKFC may direct the Trustee to establish separate investment accounts within 19 -------------------------------------------------------------------------------- the Trust. The Trustee shall allocate to each investment account such portion of the assets of the Trust as OKFC may direct from time to time.                     Except as otherwise provided herein, the Trustee shall not be required to establish separate investment accounts in the absence of direction by OKFC, and may administer and invest the deposits made to the Trust by OKFC as one fund.                     6.4.          Investment Managers. Prior to a Change in Control, OKFC, from time to time, may appoint one or more independent investment managers (each an "Investment Manager"), pursuant to a written investment management agreement describing the powers and duties of the Investment Manager and providing for the delivery of a written acknowledgment from the Investment Manager to OKFC and Trustee that it is a fiduciary under this Trust Agreement, to direct the investment and reinvestment of all or any portion of the Trust. As used herein, "Investment Manager" shall have the meaning specified in Section 3(38) of ERISA. OKFC in its sole discretion, also may direct the Trustee to transfer the assets to be managed and invested by an Investment Manager to another custodian approved by OKFC. The Investment Manager shall manage and invest, and may direct the Trustee or other custodian to invest and reinvest, that portion of the Trust assets under the control of that Investment Manager in investments permitted herein. OKFC shall determine the assets of the Trust to be under the control of each Investment Manager from time to time and shall issue appropriate instructions in writing to the Trustee.                     OKFC shall furnish the Trustee with written notice of the appointment of each Investment Manager and of the termination of any such appointment. The notice shall specify the assets to be managed by the Investment Manager. The Trustee shall be fully protected in relying upon the appointment until it receives written notice from OKFC that the appointment has been terminated or modified.                     OKFC may provide an Investment Manager investment guidelines to be followed by the Investment Manager from time to time.                     Notwithstanding the foregoing, the Trustee, without obtaining prior approval or direction from an Investment Manager, and in the absence of contrary direction from the Investment Manager, shall invest cash balances held by it from time to time in short term cash equivalents including, but not limited to, the medium of any short term common, collective or commingled trust fund established and maintained by the Trustee; U.S. Treasury Bills; commercial paper, including forms of commercial paper available through the Trustee; certificates of deposit, including certificates issued by the Trustee; and similar securities, with a maturity not to exceed one year, and shall sell such short term 20 -------------------------------------------------------------------------------- investments as necessary to carry out the instructions of an Investment Manager when received.                     6.5.          Investments Following Change in Control. Following a Change in Control, the Trustee shall have sole and absolute discretion in the management and investment of the fund and in exercising investment responsibility shall have all the duties and powers set forth under Section 5.2. Following a Change in Control, OKFC shall not have any of the express or implied duties and powers contained in this Trust Agreement with respect to the control, management and investment of Trust assets and shall not have any power to approve or withhold approval of any action by the Trustee with respect to the control, management and investment of the Trust. Upon a Change in Control the appointment of any Investment Manager and any related custodian shall terminate and the Trustee shall have the sole right to retain or discharge Investment Managers and related custodians, and to determine the terms of the engagement of any Investment Manager and related custodian.                     In investing Trust assets following a Change in Control, the Trustee shall consider the need for matching the assets with liabilities and probable payments to Executives under the Executive Compensation Plans and shall, subject to Section 3, act solely in the best interests of the Executives and Beneficiaries.                     The Trustee shall have the right, in its sole discretion, to delegate its investment responsibility to an Investment Manager, which may be an affiliate of the Trustee. In the event the Trustee appoints an affiliated Investment Manager, the Trustee shall remain, at all times responsible for the acts of the affiliated Investment Manager.                     6.6.          Insurance Policies and Contracts. To the extent that the Trustee is directed by OKFC prior to a Change of Control to invest part or all of the Trust in insurance contracts pursuant to Section 6.1(b):                               (a)          The type and amount thereof shall be specified by OKFC. The Trustee shall be under no duty to make inquiry as to the propriety of the type or amount so specified.                               (b)          Each insurance contract issued shall provide that the Trustee shall be the owner thereof with the power to exercise all rights, privileges, options and elections granted by or permitted under such contract or under the rules of the insurer. The exercise by the Trustee of any incidents of ownership under any contract shall, prior 21 -------------------------------------------------------------------------------- to a Change of Control, be subject to the direction of OKFC. After a Change of Control, the Trustee shall have all such rights.                               (c)          The Trustee shall have no power to name a beneficiary of the contract other than the Trust, to assign the contract (as distinct from conversion of the contract to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against an insurance contract held in the Trust.                               (d)          No insurer shall be deemed to be a party to the Trust and an insurer's obligations shall be measured and determined solely by the terms of contracts and other agreements executed by the insurer. SECTION 7 Resignation and Removal of Trustee                     7.1.          Resignation of Trustee. Prior to a Change in Control or a Potential Change in Control, the Trustee may resign at any time by written notice to OKFC. The resignation shall be effective sixty (60) days after receipt of the notice unless OKFC and the Trustee agree otherwise. Except as provided in the following sentence, after either a Change in Control or a Potential Change in Control, the Trustee may resign only upon the appointment of a successor Trustee. The Trustee shall resign effective as soon as a successor Trustee is appointed in the event the Trustee actually or potentially has a conflict of interest with respect to OKFC or any related entity or affiliate of OKFC. For this purpose a conflict of interest shall exist if the Trustee or any related entity or affiliate enters into negotiations concerning a merger with OKFC or acquisition of OKFC or any related entity or announces a tender offer for OKFC.                     7.2.          Removal of Trustee. Prior to a Change in Control or a Potential Change in Control, the Trustee may be removed by OKFC by written notice to the Trustee. The removal shall be effective sixty (60) days after receipt of the notice or upon shorter notice accepted by the Trustee. Subsequent to either a Change in Control or a Potential Change in Control, the Trustee may be removed by OKFC only with the consent of a majority of the Executives and Beneficiaries who remain entitled to benefits under the Executive Compensation Plans at such time. 22 --------------------------------------------------------------------------------                     7.3.          Appointment of Successor. Subject to Sections 7.1 and 7.2 herein, if the Trustee resigns or is removed, a successor which is independent of OKFC shall be appointed by OKFC. If a timely appointment is not made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. If a Trustee desires to resign or is removed following any Change in Control or Potential Change in Control, a successor Trustee, which shall be the trust department of a bank or trust company ranked among the 25 largest banks in size of total assets in the United States, shall be appointed by OKFC with the consent of a majority of the Executives and Beneficiaries then subject to the Trust. In the event OKFC does not appoint a successor Trustee, the Trustee may apply to a court of competent jurisdiction for appointment of a successor Trustee or for instructions. The appointment of the successor shall be effective when accepted in writing by the new Trustee or as of such later date or dates when Trust assets are delivered to the successor Trustee.                     7.4.          Duties of Predecessor Trustee and Successor Trustee. Upon the appointment of a successor Trustee, the resigning or removed Trustee shall transfer and deliver the assets of the Trust to such successor after reserving such reasonable amounts as it shall deem necessary to provide for any expenses, fees, or taxes then or thereafter chargeable against the Trust. A Trustee that resigns or is removed shall promptly furnish to the Committee and the successor Trustee a final account of its administration of the Trust. A successor Trustee shall succeed to all rights in and ownership of the predecessor Trustee in the assets of the Trust and the predecessor Trustee shall deliver the property comprising the Trust to the successor Trustee together with any instruments of transfer, conveyance, assignment, and further assurances as the successor Trustee may reasonably require. Each successor Trustee shall have all the powers, rights, and duties conferred by this Trust Agreement as if named the initial Trustee. Subject to applicable law, no Trustee shall be personally liable for any act or failure to act of a predecessor or successor Trustee.                     7.5.          Expenses. All reasonable expenses of any resigning or removed Trustee, including the reasonable cost of any court proceeding deemed necessary by the resigning or removed Trustee, shall be administrative expenses of the Trust. 23 -------------------------------------------------------------------------------- SECTION 8 Amendment or Termination                     8.1.          Amendment.                               (a)          Prior to a Change in Control or a Potential Change in Control, this Trust Agreement may be amended by a written instrument executed by the Trustee and OKFC. The Trust may not be amended following a Change in Control or Potential Change in Control without the written consent of a majority of the Executives and Beneficiaries who remain entitled to benefits under the Executive Compensation Plans at such time except to the extent, in the opinion of counsel independent of OKFC, such amendment is necessary to protect the tax status or ERISA status of the Trust. Notwithstanding the foregoing, no such amendment shall conflict with the terms of any Executive Compensation Plan or shall make the Trust revocable after it has become irrevocable.                               (b)          The powers, duties and liabilities of the Trustee and any Investment Manager under this Trust Agreement cannot be changed without their written consent.                     8.2.          Termination.                               (a)          The Trust shall terminate, and all the rights, titles, powers, duties, discretions, and immunities imposed on or reserved to the Trustee, OKFC, the Committee, the Board of Directors, and any Investment Managers shall terminate with respect to the Trust, upon the earlier of: (i) the date all benefits payable to Executives and Beneficiaries under the Executive Compensation Plans have been paid; or (ii) the date mutually agreed between OKFC (or the Trustee after a Change in Control or Potential Change in Control) and all Executives who remain entitled to benefits under the Executive Compensation Plans at such time; provided, however, that if any Executive or Beneficiary has an outstanding claim against OKFC regarding his or her benefits under an Executive Compensation Plan, whether through a complaint filed with a court or through a dispute submitted for arbitration, the Trust shall not terminate with respect to the amounts held in the Executive's account until the claim has been resolved, until all assets held in the Executive's account have been distributed, or until the Executive agrees to the termination.                               (b)          Upon termination of this Trust, the Trustee shall continue to have such of the powers provided in this Trust Agreement as are necessary or desirable 24 -------------------------------------------------------------------------------- for the orderly liquidation and distribution of the Trust assets. Upon termination of the Trust, all assets remaining in the Trust shall be returned to OKFC. SECTION 9 Liability and Indemnification                     9.1.          Liabilities Mutually Exclusive. Except as otherwise provided herein or by applicable law, OKFC, the Trustee, the Committee, the Board of Directors, and each member thereof and each Investment Manager shall be responsible only for its or their own acts or omissions.                     9.2.          Indemnification. OKFC hereby agrees to indemnify and hold harmless the Trustee from and against all losses, damages, liabilities, claims, costs, and expenses, including reasonable attorneys' fees, that the Trustee may incur by reason of the negligence or willful misconduct of OKFC or the Committee. In making any distributions and taking any other action hereunder, the Trustee may rely upon and shall be fully protected in relying upon, any notice, certificate, or other paper or written document provided by OKFC or the Committee and reasonably believed to be genuine.                     Following a Change in Control or Potential Changes in Control, all duties and responsibilities of the Trustee shall be exercised in its sole and absolute discretion, and the Trustee shall be protected from any loss or liability in the good faith exercise of that discretion. Therefore, after the occurrence of a Change in Control or Potential Change in Control, OKFC agrees that it will indemnify and hold harmless the Trustee from and against all losses, damages, liabilities, claims, costs and expenses, including reasonable attorneys' fees, that the Trustee may incur by reason of its good faith acts or omission and exercise of its discretion. Indemnification shall not apply to acts or omissions in bad faith or to willful misconduct.                     The indemnification obligation described in this Section 9.2 shall survive and continue after the termination of the Trust and may not be altered or amended with respect to any current or former Trustee without its written consent. 25 -------------------------------------------------------------------------------- SECTION 10 General Provisions                     10.1          Successor to OKFC. In the event OKFC is succeeded by another entity, with or without a Change in Control, references to OKFC in this Trust Agreement shall refer to the successor.                     10.2.          Merger of Trustee. If the Trustee shall be merged or consolidated with, or shall sell or transfer substantially all of its assets and business to another corporation, or shall be in any manner reorganized or reincorporated, then the successor corporation shall continue to be the Trustee pending subsequent resignation or removal as provided in Section 7.                     10.3.          Nonalienation. Benefits payable to Executives and Beneficiaries under this Trust Agreement shall not be subject to assignment, conveyance, transfer, anticipation, pledge, alienation, sale, encumbrance, or charge, whether voluntary or involuntary, by the Executive or Beneficiary, even if directed under a qualified domestic relations order or other divorce order. An interest in an amount promised shall not provide collateral or security for a debt of an Executive or Beneficiary or be subject to garnishment, execution, assignment, levy, or to another form of judicial or administrative process or to the claim of a creditor of an Executive or Beneficiary, through legal process or otherwise. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or to otherwise dispose of benefits payable, before actual receipt of the benefits, or a right to receive benefits, shall be void and shall not be recognized.                     10.4.          Severability. 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.                     10.5.          Governing Law. This Trust Agreement shall be governed by and construed in accordance with the laws of the state of Michigan, to the extent not preempted by federal law.                     10.6.          Notices. Notices pursuant to this Trust Agreement shall be given by first class or priority U.S. mail or by commercial express delivery and shall be addressed to: 26 --------------------------------------------------------------------------------   OKFC: Old Kent Financial Corporation Attn: Senior Vice President - HR Benefits Department 1830 East Paris, S.E. Grand Rapids, MI 49546         Trustee: Wachovia Bank, N.A. Attn: Executive Services NC31013 100 N. Main Street Winston-Salem, NC 27102                     10.7.          Counterparts. This Trust Agreement and any amendment hereto may be executed in two or more counterparts.                     10.8.          Gender and Number. Except when otherwise indicated by the context, words denoting the masculine gender shall include the feminine, the singular shall include the plural, and the plural shall include the singular.                     10.9.          Scope of this Agreement. This Trust Agreement will be binding on all persons entitled to benefits hereunder and their respective heirs and legal representatives, and upon OKFC, the Committee, the Trustee, and any Investment Managers, and their successors and assigns.                     10.10.          Statutory References. Any references in this Trust Agreement to a section of the Internal Revenue Code or any other statute or regulation shall include any comparable section or sections that amends, supplements, or supersedes that section.                     10.11.          Headings. The headings contained herein are inserted only as a matter of convenience and for reference and in no way define, limit, enlarge, or describe the scope or intent of the Trust or the construction of any provision thereof. 27 --------------------------------------------------------------------------------                     IN WITNESS WHEREOF, this Trust Agreement is executed on behalf of Old Kent Financial Corporation and the Trustee by their respective authorized officers, as of the day and year set forth above.   OLD KENT FINANCIAL CORPORATION By/s/R. Jay Palmer -------------------------------------------------------------------------------- Its Senior Vice President --------------------------------------------------------------------------------           WACHOVIA BANK, N.A. By/s/John N. Smith -------------------------------------------------------------------------------- Its Senior Vice President -------------------------------------------------------------------------------- 28 -------------------------------------------------------------------------------- EXHIBIT A                     "Change in Control" of OKFC means an occurrence of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act. Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control of OKFC shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied:                               a)          Any Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of OKFC representing twenty-five percent (25%) or more of the combined voting power of OKFC's then outstanding securities; or                               b)          The failure at any time of the Continuing Directors to constitute at least a majority of the Board of Directors of OKFC; and for this purpose, the term "Continuing Directors" means the individuals who were either (i) first elected or appointed as a director prior to the Effective Date, or (ii) subsequently appointed as a director, if appointed or nominated by at least a majority of the Continuing Directors in office at the time of the nomination or appointment, but specifically excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as the term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or                               (c)          Any of the following occur:                                         (i)          Any merger or consolidation of OKFC, other than a merger or consolidation in which the voting securities of OKFC immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) sixty percent (60%) or more of the combined voting power of OKFC or surviving entity immediately after the merger or consolidation with another entity;                                         (ii)          Any sale, exchange, lease, mortgage, pledge, transfer, or other disposition (in a single transaction or a series of related transactions) of assets or earning power aggregating more than fifty percent (50%) of the assets or earning power of OKFC on a consolidated basis; 29 --------------------------------------------------------------------------------                                         (iii)          Any complete liquidation or dissolution of OKFC;                                         (iv)           Any reorganization, reverse stock split, or recapitalization of OKFC which would result in a Change in Control as otherwise defined herein; or                                         (v)          Any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing.                     "Potential Change in Control" means OKFC's entering into, or the Board of Directors authorizing, an agreement, the consummation of which would result in the occurrence of a Change in Control; or (ii) adoption by the Board of Directors of a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 30 -------------------------------------------------------------------------------- CUSTODY AGREEMENT UNDER OLD KENT FINANCIAL CORPORATION EXECUTIVE BENEFIT TRUST           This Agreement ("Custody Agreement") is made this 12th day of June, by and between Wachovia Bank, N.A. in its capacity as trustee ("Trustee") of the Old Kent Financial Corporation Executive Benefit Trust ("Trust") under the trust agreement dated June 12, 2000 ("Trust Agreement"), Old Kent Financial Corporation ("OKFC"), grantor of the Trust and Old Kent Bank ("Custodian").           WHEREAS, OKFC has established and maintains certain executive compensation plans and programs ("Executive Compensation Plans") and has merged certain separate trusts into the Trust effective as of June 12, 2000; and           WHEREAS, Trustee has been appointed by OKFC; and           WHEREAS, OKFC, pursuant to its general powers as grantor and its reserved investment rights and powers under the Trust Agreement, including the power to appoint one or more Investment Managers, has requested Trustee to appoint Custodian with respect to assets of the Trust which OKFC may, from time to time, designate as subject to this Custody Agreement; and           WHEREAS, Trustee has agreed to appoint Custodian to act under this Custody Agreement until directed by OKFC to terminate this Custody Agreement or until the earlier occurrence of a Change in Control, as defined in Exhibit A to the Trust Agreement;           NOW THEREFORE, Trustee engages the services of the Custodian, effective as of June 12, 2000, as follows: 1.          Custodial Relationship. The parties to this Custody Agreement hereby create a limited and restricted agency relationship. OKFC and Trustee delegate to Custodian only the specific duties set forth herein. Custodian's powers and duties are intended to be ministerial only and are strictly limited to those enumerated below. All parties understand and intend that Custodian shall not be a "trustee" within the meaning of Section 403 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), a "fiduciary" as defined in Section 3(21) of ERISA, or an "investment manager" as defined in Section 3(38) of ERISA. 2.          Assets. As directed by OKFC from time to time, Custodian shall receive and hold all or any part of the assets of the Trust during the term of this Custody Agreement. As provided in the Trust Agreement, OKFC directly or through Trustee may deliver additional assets to Custodian from time to time to be held under this Custody Agreement. Upon the direction of OKFC all or any part of the assets held by Custodian shall be transferred to another custodian or returned to the custody of Trustee. Upon termination of this Custody Agreement at the direction of OKFC or by the occurrence of a Change in Control, all assets held by Custodian shall be returned to custody of the Trustee as specified in Section 12 below. Custodian shall hold the assets in a manner that will avoid significant risk of loss by fraud, theft, other misappropriation or any other reason except investment losses. Custodian is authorized to hold assets through nominees for the registration and transfer of securities and to employ such depositories, sub-custodians and other means of holding -------------------------------------------------------------------------------- the assets in its custody as custodian deems reasonably appropriate for the safekeeping of the assets. Custodian's books shall reflect at all times that all assets held under this Custody Agreement are assets of the Trust. 3.          Designated Representatives. OKFC and the Trustee separately may authorize one or more representatives (each a "Designated Representative") to execute any document or provide written directions to Custodian on behalf of OKFC or Trustee. OKFC, pursuant to its authority in the Trust Agreement, may direct, or may appoint one or more Investment Managers to direct, Custodian concerning management and investment of all or any part of the assets held by Custodian. OKFC and Trustee shall notify Custodian in writing of the appointment of any Designated Representative and the name or names of the designated individuals. Custodian thereafter shall accept and rely upon any document executed or any direction given by a Designated Representative as representing the action of OKFC or the Trustee until a written revocation of a designation is filed with Custodian by OKFC or the Trustee. OKFC and Trustee shall inform any Designated Representative or Investment Manager of the terms and conditions of this Custody Agreement and each Designated Representative and Investment Manager shall be bound by those terms and conditions. 4.          Powers and Duties of Custodian. Custodian shall have only the following powers and duties regarding the assets in Custodian's possession:           a)          To take custody of the assets in the name of either Trustee, Custodian, or Custodian's nominee; and protect the assets from loss;           b)          To purchase additional property, deposit account monies in interest-bearing accounts with Custodian or otherwise invest assets upon the written direction of OKFC or an Investment Manager;           c)          To sell or otherwise dispose of assets upon the written direction of OKFC;           d)          To keep a true record and account of the assets and of all related transactions in a manner consistent with the accounting and recordkeeping requirements in the Trust;           e)          To demand, collect and receive the principal, dividends, interest, income and all other monies due upon assets and all proceeds of sales of assets;           f)          To pay all taxes, fees, commissions and similar expenses assessed on assets or arising from investment of assets;           g)          To make all other payments and distributions from the assets as OKFC shall direct in writing, including payments and distributions to the Trustee;           h)          To enforce legal or equitable rights for the protection of Trustee's interest in the assets, upon the written direction of Trustee;           i)          To vote any stock by proxy as directed by OKFC; and - 2 - --------------------------------------------------------------------------------           j)          Except as otherwise restricted in this Custody Agreement, to perform other lawful custodial and ministerial acts with regard to the assets upon the written direction of OKFC or the Trustee. 5.          Statements and Reports. The Custodian shall render statements and reports to OKFC and Trustee containing such content and at such intervals as shall be mutually agreed among OKFC, the Trustee and Custodian. To the extent available and mutually agreed, Custodian may provide electronic access to information concerning assets and transactions. 6.          Audits and Controls. Custodian shall provide OKFC and Trustee SAS 70 reports, at least annually, addressing audit controls and procedures used in the performance of Custodian's duties. 7.          Distributions and Tax Reporting. Custodian shall make distributions as directed by OKFC or the Trustee. With respect to each distribution, Custodian shall be responsible for income tax withholding and proper reporting or shall make arrangements for assumption of such responsibilities by OKFC or the Trustee. Custodian shall prepare and file all income tax returns and other applicable tax forms required by law. 8.          Fees and Expenses of Custodian. Custodian will charge reasonable fees for its services in accordance with its fee schedule in effect at the time its services are rendered. The reasonable fees of Custodian will be paid directly by OKFC. 9.          Obligations of Custodian; Indemnification. Custodian has no obligation except to exercise good faith and ordinary care in carrying out its duties under this Custody Agreement. Custodian will be conclusively presumed to have acted in good faith and with care if it acts: on instructions from OKFC, Trustee, a Designated Representative or an Investment Manager; on the advice of Custodian's attorneys; or in reliance upon any document Custodian's staff members believe genuine. Custodian shall be indemnified by OKFC for any claim, loss, and expense (including reasonable attorneys' fees) arising out of its actions in good faith and with care. Custodian shall indemnify Trustee for any actual damages and expenses (including reasonable attorneys' fees) incurred by Trustee to the extent caused by negligence, willful misconduct or failure to act in good faith by Custodian and its employees. 10.          Restrictions on Custodian's Duties. Custodian shall not have the obligation or authority:           a)          To exercise any discretionary authority or control with respect to the administration and management of the Trust or any plan or program with respect to which the Trust is maintained or with respect to the management, investment or disposition of assets of the Trust;           b)          To render any advice to any individual or entity regarding the management and administration of the Trust or any plan or program with respect to which the Trust is maintained or with respect to the management, investment or disposition of assets of the Trust; or           c)          To determine whether the management and administration of the Trust or any plan or program with respect to which the Trust is maintained or the management, investment or disposition of assets of the Trust complies with the terms of the Trust Agreement, the terms of any such plan or program, ERISA, or any other applicable law. - 3 - -------------------------------------------------------------------------------- 11.          Amendment. This Custody Agreement may be amended at any time in writing by the parties. 12.          Termination. This Custody Agreement may be terminated at any time by the written direction of OKFC. Upon the occurrence of a Change in Control, the custody of all assets held under this Custody Agreement shall be transferred by Custodian to the Trustee. If the date of the Change in Control is contractually agreed in advance, the transfer shall be made not later than the last business day that is thirty (30) days before the effective date of the Change in Control. If the Change in Control occurs without an agreement on the effective date, the transfer shall occur as of and shall be completed as soon as feasible following the Change in Control. This Custody Agreement shall terminate upon completion of such transfer. This Custody Agreement also shall terminate in the event, for any other reason, that the Custodian no longer holds any assets of the Trust. 13.          Governing Law. This Custody Agreement shall be interpreted and governed according to Michigan law, except to the extent pre-empted by ERISA or other laws of the United States.          IN WITNESS WHEREOF, this Custody Agreement is signed by authorized representatives of the parties.   OLD KENT FINANCIAL CORPORATION By /s/ R. Jay Palmer --------------------------------------------------------------------------------      Its Senior Vice President --------------------------------------------------------------------------------           OLD KENT BANK By /s/ Thomas R. Hilliker --------------------------------------------------------------------------------      Its Senior Vice President --------------------------------------------------------------------------------           WACHOVIA BANK, N.A. By /s/ John N. Smith --------------------------------------------------------------------------------      Its Senior Vice President -------------------------------------------------------------------------------- - 4 -

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q > (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities > Exchange Act of  >       1934 > > For the quarterly period ended October 28, 2000 OR > ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities > Exchange Act of >     1934 > For the transition period from ________________  to ________________ For Quarter Ended: October 28, 2000 Commission File Number: 1-13113 Exact name of registrant as specified in its charter: SAKS INCORPORATED State of Incorporation: Tennessee I.R.S. Employer Identification Number: 62-0331040 Address of Principal Executive Offices (including zip code): 750 Lakeshore Parkway, Birmingham, Alabama 35211 Registrant's telephone number, including area code: (205) 940-4000 Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value -- 141,570,840 shares as of October 28, 2000   SAKS INCORPORATED Index PART I. FINANCIAL INFORMATION   Page No.     Item 1. Financial Statements (Unaudited)      Condensed Consolidated Balance Sheets -- October 28, 2000, January 29, 2000, and October 30, 1999 3   Condensed Consolidated Statements of Income -- Three Months and Nine Months Ended October 28, 2000 and October 30, 1999 4   Condensed Consolidated Statements of Cash Flows -- Nine Months Ended October 28, 2000 and October 30, 1999 5   Notes to Condensed Consolidated Financial Statements 6     Item 2. Management's Discussion and Analysis of Financial                Condition and Results of Operations                                21      Item 3. Quantitative and Qualitative Disclosures About                 Market Risk 28 PART II. OTHER INFORMATION       Item 6. Exhibits and Reports on Form 8-K 30 SIGNATURES 31   SAKS INCORPORATED and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) October 28, 2000 (Unaudited) January 29, 2000 October 30, 1999 (Unaudited) ASSETS Current Assets     Cash and cash equivalents $ 20,128 $ 19,560 $ 20,949     Retained interest in accounts receivable 198,019 202,134 172,334     Merchandise inventories 1,912,388 1,487,783 1,872,257     Other current assets 78,575 122,983 87,358     Deferred income taxes           39,650          62,198            65,807         Total current assets 2,248,760 1,894,658 2,218,705 Property and Equipment, net 2,408,180 2,350,543 2,294,537 Goodwill and Intangibles, net 556,936 578,001 583,479 Deferred Income Taxes 190,434 213,204 259,498 Other Assets         62,006           62,546            64,251   TOTAL ASSETS        $ 5,466,316 ===========      $ 5,098,952 ==========      $ 5,420,470 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities     Trade accounts payable $ 661,258 $ 235,967 $ 596,674     Accrued expenses and other current liabilities 500,708 540,124 495,620     Current portion of long-term debt           6,406            7,771           8,663         Total current liabilities 1,168,372 783,862 1,100,957 Long-Term Debt 1,948,234 1,966,802 2,090,011 Other Long-Term Liabilities              127,592            139,945            157,744       Total liabilities 3,244,198 2,890,609 3,348,712 Commitments and Contingencies Common Equity Put Options -      -      8,875 Shareholders' Equity           2,222,118         2,208,343         2,062,883 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $ 5,466,316 ===========      $ 5,098,952 ===========      $ 5,420,470 =========== See notes to condensed consolidated financial statements.     SAKS INCORPORATED and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollar amounts in thousands, except per share amounts)   Three Months Ended Nine Months Ended October 28, 2000 (Unaudited) October 30, 1999 (Unaudited) October 28, 2000 (Unaudited) October 30, 1999 (Unaudited) Net sales $ 1,565,708 $ 1,547,476 $ 4,450,433 $ 4,386,789 Cost of sales       1,002,317        960,666        2,840,855         2,735,925     Gross margin 563,391 586,810 1,609,578 1,650,864 Selling, general and administrative expenses 371,882 354,584 1,026,917 990,270 Other operating expenses 150,175 138,972 420,473 387,235 Store pre-opening costs 2,657 7,268 5,698 10,705 Integration costs 14,366 8,305 20,559 26,754 Losses from long-lived assets and closings          570              1,903                  1,244                   1,903    Year 2000 expenses               -             531                 -            4,523   Operating income 23,741 75,247 134,687 229,474 Other income (expense):   Interest expense (36,851) (33,847) (109,234) (103,135)   Other income (expense), net          91           78             152            2,898   Income (loss) before provision (benefit) for      income taxes and extraordinary items  (13,019)  41,478  25,605  129,237 Provision (benefit) for income taxes       (4,870)            15,578          5,686           50,783 Income (loss) before  extraordinary items (8,149) 25,900 19,919 78,454 Extraordinary loss on extinguishment of       debt, net of taxes                     -                       -                       -               (9,261)   Net income (loss) $ (8,149) ========= $ 25,900 ========= $ 19,919 ========= $ 69,193 ========= Basic earnings (loss) per common share:     Income (loss) before extraordinary items $ (0.06) $ 0.18 $ 0.14 $ 0.54     Extraordinary items                   -                       -                       -               (0.06)      Net income (loss) $ (0.06) ========= $ 0.18 ========= $ 0.14 ========= $ 0.48 ========= Diluted earnings (loss) per common share:    Income (loss) before extraordinary items $ (0.06) $ 0.18 $ 0.14 $ 0.53    Extraordinary items                    -                       -                       -              (0.06)      Net income (loss) $ (0.06) ========= $ 0.18 ========= $ 0.14 ========= $ 0.47 ========= Weighted average common shares:    Basic 141,470 144,139 141,660 144,446    Diluted 142,964 145,154 142,545 146,686 See notes to condensed consolidated financial statements. SAKS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollar amounts in thousands) Nine Months Ended October 28, 2000 (Unaudited) October 30, 1999 (Unaudited) Operating Activities: Net income $ 19,919 $ 69,193 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 154,802 132,932 Losses from long-lived assets and closings 1,244 1,903 Extraordinary loss on extinguishment of debt - 7,310 Deferred income taxes 11,543 8,469 Change in operating assets and liabilities, net         51,946        (253,051) Net Cash Provided By (Used In) Operating Activities 239,454 (33,244) Investing Activities: Purchases of property and equipment, net (213,791) (320,427) Proceeds from the sale of assets 19,455 22,514 Acquisition of stores                 -              (4,500)    Net Cash (Used In) Investing Activities (194,336) (302,413) Financing Activities: Proceeds from long-term borrowings - 550,000 Payments on long-term debt and capital lease obligations (5,933) (14,701) Borrowings (repayments) under credit facilities (14,000) (326,700) Purchases and retirements of common stock (25,010) (18,745) Proceeds from issuance of common stock 393 6,088 Release of cash held in escrow for debt redemption - 363,753 Payment of REMIC certificates                 -        (235,841) Net Cash Provided By (Used In) Financing Activities (44,550) 323,854 Increase (Decrease) In Cash and Cash Equivalents 568 (11,803) Cash and cash equivalents at beginning of period        19,560        32,752 Cash and cash equivalents at end of period $ 20,128 ======== $ 20,949 ======== See notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of the Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended October 28, 2000 are not necessarily indicative of the results that may be expected for the year ending February 3, 2001. The financial statements include the accounts of Saks Incorporated and its subsidiaries (collectively, the "Company"). All intercompany amounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended January 29, 2000. The accompanying balance sheet at January 29, 2000 has been derived from the audited financial statements at that date but does not include all Generally Accepted Accounting Principles disclosures. Sales, as previously reported in prior years, have been restated to exclude leased department sales and other sales with no effect on previously reported gross margin, operating income, net income, shareholders' equity or cash flows. Restated sales amounts represent only owned department sales and leased department commissions. Leased department sales of $54.9 million and $49.8 million are excluded from net sales, and commissions from leased departments of $8.3 million and $7.6 million are included in net sales for the three months ended October 28, 2000 and October 30, 1999, respectively. Leased department sales of $165.8 million and $146.8 million are excluded from net sales, and commissions from leased departments of $25.2 million and $22.3 million are included in net sales for the nine months ended October 28, 2000 and October 30, 1999, respectively. In order to maintain consistency and comparability between periods presented, certain other amounts have been reclassified from previously reported financial statements to conform to the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income, shareholders' equity or cash flows. NOTE 2 -- BUSINESS COMBINATIONS AND INTEGRATION COSTS For the three and nine-month periods ended October 28, 2000 and October 30, 1999, the Company incurred certain integration costs related to prior business combinations. The costs for 2000 were primarily comprised of systems conversions and other related charges associated with the consolidation efforts of the Herberger's and McRae's operating divisions and distribution centers. The costs for 1999 primarily consisted of the consolidation and conversion of redundant systems and administrative operations. A reconciliation of the aforementioned costs to the amounts of integration costs remaining unpaid at October 28, 2000 is as follows (in thousands): Amounts unpaid at January 29, 2000 and related to prior integration events $ 13,576 Revisions to prior year estimates (3,674) Integration costs for the period 24,233 Amounts paid during the period (21,998) Amounts representing non-cash charges    (4,925)    Amounts unpaid at October 28, 2000 $ 7,212 ======== The components of the aforementioned amounts unpaid are as follows (in thousands): October 28,      2000     January 29,      2000     Direct merger costs $ 2,007 $ 5,558 Severance related to merger and integration efforts 4,652 6,874 Contractual obligations with extended payment terms 177 248 Other       376       896 Total $ 7,212 ====== $ 13,576 ====== NOTE 3 -- EARNINGS PER COMMON SHARE Calculations of earnings per common share ("EPS") for the three and nine months ended October 28, 2000 and October 30, 1999 are as follows (income and shares in thousands):                           For the Three Months Ended                   October 28, 2000                   For the Three Months Ended              October 30, 1999                 Income (a)   Weighted Average Shares   Per Share Amount   Income (a)   Weighted Average Shares   Per Share Amount Basic EPS $ (8,149)   141,470   $(0.06)   $25,900   144,139   $  0.18 Effect of dilutive stock options (based on the treasury stock method using the average price)                                1,494                                                    1,015                      Diluted EPS $ (8,149) =======   142,964 =======   $ (0.06) =======   $25,900 =======   145,154 =======   $ 0.18 =======                           For the Nine Months Ended                   October 28, 2000                   For the Nine Months Ended              October 30, 1999                 Income (a)   Weighted Average Shares   Per Share Amount   Income (a)   Weighted Average Shares   Per Share Amount Basic EPS $ 19,919   141,660   $  0.14   $78,454   144,446   $  0.54 Effect of dilutive stock options (based on the treasury stock method using the average price)                               885                                                    2,240                      Diluted EPS $ 19,919 =======   142,545 =======   $ 0.14 =======   $78,454 =======   146,686 =======   $ 0.53 =======                         (a) Income before extraordinary items.                                               NOTE 4 -- CONTINGENCIES The Company is involved in several legal proceedings arising in the normal course of business activities, and it has established accruals for losses where appropriate. Management believes that none of these legal proceedings will have an ongoing material adverse effect on the Company's consolidated financial position, results of operations or liquidity. NOTE 5 -- SEGMENT REPORTING The Company has identified the following three reportable segments: department stores, furniture and the direct response business. The department stores segment includes all department stores that the Company operates as well as the proprietary credit card operation owned by National Bank of the Great Lakes (the "Bank"), the Company's wholly owned subsidiary. The Bank's proprietary credit card operation is considered an integral component of the department stores segment, as its primary purpose is to support and enhance this segment's retail operations. The furniture segment includes the Company's five freestanding furniture stores as well as furniture departments within existing department stores. The direct response business segment includes the Company's Folio and Bullock & Jones direct marketing catalogs and the electronic commerce business, saksfifthavenue.com. The combined operations of the furniture and direct response business segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and the three identified segments are combined within the consolidated financial statements of the Company. The Company launched its saksfifthavenue.com website during August 2000 and anticipates that when the direct response business becomes a significant segment, it will be disclosed separately. Management continues to address the appropriateness of the company's reportable segments in light of continuing changes in the Company's customers, merchandise assortments and organizational structure. NOTE 6 -- NEW ACCOUNTING PRONOUNCEMENTS In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which amended the effective date provisions of SFAS No. 133. The statement defers application of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Thus, SFAS No. 133 will be effective for the Company in the first quarter of fiscal year 2001. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133," which amended certain provisions within the body of the original FASB Statement No. 133. Management has begun its assessment of the impact that these new standards will have on the Company's financial statements. The impact of these standards on the Company's financial position and results of operations is not expected to be material. NOTE 7 -- COMPREHENSIVE INCOME The Company had no components of comprehensive income for the three or nine-month periods ended October 28, 2000 and October 30, 1999 other than net income. NOTE 8 -- SHARE REPURCHASES In July 1999, the Board of Directors of the Company authorized a share repurchase program for up to five million shares, or approximately 3.5% of the then outstanding common stock. As of January 29, 2000, 2,004,000 shares had been repurchased under the program for an aggregate amount of $33.3 million. For the nine months ended October 28, 2000, the Company repurchased an additional 2,041,000 shares for an aggregate amount of $25.0 million. NOTE 9 -- SPIN-OFF OF BUSINESSES On July 19, 2000, the Company announced that the Board of Directors had unanimously approved plans for a strategic restructuring whereby Saks Incorporated intends to spin off its Saks Fifth Avenue, Saks Direct, and Saks Off 5th operations into a separate, publicly owned company to be named Saks Fifth Avenue Enterprises, Inc. The spin-off is expected to be completed in mid 2001. NOTE 10 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following tables present condensed consolidating financial information for: 1) Saks Incorporated; 2) on a combined basis, the guarantors of Saks Incorporated's Senior Notes (which are all of the subsidiaries of Saks Incorporated except for special purpose subsidiaries, the Bank and other immaterial subsidiaries); and 3) on a combined basis, the Company's special purpose subsidiaries, the Bank and other immaterial subsidiaries, which collectively represent the only subsidiaries of the Company that are not guarantors of the Senior Notes. The condensed consolidating financial statements presented as of and for the three and nine-month periods ended October 28, 2000 and October 30, 1999 and as of January 29, 2000 reflect the legal entity compositions at the respective dates. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally, and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guarantor subsidiaries under an informal lending arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. At October 28, 2000, Saks Incorporated was the sole obligor for a majority of the Company's long-term debt, owned one store location, and maintained a small group of corporate employees. SAKS INCORPORATED CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 28, 2000 (Unaudited) (Dollar Amounts In Thousands) Saks  Incorporated Guarantor  Subsidiaries Non-Guarantor  Subsidiaries Eliminations Consolidated ASSETS Current Assets   Cash and cash equivalents ($2,531)   $22,659   $20,128     Retained interest in accounts receivable 198,019   198,019     Merchandise inventories $3,847  1,908,541   1,912,388     Deferred income taxes 51,623   (11,973) 39,650     Intercompany borrowings 933  19,908   2,927   ($23,768)   Other current assets                     78,523                   52                       78,575   Total Current Assets 4,780  2,056,064   211,684   (23,768) 2,248,760   Property and Equipment, net 8,924  2,399,256   2,408,180   Goodwill and Intangibles, net 556,936   556,936   Other Assets 57,860   4,146   62,006   Deferred Income Taxes 190,434   190,434   Investment in and Advances to Subsidiaries 4,050,210       120,557                   (4,170,767)                 Total Assets $4,063,914  ========== $5,381,107   ========== $215,830  ========== ($4,194,535)  ========== $5,466,316   ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities   Trade accounts payable $1,154   $660,104   $661,258     Accrued expenses and other current liabilities 45,237   451,003   $4,468   500,708     Intercompany borrowings 2,927   20,841   ($23,768)   Current portion of long-term debt                         6,406                                               6,406   Total Current Liabilities 46,391   1,120,440   25,309   (23,768) 1,168,372   Long-Term Debt 1,795,000   153,234   1,948,234   Other Long-Term Liabilities 405   127,187   127,592   Investment by and Advances from Parent 3,980,246   190,521   (4,170,767) Shareholders' Equity   2,222,118                                                    2,222,118   Total Liabilities and Shareholders' Equity $4,063,914   ========== $5,381,107   ========== $215,830   ========== ($4,194,535)  ========== $5,466,316   ========== SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 28, 2000 (Unaudited) (Dollar Amounts In Thousands) Saks  Incorporated Guarantor  Subsidiaries Non-Guarantor  Subsidiaries Eliminations Consolidated Net sales $3,740   $1,561,968   $1,565,708   Costs and expenses   Cost of sales 2,671   999,646   1,002,317     Selling, general and administrative expenses 2,629   398,447   $17,492   ($46,686)   371,882     Other operating expenses 1,068   149,107   150,175     Store pre-opening costs 2,657   2,657     Integration costs 14,366   14,366     Losses from long-lived assets and closings                         570                                           570   Operating income (loss) (2,628)  (2,825)   (17,492)   46,686   23,741   Other income (expense)   Finance charge income, net 46,686   (46,686)     Intercompany exchange fees (9,197)   9,197     Intercompany servicer fees 10,651   (10,651)     Equity in earnings of subsidiaries 16,110   9,772   (25,882)     Interest expense (34,805)  (1,421)   (625)   (36,851)     Other income (expense), net                         91                                          91   Income before provision (benefit) for income taxes (21,323)  7,071   27,115   (25,882)   (13,019)   Provision (benefit) for income taxes      (13,174)      (1,000)         9,304                     (4,870)   Net income (loss) ($8,149)  ========= $8,071   ========= $17,811   ========= ($25,882)   ========= ($8,149)   ========= SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED OCTOBER 28, 2000 (Unaudited) (Dollar Amounts In Thousands) Saks Incorporated Guarantor Subsidiaries Non-Guarantor  Subsidiaries Eliminations Consolidated Net sales $10,018   $4,440,415   4,450,433   Costs and expenses   Cost of sales 6,842   2,843,013   2,840,855     Selling, general and administrative expenses 8,628   1,115,954   $49,560   ($147,225)   1,026,917     Other operating expenses 2,898   417,575   420,473     Store pre-opening costs 5,698   5,698     Integration costs 20,559   20,559     Losses from long-lived assets and closings                     1,244                                         1,244   Operating income (loss) (8,350)   45,372   (49,560)   147,225   134,687   Other income (expense)   Finance charge income, net 147,225   (147,225)     Intercompany exchange fees (25,913)   25,913     Intercompany servicer fees 29,984   (29,984)     Equity in earnings of subsidiaries 91,937   32,015   (123,952)     Interest expense (103,546)   (3,673)   (2,015)   (109,234)     Other income (expense), net                           152                                           152   Income before provision (benefit) for income taxes (19,959)   77,937   91,579   (123,952)   25,605   Provision (benefit) for income taxes    (39,878)       12,871        32,693                      5,686   Net income $19,919   ======== $65,066   ======== $58,886   ======== ($123,952)   ======== $19,919   ======== SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 28, 2000 (Unaudited) (Dollar Amounts In Thousands) Saks  Incorporated Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated OPERATING ACTIVITIES Net income $19,919   $65,066   $58,886   ($123,952) $19,919   Adjustments to reconcile net income to net cash provided by (used in) operating activities:   Equity in earnings of subsidiaries (91,937)   (32,015)   123,952      Depreciation and amortization 861   153,941   154,802     Deferred income taxes 4,610   6,933   11,543     Losses from long-lived assets and closings 1,244   1,244     Changes in operating assets and liabilities, net       8,803         38,052          5,091                         51,946          Net Cash Provided By (Used In) Operating        Activities (62,354)   230,898   70,910   239,454   INVESTING ACTIVITIES   Purchases of property and equipment, net (213,791)   (213,791)     Proceeds from the sale of assets                       19,455                                          19,455          Net Cash Used In Investing Activities (194,336)   (194,336)   FINANCING ACTIVITIES   Intercompany borrowings, contributions and      distributions 100,971   (30,111)   (70,860)     Payments on long-term debt and capital lease     obligations   (5,933)   (5,933)     Borrowings (repayments) under credit facilities (14,000)   (14,000)     Purchases and retirements of common stock (25,010)   (25,010)     Proceeds from issuance of common stock          393                                                              393          Net Cash Provided By (Used In) Financing        Activities 62,354   (36,044)   (70,860)   (44,550)   Increase In Cash and Cash Equivalents 0   518   50   568   Cash and cash equivalents at beginning of period              0       (3,049)         22,609                         19,560   Cash and cash equivalents at end of period $0   ======== $2,531   ======== $22,659   ======== ======== $20,128   ======== SAKS INCORPORATED CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 30, 1999 (Unaudited) (Dollar Amounts In Thousands) Saks  Incorporated Guarantor  Subsidiaries Non-Guarantor  Subsidiaries Eliminations Consolidated ASSETS                   Current Assets   Cash and cash equivalents ($6,518)   $27,467   $20,949     Retained interest in accounts receivable 172,334   172,334     Merchandise inventories 1,872,257   1,872,257     Deferred income taxes 65,812   (5)   65,807     Intercompany borrowings $4,786    ($4,786)     Other current assets                    84,298         3,060                    87,358     Total Current Assets 4,786   2,015,849   202,856   (4,786)   2,218,705   Property and Equipment, net 1,753,919   540,618   2,294,537   Goodwill and Intangibles, net 583,479    583,479   Other Assets 58,369   5,882   64,251    Deferred Income Taxes 259,498   259,498   Investment in and Advances to Subsidiaries 4,057,895   1,625,928                     (5,683,823)                Total Assets $4,062,681   ======== $6,297,042   ======== $749,356   ======== ($5,688,609)   ======== $5,420,470   ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities   Trade accounts payable $596,674   $596,674     Accrued expenses and other current liabilities $44,009   447,393   $4,218   495,620     Intercompany borrowings 4,786   ($4,786)     Current portion of long-term debt                      8,663                                     8,663   Total Current Liabilities 44,009   1,052,730   9,004   (4,786)   1,100,957   Long-Term Debt 1,931,300   158,711  2,090,011   Deferred Income Taxes (8,237)   8,237   Other Long-Term Liabilities 15,614   142,130     157,744   Investment by and Advances from Parent     4,951,708    732,115   (5,683,823)   Common Equity Put Options 8,875               8,875     Shareholders' Equity  2,062,883                                                2,062,883   Total Liabilities and Shareholders' Equity $4,062,681   ======== $6,297,042   ======== $749,356   ======== ($5,688,609)   ======== $5,420,470   ======== SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 30, 1999 (Unaudited) Saks Incorporated Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net sales $1,547,476   $1,547,476   Costs and expenses   Cost of sales 960,666   960,666     Selling, general and administrative expenses $2,696   371,305   $25,529   ($44,946)   354,584     Other operating expenses 313   148,941   (10,282)   138,972     Store pre-opening costs 7,268   7,268     Integration costs 8,305   8,305     Losses from long-lived assets and closings 1,903    1,903      Year 2000 expenses                           531                                           531   Operating income (loss) (3,009)   48,557   (15,247)   44,946   75,247   Other income (expense)   Finance charge income, net 44,946   (44,946)     Intercompany exchange fees (9,356)   9,356     Intercompany servicer fees 11,701   (11,701)     Equity in earnings of subsidiaries 51,685   3,372   (55,057)     Interest expense (33,366)   (1,219)   738    (33,847)     Other income (expense), net                            78                                              78   Income before income taxes  15,310   53,133   28,092   (55,057)   41,478   Provision (benefit) for income taxes     (10,590)          15,993          10,175                         15,578   Net income $25,900   ========== $37,140   ========== $17,917   ========== ($55,057)   ========== $25,900   ========== SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED OCTOBER 30, 1999 (Unaudited) (Dollar Amounts In Thousands) Saks Incorporated Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net sales $4,386,789    $4,386,789   Costs and expenses   Cost of sales 2,735,925   2,735,925     Selling, general and administrative expenses $7,591   1,041,566   $73,612   ($132,499)   990,270     Other operating expenses 1,180   416,901   (30,846)   387,235     Store pre-opening costs 10,705   10,705     Integration costs   26,754   26,754     Loses from long-lived assets and closings 1,903    1,903      Year 2000 expenses                          4,523                                              4,523   Operating income (loss) (8,771)   148,512   (42,766)   132,499   229,474   Other income (expense)   Finance charge income, net 132,499   (132,499)     Intercompany exchange fees (25,152)   25,152     Intercompany servicer fees 30,331   (30,331)     Equity in earnings of subsidiaries 136,540   11,783   (148,323)     Interest expense (96,063)   (7,072)     (103,135)     Other income (expense), net                           2,898                                             2,898   Income before provision (benefit) for income taxes and extraordinary items 31,706   161,300   84,554   (148,323)   129,237   Provision (benefit) for income taxes        (37,487)         57,096          31,174                         50,783   Income before extraordinary items 69,193   104,204   53,380   (148,323)   78,454   Extraordinary items, net of taxes                                          (9,261)                        (9,261)   Net income $69,193   ========== $104,204   ========== $44,119   ========== ($148,323)   ========== $69,193   ========== SAKS INCORPORATED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 30, 1999 (Unaudited) (Dollar Amounts In Thousands) Saks Incorporated Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated OPERATING ACTIVITIES Net income $69,193   $104,204   $44,119   ($148,323)   $69,193   Adjustments to reconcile net income to net cash provided by (used in) operating activities:   Equity in earnings of subsidiaries (136,540)   (11,783)   148,323     Depreciation and amortization 122,477   10,455   132,932     Deferred income taxes 8,469   8,469     Extraordinary loss on extinguishment of debt 7,310   7,310     Losses from long-lived assets and closings 1,903    1,903      Changes in operating assets and liabilities, net                    (216,578)           (36,473)                     (253,051)           Net Cash Provided By (Used In) Operating         Activities (67,347)   8,692    25,411   (33,244)   INVESTING ACTIVITIES   Purchases of property and equipment, net (274,788)   (45,639)   (320,427)     Proceeds from sale of assets 22,514     22,514       Acquisition of stores                        (4,500)                                      (4,500)           Net Cash Used In Investing Activities (256,774)   (45,639)   (302,413)   FINANCING ACTIVITIES   Intercompany borrowings, contributions and      distributions (163,662)   (80,737)   244,399     Proceeds from long-term borrowings 550,000   550,000     Payments on long-term debt and capital lease       obligations (14,701)   (14,701)     Borrowings (repayments) under credit facilities (326,700)   (326,700)     Payment of REMIC certificates (235,841)   (235,841)     Release of cash held in escrow for debt        redemption 363,753   363,753     Proceeds from issuance of common stock         6,088                                                          6,088     Repurchase and retirement of common stock (18,745)                                                     (18,745)         Net Cash Provided By (Used In) Financing         Activities 46,981   268,315   8,558    323,854   Increase (Decrease) In Cash and Cash Equivalents (20,366)   20,233   (11,670)   (11,803)   Cash and cash equivalents at beginning of period       20,366       (26,751)         39,137                       32,752   Cash and cash equivalents at end of period $0   ========= ($6,518)   ========= $27,467   ========= ========= $20,949   ========= SAKS INCORPORATED CONDENSED CONSOLIDATING BALANCE SHEETS AT JANUARY 29, 2000 (Dollar Amounts In Thousands) Saks  Incorporated Guarantor   Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated ASSETS Current Assets   Cash and cash equivalents ($3,049)   $22,609   $19,560     Retained interest in accounts receivable 202,134   202,134     Merchandise inventories 1,487,783   1,487,783     Deferred income taxes 67,238   (5,040)   62,198     Intercompany borrowings $27,659   23,883   7,636   ($59,178)     Other current assets                      122,941                 42                         122,983   Total Current Assets 27,659   1,698,796   227,381   (59,178)   1,894,658   Property and Equipment, net 2,350,543   2,350,543   Goodwill and Intangibles, net 578,001   578,001   Other Assets 56,657   5,889   62,546   Deferred Income Taxes 213,204   213,204   Investment in and Advances to Subsidiaries 4,023,830         93,042                  (4,116,872)                  Total Assets $4,051,489   ========= $4,990,243   ========= $233,270   ========= ($4,176,050)   ========= $5,098,952   ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities   Trade accounts payable $235,967   $235,967     Accrued expenses and other current liabilities $22,769   512,130   $5,225   540,124     Intercompany borrowings 7,636   51,542   ($59,178)     Current portion of long-term debt                          7,771                                            7,771   Total Current Liabilities 22,769   763,504   56,767   (59,178)   783,862   Long-Term Debt 1,809,000   157,802   1,966,802   Other Long-Term Liabilities 11,377   128,568   139,945   Investment by and Advances from Parent 3,940,369   176,503   (4,116,872)   Shareholders' Equity  2,208,343                                                   2,208,343   Total Liabilities and Shareholders' Equity $4,051,489   ========= $4,990,243   ========= $233,270   ========= ($4,176,050)   ========= $5,098,952   =========     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS  Three Months Ended   Nine Months Ended 10/28/00 10/30/99 10/28/00 10/30/99 Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses:     Cost of sales  64.0  62.1 63.8 62.4     Selling, general & administrative expenses 23.8 22.9  23.1   22.6     Other operating expenses  9.6 9.0 9.5  8.8     Store pre-opening costs  0.2 0.5  0.1  0.2    Integration costs  0.9 0.5  0.5 0.6    Losses from long-lived assets  0.0  0.1 0.0  0.0    Year 2000 expenses  0.0  0.0   0.0    0.1      Operating income   1.5   4.9   3.0 5.2 Other income (expense):  Interest expense (2.4)   (2.2) (2.5) (2.4) Other income (expense), net   0.0 0.0  0.0 0.1   Income (loss) before provision (benefit) for      income taxes and extraordinary items  (0.8) 2.7    0.5  2.9  Provision (benefit) for income taxes (0.3) 1.0   0.1  1.2    Income (loss) before extraordinary items (0.5)  1.7   0.4 1.8 Extraordinary loss, net of taxes 0.0 0.0 0.0 (0.2) NET INCOME (LOSS)     (0.5)%     1.7%    0.4%    1.6%   THREE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 30, 1999 NET SALES For the three months ended October 28, 2000, total Company sales were $1.57 billion, a 1.2% increase over $1.55 billion in the prior year. This sales increase was primarily attributable to sales from new stores opened during the prior twelve months, coupled with a comparable store sales increase of 0.4% and partially offset by the reduction of sales associated with closed stores. During the last twelve months, new store openings included four Saks Fifth Avenue stores, two Saks Off 5th stores, one Carson Pirie Scott store and one Parisian store. Stores closed during the last twelve months included one Carson Pirie Scott store, one Parisian store, two Younkers stores and two Saks Fifth Avenue stores. GROSS MARGIN For the three months ended October 28, 2000, gross margin was $563.4 million, or 36.0% of net sales, compared to $586.8 million, or 37.9% of net sales, for the three months ended October 30, 1999. The decrease in gross margin rate was primarily due to increased markdowns being incurred in an effort to clear spring merchandise as a result of lower than expected spring sales, partially offset by a shift in the timing of seasonal markdowns. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA") For the three months ended October 28, 2000, SGA was $371.9 million, or 23.8% of net sales, compared to $354.6 million, or 22.9% of net sales, for the three months ended October 30, 1999. The rate deterioration was primarily attributable to increases in expenses incurred to launch the Company's e-commerce business; a decline in expense leverage resulting from increased payroll and media expenses on lower than anticipated sales; partially offset by a higher net credit contribution resulting from changes in credit card payment terms. OTHER OPERATING EXPENSES For the three months ended October 28, 2000, other operating expenses were $150.2 million, or 9.6% of net sales, compared to $139.0 million, or 9.0% of net sales, for the three months ended October 30, 1999. The increase was largely due to higher depreciation and amortization expense, which was attributable to new owned stores opened in the last twelve months, capital expenditures related to remodels and expansions of existing stores, increased investments in information technology, and a revision of certain intangible useful lives primarily from 40 to 20 years. CERTAIN ITEMS Integration costs For the three months ended October 28, 2000, integration costs were $14.4 million, or 0.9% of net sales, compared to $8.3 million, or 0.5% of net sales, for the three months ended October 30, 1999. The 2000 integration costs principally related to severance, relocation of employees, systems conversions and other charges related to the consolidation of the Herberger's and McRae's operating divisions and distribution centers. The 1999 integration costs primarily related to expenses incurred in the consolidation and conversion of redundant systems and administrative operations following the 1998 acquisition of Saks Holdings, Inc. Year 2000 expenses ("Y2K") For the three months ended October 30, 1999, the Company incurred $0.5 million related to the required system upgrades, replacements and modifications to prepare for the year 2000 to prevent systems failure and business interruption. Losses from long-lived assets and closings For the three months ended October 28, 2000, the Company recognized losses from long-lived assets and closings of $0.6 million related to the sale of an abandoned corporate building. For the three months ended October 30, 1999, losses from long-lived assets and closings of $1.9 million related primarily to the write-off of goodwill associated with the closing of a distribution center. INTEREST EXPENSE For the three months ended October 28, 2000, interest expense was $36.9 million, or 2.4% of net sales, compared to $33.8 million, or 2.2% of net sales, for the three months ended October 30, 1999. The increase was primarily due to higher interest rates on variable-based borrowings. INCOME TAXES The effective tax rates for the three months ended October 28, 2000 and October 30, 1999 remained relatively flat at 37.4% and 37.6%, respectively. NET INCOME (LOSS) Net income (loss) decreased from $25.9 million for the three months ended October 30, 1999 to ($8.1) million for the three months ended October 28, 2000 largely due to the decline in operating income resulting from increased markdown activity and incremental expenses incurred to launch the Company's e-commerce business. NINE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO NINE MONTHS ENDED OCTOBER 30, 1999 NET SALES For the nine months ended October 28, 2000, total Company sales were $4.45 billion, a 1.5% increase over $4.39 billion in the prior year. The sales increase for the nine-month period was primarily attributable to sales from new stores opened and a comparable store sales increase of 0.5%, partially offset by the reduction of sales associated with closed stores. During the last twelve months, new store openings included four Saks Fifth Avenue stores, two Saks Off 5th stores, one Carson Pirie Scott store and one Parisian store. Stores closed during the last twelve months included one Carson Pirie Scott store, one Parisian store, two Younkers stores and two Saks Fifth Avenue stores. GROSS MARGIN For the nine months ended October 28, 2000, gross margin was $1.61 billion, or 36.2% of net sales, compared to $1.65 billion, or 37.6% of net sales, for the nine months ended October 30, 1999. The decrease in gross margin rate was primarily due to increased markdowns, primarily in women's apparel, as a result of lower than expected sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA") For the nine months ended October 28, 2000, SGA was $1.03 billion, or 23.1% of net sales, compared to $990.3 million, or 22.6% of net sales, for the nine months ended October 30, 1999. The rate deterioration was primarily attributable to increases in expenses incurred to launch the Company's e-commerce business; a decline in expense leverage resulting from lower than anticipated sales; partially offset by a higher net credit contribution resulting from changes in payment terms and increased proprietary credit card penetration. OTHER OPERATING EXPENSES For the nine months ended October 28, 2000, other operating expenses were $420.5 million, or 9.5% of net sales, compared to $387.2 million, or 8.8% of net sales, for the nine months ended October 30, 1999. The increase of $33.3 million was largely due to higher depreciation and amortization expense of approximately $21.9 million, which was attributable to new owned stores opened in the last twelve months, capital expenditures related to remodels and expansions of comp stores, increased investments in information technology, and a revision of certain intangible useful lives primarily from 40 to 20 years. CERTAIN ITEMS Integration costs For the nine months ended October 28, 2000, net integration costs were $20.6 million, or 0.5% of net sales, compared to $26.8 million, or 0.6% of net sales, for the nine months ended October 30, 1999. The 2000 integration costs primarily related to systems conversions and other charges related to the consolidation of the Herberger's and McRae's operating divisions and distribution centers. The 1999 integration costs primarily related to expenses incurred in the consolidation and conversion of redundant systems and administrative operations following the acquisition of Saks Fifth Avenue. Year 2000 expenses ("Y2K") For the nine months ended October 30, 1999, the Company incurred $4.5 million related to the required system upgrades, replacements and modifications to prepare for the year 2000 to prevent systems failure and business interruption. Losses from long-lived assets and closings For the nine months ended October 28, 2000, the Company recognized losses from long-lived assets and closings of $1.2 million, which related primarily to losses of $3.6 million associated with the sale of a closed store location and an abandoned corporate building, partially offset by gains of $2.3 million associated with the sale of a closed distribution center and a store location. INTEREST EXPENSE For the nine months ended October 28, 2000, interest expense was $109.2 million, or 2.5% of net sales, compared to $103.1 million, or 2.4% of net sales, for the nine months ended October 30, 1999. The increase was primarily due to higher interest rates on variable-based borrowings. INCOME TAXES The effective tax rates for the nine months ended October 28, 2000 and October 30, 1999 were 22.2% and 39.3%, respectively. Included in the provision for the nine months ended October 28, 2000 was a tax benefit of $4.1 million related to the previous disposition of a real estate investment. Excluding this item, the October 28, 2000 effective tax rate would have been 38.3%. The improvement in the adjusted 2000 effective rate over the 1999 rate was primarily due to a reduction in state income taxes resulting from a subsidiary reorganization in 1999. EXTRAORDINARY ITEMS The extraordinary loss for the nine months ended October 30, 1999 related to the February 1999 repurchase of $236 million of outstanding REMIC mortgage certificates. In conjunction with this debt restructuring, the Company incurred charges related to the early extinguishment of debt totaling $9.3 million after taxes. NET INCOME Net income decreased to $19.9 million for the nine months ended October 28, 2000 from $69.2 million for the nine months ended October 30, 1999 largely due to the decline in operating income resulting from lower than expected sales, increased markdown activity and incremental expenses incurred to launch the Company's e-commerce business. LIQUIDITY AND CAPITAL RESOURCES The retained interest in accounts receivable, inventory, accounts payable and debt balances fluctuate throughout the year due to the seasonal nature of the Company's business. Retained interest in accounts receivable at October 28, 2000 was higher compared to October 30, 1999 primarily due to the increase in credit sales and increased gains from the sale of receivables under the Company's accounts receivable securitization facilities occurring during the last twelve months. Merchandise inventory at October 28, 2000 increased from October 30, 1999 balances primarily due to increases in private label and in transit inventory levels, partially offset by a decrease in comparable store inventories. Property and equipment balances at October 28, 2000 increased over October 30, 1999 balances due to capital expenditures primarily related to new store additions and investments in information technology, as well as expansions, replacements and the remodeling of existing stores, partially offset by depreciation and disposals related to closed stores. Goodwill and intangibles at October 28, 2000 decreased from October 30, 1999 primarily due to the amortization of goodwill coupled with the write-off of certain store goodwill associated with store closings in the last twelve months. CASH FLOW The primary needs for liquidity are to acquire, renovate, or construct stores and to provide working capital for new and existing stores. Cash provided by (used in) operating activities was $239.5 million for the nine months ended October 28, 2000 and ($33.2) million for the nine months ended October 30, 1999. The increase in operating cash flows was primarily related to management's successful efforts to reduce working capital during 2000. Cash used in investing activities was $194.3 million for the nine months ended October 28, 2000 and $302.4 million for the nine months ended October 30, 1999. The decrease in the current year was due to reduced levels of capital expenditures for new and remodeled store locations. Cash provided by (used in) financing activities was ($44.6) million for the nine months ended October 28, 2000 and $323.9 million for the nine months ended October 30, 1999. The decrease in the current year was due to the reduced need for debt borrowings resulting from decreased capital expenditures and increased cash flow from operations. CAPITAL STRUCTURE As of October 28, 2000, the Company had total debt outstanding of approximately $1.95 billion with an additional $604 million available to borrow under its existing $750 million revolving credit facility that expires in 2003. The Company allowed a second revolving credit facility with $250 million of availability to expire in August 2000 as the $750 million facility is expected to provide adequate liquidity and funding through 2003. The October 28, 2000 balance represents a debt to total capitalization percentage of 46.8% and a decrease of $144 million from total debt outstanding at October 30, 1999. The decrease was primarily due to a decrease in annual capital expenditures and the application of operating cash flow to reduce debt. ACCOUNTS RECEIVABLE SECURITIZATION National Bank of the Great Lakes, a wholly owned subsidiary of the Company, owns all proprietary credit card accounts maintained for the Company's retail customers. In accordance with the Company's accounts receivable securitization facilities, the Bank sells the receivables generated by these accounts to the Company's special purpose subsidiaries. The special purpose subsidiaries transfer the receivables, with limited recourse, to either a credit card related trust or a bank conduit facility in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables. The accounts receivable securitization facilities subsequently issue certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. At October 28, 2000, funding under these facilities totaled $1.1 billion, which consisted of $421 million in fixed rate term certificates outstanding, $401 million in floating rate term certificates outstanding and $314 million outstanding under its variable funding certificates. FORWARD-LOOKING INFORMATION Certain information presented in this Form 10-Q addresses future results or expectations and is considered "forward-looking" information within the definition of the Federal securities laws. Forward-looking statements can be identified through the use of words such as "may," "will," "intend," "plan," "project," "expect," "anticipate," "should," "would," "believe," "estimate," "contemplate," "possible," and "point." The forward-looking information is premised on many factors. Actual consolidated results might differ materially from projected forward-looking information if there are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates and involve certain risks and uncertainties. Potential risks and uncertainties include such factors as: the level of consumer spending for apparel and other merchandise carried by the Company and its ability to respond quickly to consumer trends; adequate and stable sources of merchandise; the competitive pricing environment within the department and specialty store industries as well as other retail channels; favorable customer response to planned changes in customer service formats; the effectiveness of planned advertising, marketing and promotional campaigns; favorable customer response to increased relationship marketing efforts and the company's proprietary credit card loyalty programs; appropriate inventory management; reduction of corporate overhead; effective operations of the Company's national bank's credit card operations; changes in interest rates; successful operation of saksfifthavenue.com; and effective execution of the spin-off of the Saks Fifth Avenue businesses. For additional information regarding these and other risk factors, please refer to Exhibit 99.1 to the Company's Form 10-K/A for the fiscal year ended January 29, 2000 filed with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov. The Company undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures the Company makes on related subjects in its reports with the Securities and Exchange Commission and in its press releases. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk primarily arises from changes in interest rates. Changes in interest rates may adversely affect the company's financial position, results of operations, and cash flows. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities and, if appropriate, through the use of derivative financial instruments. The Company does not enter into derivative financial instruments for trading purposes. The Company is exposed to interest rate risk through its securitization, borrowing, and derivative financial instrument activities, which are described in the Company's Annual Report to Shareholders on Form 10-K for the fiscal year ended January 29, 2000. Based on the Company's market risk sensitive instruments (including variable rate debt and derivative financial instruments) outstanding at October 28, 2000, the Company has determined that there was no material market risk exposure to the Company's consolidated financial position, results of operations, or cash flows as of such date.   SAKS INCORPORATED PART II. OTHER INFORMATION Item 6. Exhibits.     (a)    Exhibits.     10.1 Saks Incorporated 2000 Change of Control and Material Transaction Severance Plan   10.2 Employment Agreement between Saks Incorporated and R. Brad Martin, Chief Executive Officer and Chairman of the Board   10.3 Employment Agreement between Saks Incorporated and Douglas E. Coltharp, Executive Vice President and Chief Financial Officer   10.4 Employment Agreement between Saks Incorporated and Brian J. Martin, Executive Vice President and General Counsel   10.5 Employment Agreement between Saks Incorporated and James A. Coggin, President and Chief Operation Officer   10.6 Employment Agreement between Saks Incorporated and Donald E. Wright, Senior Vice President of Financial and Accounting   27.1 Financial Data Schedule     (b)    Form 8-K Reports. > > The following 8-Ks were filed during the quarter ended July 29, 2000: > > > > Date Filed Subject October 6, 2000 Historical comparable store sales > > information for Saks Incorporated, Saks Fifth Avenue Enterprises, and Saks > > Incorporated's Department Store Group > > > > > > > > > > > >   SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.                                                                                   SAKS INCORPORATED                                                                                                     &nbs Registrant                                                                                       December 12, 2000                                                                                                                   &n Date                                                                                 /s/ Douglas E. Coltharp                                                                                                                  Douglas E. Coltharp, Executive Vice                                                                                 President and Chief Financial Officer  

Exhibit 10-41 EXECUTION COPY EMPLOYMENT AGREEMENT           This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of June 14, 1999 (the "Agreement"), by and among Energy East Corporation, a New York corporation (the "Company"), CMP Group, Inc., a Maine corporation or its successor ("CMP"), and David T. Flanagan (the "Executive"), supersedes and replaces that certain Agreement dated December 31, 1997 and amended March 18, 1999, by and between CMP and the Executive (the "Prior Agreement").           The Board of Directors of the Company (the "Board") desires to provide for the employment of the Executive as a member of the management of the Company and certain of its subsidiaries and affiliates, and the Executive is willing to commit himself to serve the Company and its subsidiaries and affiliates, on the terms and conditions herein provided.           In order to effect the foregoing, the Company, CMP and the Executive wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:           1.          Defined Terms. The definitions of capitalized terms used in this Agreement, unless otherwise defined herein, are provided in the last Section hereof.           2.          Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company and its subsidiaries and affiliates, on the terms and conditions set forth herein, during the term of this Agreement (the "Term").           3.          Term of Agreement. The Term will commence at the Effective Time of the Merger as those terms are defined in the Agreement and Plan of Merger dated as of June 14, 1999, by and among CMP, the Company and EE Merger Corp., a Maine corporation and wholly owned subsidiary of the Company (the "Merger Agreement"), and end on the third anniversary of the day on which the Effective Time occurs, unless further extended as hereinafter provided. Commencing on the first day of the month following the Effective Time and each succeeding month thereafter, the Term of this Agreement shall automatically be extended for one (1) additional month unless the Company, or the Executive shall have given prior written notice not to extend this Agreement.           4.          Position and Duties. The Executive shall serve as President of the Company, and Chairman, President and Chief Executive Officer of CMP, and shall also serve in any such executive officer position of the Company or its subsidiaries and affiliates if so appointed by the Board, and shall report only, and directly, to the Chairman and Chief Executive Officer of the Company. Upon the Effective Time, the Executive shall be appointed to the Board of Directors of the Company and CMP. The Executive shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to the Executive only, and directly, by the Chairman and Chief Executive Officer of the Company. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company and its subsidiaries and affiliates; provided, however, that the Executive may also serve on the boards of directors or trustees or otherwise participate in the affairs of other non-affiliated companies and organizations, including, without limitation, industry associations and charitable and civic endeavors, as long as such service does not substantially interfere with the performance of his duties hereunder or violate his obligations under Section 10 hereof.           5.          Compensation and Related Matters.                     5.1.     Base Salary. (a) The Company shall pay, or cause to be paid, to the Executive an annual base salary ("Base Salary") during the period of the Executive's employment hereunder, which shall be at an initial rate which is no less than the rate of $550,000. The Base Salary shall be paid in substantially equal bi-weekly installments, in arrears. The Base Salary may be discretionarily increased by the Board from time to time as the Board deems appropriate in its business judgment. The Base Salary in effect from time to time shall not be decreased during the Term. During the period of the Executive's employment hereunder, the Board shall make an annual review of the Executive's compensation.           Compensation of the Executive by Base Salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The Base Salary payments (including any increased Base Salary payments) shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's Base Salary.                     5.2.     Benefit Plans. (a) The Executive shall be entitled to participate in or receive benefits under any "employee benefit plan" (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA")) and any employee benefit arrangement made available by the Company now or during the period of the Executive's employment hereunder to their executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements; provided, however, that there shall be no duplication of the benefits created by this Agreement. In the event of duplication of the type or nature of benefits, but not the amount, the Executive shall be entitled to receive the greater of the amount of benefits provided under the employee benefit plan or arrangement or created by this Agreement. The Executive's participation in such employee benefit plans and arrangements shall be on an appropriate level, as determined by the Board; provided that, the Executive shall be entitled to a term life insurance policy with a face amount no less than two and one-half times the Executive's base salary, which may be provided at the Company's election either through the Company's life insurance plan (with the applicable flexible credits to be used towards such life insurance policy) or outside of such life insurance plan. Notwithstanding anything in this Section 5.2(a) to the contrary (i) in addition to the above life insurance benefit, the Company shall pay the premiums (not to exceed $7,800 annually) on a term life insurance policy with a face amount of $700,000 (the "Replacement Policy"); provided, that in the event the Company is unable to obtain the Replacement Policy contract except with an annual premium greater than $7,800, the Executive shall have the option to pay the excess annual premium personally or to have the Company reduce the face amount of the Replacement Policy with the face amount that could be provided with the applicable annual premium) and (ii) the Executive shall not be entitled to any supplemental defined benefit pension amount provided outside of the Retirement Income Plan for Non-Union Employees of Central Maine Power Company, or any successor or replacement plan thereto (the "Basic Plan") in the event the Executive is entitled to a Supplemental Retirement Benefit, as set forth in Section 5.2(b) below. The Executive shall designate his spouse as the beneficiary or beneficiaries under the Replacement Policy and shall be entitled to designate the beneficiary under the Additional Life Insurance Policy and to change such designation for the Additional Life Insurance Policy at any time and from time to time, provided that, in the event that no beneficiary has been designated by the Executive at the time of his death, the policy benefits shall be paid in accordance with Section 11.2. The Executive shall not be entitled to any benefits under any split-dollar life insurance policy maintained by the Company or any of its subsidiaries and the Executive hereby acknowledges that any split-dollar life insurance policy in existence has been canceled as of the Effective Time.                               (b)      In the event that the Executive terminates his employment with the Company voluntarily on or after June 1, 2001, or his employment is terminated for reasons other than death or for Cause, the Executive shall be entitled to a fully-vested monthly supplemental retirement benefit equal to (i) the excess of (A) over (B), divided by twelve (12), where:                     (A)     is 45% of the Executive's Base Salary as of his Date of Termination, and                     (B)     is the annual amount payable to the Executive in the form of a single life annuity under the Basic Plan, commencing on the first of the month coinciding with or next following the Executive's Date of Termination, provided however, that for each month (if any) before the earliest commencement date of the Basic Plan benefit, the amount determined under this paragraph (B) shall be zero dollars ($0).            (The benefit payable under this Section 5.2(b) is the "Supplemental Retirement Benefit"). The Supplemental Retirement Benefit shall be paid in the form of an actuarially equivalent 75% joint and surviving spouse annuity (or a single life annuity if the Executive does not leave a spouse on the Date of Termination), commencing on the first of the month coinciding with or next following the later of the Executive's Date of Termination and June 1, 2001. Notwithstanding any other provision of this Section 5.2(b) to the contrary, (i) if the Supplemental Retirement Benefit commences later than June 1, 2001, the benefits shall be increased to be actuarially equivalent to a benefit commencing on June 1, 2001 and (ii) the Supplemental Retirement Benefit shall be reduced by the lesser of (A) the face amount of the proceeds of the Replacement Policy paid to the Executive's spouse and (B) $700,000; provided that, in the event the Executive is paying a portion of the premium towards the Replacement Policy, such reduction shall take into account (and be reduced by) the face amount of the Replacement Policy attributable to the premiums paid by the Executive. For all purposes of this Section 5.2(b), the actuarial equivalents shall be determined in accordance with the actuarial assumptions in effect under the Basic Plan at the date of determination.                     5.3.     Incentive Compensation. The Executive shall be entitled to participate in or receive benefits under any short or long-term incentive compensation plan made available by the Company now or during the period of the Executive's employment hereunder to their executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements; provided, however, that the value of the Executive's incentive compensation opportunity shall not be less than the value of the Executive's incentive compensation opportunity in effect immediately prior to the Effective Time; and provided , further that the Executive shall not be eligible to receive benefits pursuant to any incentive compensation plan, policy or arrangement of the Company to the extent the Executive is receiving a similar benefit pursuant to an incentive compensation plan, policy or arrangement of any of the Company's subsidiaries.                     5.4.     Fringe Benefits. The Executive shall be entitled to receive any fringe benefits which are made available by the Company now or during the period of the Executive's employment hereunder to their executives and key management employees including, without limitation, executive physical examinations as provided in accordance with the CMP's policies and practices immediately prior to the Effective Time.                     5.5.     Expenses. Upon presentation of reasonably adequate documentation to the Company, the Executive shall receive prompt reimbursement from the Company or a subsidiary thereof for all reasonable and customary business expenses incurred by the Executive in accordance with the Company's policy for reimbursement of business expenses.                     5.6.     Vacation. The Executive shall be entitled to five (5) weeks of vacation during each year of this Agreement, or such greater period as the Board shall approve, without reduction in salary or other benefits.           6.          Compensation Related to Disability. During the Term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties hereunder as a result of incapacity due to physical or mental illness, the Company shall pay, or cause to be paid, to the Executive his Base Salary at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability; provided, however, that such payments shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or any of its subsidiaries or under the Social Security disability insurance program, which amounts were not previously applied to reduce any such payment.           7.          Termination Compensation and Benefits.                     7.1.     If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's Base Salary (to the Executive or in accordance with Section 11.2 if the Executive's employment is terminated by his death) through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits (other than severance compensation and benefits) payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period.                     7.2.     In the event the Executive's employment is terminated prior to the expiration of the Term of the Agreement by the Executive for Good Reason or by the Company for reasons other than Cause (other than the death or Disability of the Executive), the Executive shall receive (i) continuation of his Base Salary and the benefits provided for in Sections 5.2 and 5.3 of this Agreement for the remainder of the Term, (ii) payment of a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such service up to a total of $10,000 and (iii) a lump sum payment equal to (A) the value of the fringe benefits that would have been provided to the Executive through the remainder of the Term in accordance with the Company's policies as of the date one year prior to the Date of Termination and (B) any unreimbursed expenses payable pursuant to Section 5.5 of this Agreement. For purposes of determining equivalent value of incentive compensation, the value of short-term incentive compensation shall be the amount of short-term compensation received by the Executive in the fiscal year ended immediately prior to the Date of Termination and the value of long-term incentive compensation shall be the value of long-term incentive compensation awards outstanding on the Date of Termination for performance periods ending after the Date of Termination, such value being determined based upon the projected target value of the applicable long-term incentive compensation award as determined by the Company in connection with the grant thereof. Continuation of the pension benefits provided under Section 5.3 shall consist of continued accrual of benefits for the remainder of the Term under any employee pension benefit plans (as that term is defined in Section 3(2) of ERISA), and any plan, program or arrangement providing supplemental retirement income payments, in which the Executive was participating at the time of termination of employment; provided that, the Supplemental Retirement Benefit, if any, shall continue as provided in Section 5.2(b) hereof. Notwithstanding the foregoing, to the extent the Company determines for any reason not to continue the retirement and welfare benefits provided under Sections 5.2 and 5.3, respectively, pursuant to the respective plan, program or arrangement, the Executive shall receive equivalent benefits outside such plan, program or arrangement at no additional cost (including, without limitation, tax costs) to the Executive. Notwithstanding any other provision in this Agreement, benefits provided under this Section 7.2 shall not be provided to the Executive to the extent such benefits would be duplicative of benefits provided elsewhere in this Agreement.                     7.3.     If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's normal post-termination compensation and benefits (other than severance compensation and benefits) to the Executive as such payments become due and the Supplemental Retirement Benefit, if any, shall continue as provided in Section 5.2(b) hereof. Such post-termination compensation and benefits (other than severance compensation and benefits) shall be determined under, and paid in accordance with, the Company or its subsidiaries' retirement, insurance and other compensation or benefit plans, programs and arrangements (other than this Agreement except as set forth in Section 5.2(a) hereof), as applicable.                     7.4.     (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, benefit, or distribution by the Company or its affiliates 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 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment ("Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.                               (b)     Subject to the provisions of Section 7.4(c) hereof, all determinations required to be made under this Section 7.4, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by the Company's principal outside accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Board and the Executive within fifteen (15) business days of the Date of Termination and/or such earlier date(s) as may be requested by the Company or the Executive (each such date and the Date of Termination shall be referred to as a "Determination Date" for purposes of this Section 7.4(b) and Section 7.5 hereof). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 7.4(b), shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm under this Section 7.4(b) shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7.4(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.                               (c)     The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of an Underpayment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i)          give the Company any information reasonably requested by the Company relating to such claim; (ii)          take such action in connection with contesting such claim as the Company 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 Company; (iii)          cooperate with the Company in good faith in order to effectively contest such claim; and (iv)          permit the Company to participate in any proceeding relating to such claim; provided , however, that the Company 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 Executive 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 7.4(c), the Company 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 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 shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall 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 or with respect to any imputed income with respect to such advance; and provided, further that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive 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.                               (d)     If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7.4(c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 7.4(c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7.4(c) hereof, a determination is made that the Executive shall 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 of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid.                     7.5.     The payments provided for in Section 7.4 hereof (other than Section 7.4(c) and (d)) shall be made not later than the fifth (5th) day following each Determination Date; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined by the Executive, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after each Determination Date. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code).                     7.6.     The Company also shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Payments (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder); provided, however, the Company shall not be required to pay to the Executive legal fees and expenses to the extent such legal fees and expenses were incurred in connection with a contest controlled by the Company pursuant to Section 7.4(c) hereof in connection with which the Company complied with its obligations under said Section 7.4(d). Such payments shall be made within five (5) business days after delivery of the Executive's written request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.           8.          Termination Procedures.                     8.1.     Notice of Termination. During the Term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, in the case of a termination by the Company for Cause or by the Executive for Good Reason, 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. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.                     8.2.     Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment during the Term of this Agreement, shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the substantial performance of the Executive's duties during such thirty (30) day period), and (iii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).           9.          No Mitigation. The Company agrees that, if the Executive's employment hereunder is terminated during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for hereunder (other than pursuant to Section 7.4(d) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.           10.          Confidentiality and Noncompetition.                     10.1.     The Executive will not, during or after the Term, disclose to any entity or person any information which is treated as confidential by the Company or any of its subsidiaries or affiliates, and not generally known or available in the marketplace, and to which the Executive gains access by reason of his position as an employee or director of the Company or any of its subsidiaries (each, an "EE Entity").                     10.2.     Except as permitted by the Company upon its prior written consent, the Executive shall not, during the Executive's employment hereunder, and, if at any time prior to the one year anniversary of the Effective Time the Executive terminates his own employment for Good Reason or the Company terminates his employment without Cause, for the period ending on the one-year anniversary of the Effective Time, enter, directly or indirectly, into the employ of or render or engage in, directly or indirectly, any services to any person, firm or corporation within the "Restricted Territory," which is a major competitor of any EE Entity with respect to products which any EE Entity is then producing or services which any EE Entity is then providing (a "Competitor"). However, it shall not be a violation of the immediately preceding sentence for the Executive to be employed by, or render services to, a Competitor, if the Executive renders those services only in lines of business of the Competitor which are not directly competitive with a primary line of business of any EE Entity or are outside of the Restricted Territory. For purposes of this Section 10.2, the "Restricted Territory" shall be the states and/or commonwealths of Connecticut, Vermont, Massachusetts, New Hampshire, Maine and Rhode Island.           11.          Successors; Binding Agreement.                     11.1.     In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate 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.                     11.2.     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 shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) 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 executors, personal representatives or administrators of the Executive's estate.                     11.3.     Except as provided herein, at the Effective Time, the Prior Agreement shall be terminated and no longer in effect; and the Executive expressly waives his rights to any payments under the Prior Agreement; provided, however, that the Executive shall be entitled to receive timely all salary and benefits, including, without limitation, incentive compensation, due pursuant to the Prior Agreement relating to all periods ending on or prior to the Effective Time, and that the Company shall be responsible for payment of such salary and benefits. Notwithstanding any other provision of this Agreement, this Agreement shall be null and void and of no further force or effect if the Merger Agreement is terminated without consummation of the Merger or if the Executive's employment with the Company and/or its subsidiaries terminates for any reason before the Effective Date.           12.          Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addressees 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 actual receipt: (a)     To the Company: Energy East Corporation One Canterbury Green P.O. Box 1196 Stamford, Connecticut 06901 Attention: Mr. Kenneth M. Jasinski                  Executive Vice President and General Counsel Telephone: (203) 325-0690 Telecopy:   (203) 325-1901 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Seth A. Kaplan, Esq. Telephone: (212) 403-1000 Telecopy:   (212) 403-2000 (b)     To CMP: CMP Group, Inc. 83 Edison Drive Augusta, Maine 04336 Attention: Anne M. Pare, Esq.                  Treasurer, Corporate Counsel and Secretary Telephone: (207) 623-3521 Telecopy:   (207) 621-4714 with a copy to: Thelen Reid & Priest LLP 40 West 57th Street New York, New York 10019 Attention: J. Michael Parish, Esq. Telephone: (212) 603-2000 Telecopy:   (212) 603-2001 (c)     To the Executive: At the Executive's residence address as maintained by the Company in the regular course of its business for payroll purposes.             13.          Miscellaneous.                     13.1.     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 Executive and such officers as may be specifically designated by the Board. No waiver by any party hereto at any time of any breach by any 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 any party which are not expressly set forth in this Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, except as otherwise provided in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York, without giving effect to choice of law principles.                     13.2.     All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. There shall be withheld from any payments provided for hereunder any amounts required to be withheld under federal, state or local law and any additional withholding amounts to which the Executive has agreed. The obligations under this Agreement of the Company or the Executive which by their nature and terms require satisfaction after the end of the Term shall survive such event and shall remain binding upon such party.           14.          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.           15.          Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.           16.          Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and initially determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing within thirty (30) days of submission to the Board and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any denial by the Board of any such subsequent appeal by the Executive shall be delivered to the Executive in writing within thirty (30) days of submission to the Board and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction .           17.          Definitions. For purposes of this Agreement, the following terms shall have the meaning indicated below:                               (a)     "Base Salary" shall have the meaning stated in Section 5.1 hereof.                               (b)     "Cause" for termination by the Company of the Executive's employment, for purposes of this Agreement, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 8.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company or its subsidiaries.                               (c)     "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.                               (d)     "Company" shall mean Energy East, or any successor to its business and/or assets.                               (e)     "Date of Termination" shall have the meaning stated in Section 8.2 hereof.                               (f)     "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from substantial performance of the Executive's duties hereunder for the maximum number of months applicable to the Executive under the Company's Disability Policy for Salaried Employees (or any successor policy) (but in no event for less than six (6) consecutive months), the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the substantial performance of the Executive's duties.                               (g)     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.                               (h)     "Excise Tax" shall have the meaning stated in Section 7.4(a) hereof.                               (i)     "Executive" shall mean the individual named in the first paragraph of this Agreement.                               (j)     "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraphs (i) or (ii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i)          the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial alteration in the nature or status of the Executive's responsibilities consistent with the titles set forth in Section 4; (ii)          any material breach of any provision of this Agreement by the Company; (iii)          the relocation of the Company's principal executive offices to a location which is not within the 25-mile radius of Augusta, Maine or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the business of the Company or CMP, to the extent such travel obligations are substantially consistent with the Executive's positions with the Company and CMP; or (iv)          any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8.1; for purposes of this Agreement, no such purported termination shall be effective.           The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.                               (k)     "Gross-Up Payment" shall have the meaning stated in Section 7.4(a) hereof.                               (l)     "Notice of Termination" shall have the meaning stated in Section 8.1 hereof.                               (m)     "Severance Payments" shall mean those payments described in Section 7.2 hereof.                               (n)     "Term" shall have the meaning stated in Section 3 hereof.             IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. ENERGY EAST CORPORATION  /s/ Kenneth M. Jasinski                       By: Title: CMP GROUP, INC.  /s/ Arthur W. Adelberg                        By: Arthur W. Adelberg Title: Executive Vice President EXECUTIVE  /s/ David T. Flanagan                         David T. Flanagan

QuickLinks -- Click here to rapidly navigate through this document U.S. $425,000,000 CREDIT AGREEMENT (SHORT TERM FACILITY)     Dated as of October 31, 2000 HORMEL FOODS CORPORATION, a Delaware corporation (the "Borrower"), the Banks listed on the signature pages (the "Banks," together with each bank which becomes a lender hereunder pursuant to Section 8.07, collectively the "Lenders"), SUNTRUST BANK, as Syndication Agent for the Lenders, U.S. BANK NATIONAL ASSOCIATION, as Documentation Agent for the Lenders, and CITICORP USA, INC. ("CUSA"), as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), agree as follows: ARTICLE I 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): "Adjusted Eurodollar Rate" shall mean, for any Interest Period for a Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate obtained by dividing (a) the rate per annum (rounded upward, if necessary, to the nearest whole multiple of 1/16 of 1%) that appears on the Dow Jones Markets (Telerate) page 3750 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate) with maturities comparable to such Interest Period at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage, subject, however, to the provisions of Section 2.02(b). "Administrative Agent" means CUSA, in its capacity as administrative agent for the Lenders, or any Person serving as its successor. "Advance" means an advance by a Lender to the Borrower as part of a Borrowing pursuant to Section 2.01, and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of 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. "Agent" or "Agents" means the Administrative Agent; provided, that, solely for purposes of Sections 7.02, 7.04, 7.05, 8.04, 8.07(b)(iv), 8.08 and 8.12 of this Agreement the term "Agent" or "Agents", as the case may be, shall include the Syndication Agent, the Documentation Agent and the Arranger. "Agreement" means this Credit Agreement as it may be amended, supplemented or otherwise modified from time to time. "Applicable Lending Office" means, with respect to each 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, for any period for which any interest payment is to be made with respect to any Advance, the interest rate per annum derived by dividing (i) the sum of Daily Margins for each of the days included in such period by (ii) the number of days included in such period. "Arranger" means Salomon Smith Barney Inc., as sole lead arranger and book runner. 1 -------------------------------------------------------------------------------- "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 A hereto. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy" as now and hereafter in effect, or any successor statute. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be 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 (which is a rate set by Citibank based upon various factors including Citibank'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);     (b) the sum of (A) 1/2 of one percent per annum, plus (B) the rate obtained by dividing (x) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks (such three-week moving average being determined weekly by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank, in either case adjusted to the nearest 1/16 of one percent or, if there is no nearest 1/16 of one percent, to the next higher 1/16 of one percent), by (y) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including, but not limited to, any marginal reserve requirements for Citibank in respect of liabilities consisting of or including (among other liabilities) three-month nonpersonal time deposits of at least $100,000), plus (C) the average during such three-week period of the daily net annual assessment rates estimated by Citibank for determining the current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation for insuring three-month deposits in the United States; or     (c) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance which bears interest at a rate per annum determined on the basis of the Base Rate, as provided in Section 2.06(a). "Borrower" means Hormel Foods Corporation, a Delaware corporation. "Borrowing" means a borrowing consisting of simultaneous Advances of the same Type made on the same day pursuant to the same Notice of Borrowing by each of the Lenders pursuant to Section 2.02(a). "Business Day" means a day of the year other than a Saturday or a Sunday on which banks are not required or authorized to close in New York City or Los Angeles and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Capital Lease" means, with respect to any Person, any lease of any property by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. "Cash" means money, currency or a credit balance in a deposit account. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political 2 -------------------------------------------------------------------------------- subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating generally obtainable from either S&P or Moody's, (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of A-1 or higher from S&P or P-1 or higher from Moody's, and (d) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any lender. "Citibank" means Citibank, N.A. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" has the meaning specified in Section 2.01. "Commitment Termination Date" means October 30, 2001, the date that occurs 364 days from the Effective Date; provided, however, that, subject to the provisions of Section 2.15, if any Lender has consented to an Extension Request with regard to the then existing Commitment Termination Date, the then existing Commitment Termination Date as to such Lender shall be automatically extended for 364 days from the then existing Termination Date. "Compliance Certificate" means a certificate substantially in the form of Exhibit B hereto, delivered to the Lenders by the Borrower pursuant to Section 5.01(b)(iii). "Convert," "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.08. "CUSA" means Citicorp USA, Inc. "Daily Margin" means, for any date of determination and designated Level applicable on such date of determination, the following interest rates per annum:     TYPE OF ADVANCE --------------------------------------------------------------------------------       Base Rate Advance --------------------------------------------------------------------------------   Eurodollar Rate Advance --------------------------------------------------------------------------------   Level 1   0 % 0.4300 % Level 2   0 % 0.5400 % Level 3   0 % 0.6500 % Level 4   0 % 0.7250 % Level 5   0 % 0.9250 % provided that, (i) until the earlier of (a) the Rating Date or (b) July 1, 2001, the applicable Level shall be deemed to be Level 3 and (ii), on and after July 1, 2001, unless and until the Rating Date has occurred (or if, for any reason, a rating, once established, is unavailable), the applicable Level shall be deemed to be Level 5; provided further that, on and after July 1, 2001, if the Rating Date has not occurred, but a rating has been established by Moody's or S&P for the short-term, unsecured Debt of the Borrower, the applicable Level shall be deemed to be Level 3; provided further that, for the period between December 15, 2000 and January 15, 2001, the applicable Daily Margin shall be the rate per annum determined as set forth above plus, in each case, .125% per annum. If any change in the rating established by S&P or Moody's with respect to Long-Term Debt shall result in a change in the applicable Level, the change in the Daily Margin shall be effective as of the date on which such rating change is publicly announced. "Debt" means (i) indebtedness for borrowed money or for the deferred purchase price of property or services, (ii) obligations as lessee under Capital Leases, or (iii) obligations under guarantees in respect of indebtedness or in respect of obligations of others of the kinds referred to in clause (i) or (ii) above. "Designating Lender" has the meaning specified in Section 8.07(g). 3 -------------------------------------------------------------------------------- "Documentation Agent" means U.S. Bank National Association, in its capacity as documentation agent for the Lenders, or any Person serving as its successor. "Dollars" and the sign "$" each means lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which an Eligible Assignee became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agents. "EBITDA" means, for any period, consolidated net income (excluding extraordinary, unusual, or nonrecurring gains or losses), plus provision for taxes of the Borrower and its Subsidiaries, plus interest expense of the Borrower and its Subsidiaries, plus depreciation expense of the Borrower and its Subsidiaries, plus amortization of intangibles of the Borrower and its Subsidiaries, as determined on a consolidated basis in conformity with GAAP. "Effective Date" means the date on which all of the conditions in Section 3.01 were satisfied or waived, which date was October 31, 2000. "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economical Cooperation and Development (the "OECD"), or a political subdivision of any such country and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; and (iii) any Person engaged in the business of lending and that is an Affiliate of a Lender or of a Person of which a Lender is a Subsidiary. "Environmental Law" means any and all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions of any federal, state or local governmental authority within the United States or any State or territory thereof and which relate to the environment or the release of any materials into the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Pension Plan of a notice of intent to terminate such Pension Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility by the Borrower or an ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or any ERISA Affiliate to make a payment to a Pension Plan required under Section 302(f)(1) of ERISA, which Section imposes a lien for failure to make required payments; (vi) the adoption of an amendment to a Pension Plan requiring the provision of security to such Pension Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Pension Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which, in the reasonable judgment of the Borrower, might constitute grounds under 4 -------------------------------------------------------------------------------- Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Pension Plan. "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" opposite its name on Schedule I hereto 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 Advance" means an Advance that bears interest as provided in Section 2.06(b). "Eurodollar Rate Reserve Percentage" 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 requirements (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for member banks in the Federal Reserve System 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. "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. "GAAP" means 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 other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Hormel Foundation" is a Minnesota non-profit corporation organized for religious, charitable, scientific, literary or educational purposes. The Hormel Foundation is a public foundation. The Hormel Foundation is the beneficial owner of 44.89% of common stock of The Hormel Foods Corporation as of October 30, 1999. "Hostile Acquisition" means the acquisition of the capital stock or other equity interests of a Person (the "Target") through a tender offer or similar solicitation of the owners of such capital stock or other equity interests which has not been approved (prior to such acquisition) by resolutions of the Board of Directors of the Target or by similar action if the Target is not a corporation or as to which such approval has been withdrawn. "Insufficiency" means, with respect to any Pension Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance, or on the date of continuation of 5 -------------------------------------------------------------------------------- such Advance as a Eurodollar Rate Advance upon expiration of successive Interest Periods applicable thereto, or on the date of Conversion of a Base Rate Advance into a Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may select in the Notice of Borrowing or the Notice of Conversion/Continuation for such Advance; provided, however, that: (i)  the Borrower may not select any Interest Period in respect of Advances which ends after the earliest Commitment Termination Date of any Lender then in effect; (ii)  Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; 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. "Lenders" means the Lenders listed on Schedule I hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Level" means Level 1, Level 2, Level 3, Level 4 or Level 5, as the case may be. "Level 1" means that, as of any date of determination, the Long-Term Debt carries either of the following ratings:     "A+" from S&P     "A1" from Moody's "Level 2" means that, as of any date of determination, the criteria of Level 1 are not satisfied and the Long-Term Debt carries either of the following ratings:     "A" from S&P     "A2" from Moody's "Level 3" means that, as of any date of determination, the criteria of neither Level 1 nor Level 2 are satisfied and the Long-Term Debt carries either of the following ratings:     "A-" from S&P     "A3" from Moody's "Level 4" means that, as of any date of determination, the criteria of neither Level 1, Level 2 nor Level 3 are satisfied and the Long-Term Debt carries either of the following ratings:     "BBB+" from S&P     "Baa1" from Moody's "Level 5" means that, as of any date of determination, the criteria of neither Level 1, Level 2, Level 3 nor Level 4 are satisfied. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Loan Documents" means this Agreement and the related documents. "Long-Term Debt" means senior, unsecured, long term debt securities of the Borrower. "Margin Stock" has the meaning assigned to that term in Regulation U promulgated by the Board of Governors of the Federal Reserve System, as in effect from time to time. 6 -------------------------------------------------------------------------------- "Material Subsidiary" means any Subsidiary of the Borrower having total assets in excess of $20,000,000. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate of the Borrower is making, or is obligated to make, contributions or has Withdrawal Liability. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4063, 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Debt" means amounts incurred by the Borrower and its subsidiaries and classified as Debt pursuant to clauses (i) and (ii) of the definition thereof minus the sum of Cash and Cash Equivalents. "Net Income" means net income in accordance with GAAP. "Net Worth" means minority interests, preferred stock and common stock and other equity, as shown on the consolidated balance sheet of the Borrower and its Subsidiaries; provided that there shall be excluded from the calculation of Net Worth any unrealized gains or losses (net of taxes) on securities available for sale. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit C hereto, delivered to the Administrative Agent by the Borrower pursuant to Section 2.08. "Payment Office" means the principal office of CUSA, located on the date hereof at 2 Penns Way, Suite 200, New Castle, Delaware 19720 (or such other place as the Administrative Agent may designate by notice to the Borrower and the Lenders from time to time). "PBGC" means the U.S. Pension Benefit Guaranty Corporation. "Pension Plan" means a Single Employer Plan or a Multiple Employer Plan or both. "Person" means an individual, partnership, limited liability company, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Rating Date" means the date on which a rating on the Long-Term Debt is established by S&P or Moody's. "Register" has the meaning specified in Section 8.07(c). "Requisite Lenders" means at any time Lenders holding greater than 51% of the then aggregate unpaid principal amount of the Advances held by Lenders, or, if no such principal amount is then outstanding, Lenders having greater than 51% of the Commitments (provided that, for purposes hereof, neither the Borrower, nor any of its Affiliates, if a Lender, shall be included in (i) the Lenders holding such amount of the Advances or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Advances or the total Commitments). "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies. "SEC" means the Securities and Exchange Commission and any successor agency. 7 -------------------------------------------------------------------------------- "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4062 or 4069 of ERISA in the event such plan has been or were to be terminated. "SPV" has the meaning specified in Section 8.07(g). "SSBI" means Solomon Smith Barney, Inc. "Subsidiary" of any Person means, as of any time of determination, any corporation, association, partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of stock or other securities entitled to vote in the election of directors, managers or trustees thereof is at such time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Syndication Agent" means SunTrust Bank, in its capacity as syndication agent for the Lenders, or any Person serving as its successor. "Termination Date" means, with respect to any Lender, the earlier of (i) the Commitment Termination Date of such Lender and (ii) the date of termination in whole of the Commitments of all Lenders pursuant to Section 2.04 or 6.01. "Total Utilization of Commitments" means at any date of determination the aggregate principal amount of all Advances outstanding at such date. "Type" means, with reference to an Advance, a Base Rate Advance or a Eurodollar Rate Advance. "Withdrawal Liability" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA.     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" each means "to but excluding".     Section 1.03  Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All computations determining compliance with financial covenants or terms, including definitions used therein, shall be prepared in accordance with generally accepted accounting principles in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements delivered to the Lenders pursuant to Section 4.01(e). If at any time the computations for determining compliance with financial covenants or provisions relating thereto utilize generally accepted accounting principles different than those then being utilized in the financial statements being delivered to the Lenders, such financial statements shall be accompanied by a reconciliation statement. ARTICLE II 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 Termination Date of such Lender in an aggregate amount not to exceed at any time outstanding the amount set opposite such Lender's name on Schedule II hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "Commitment"); provided that (i) in no event shall the aggregate principal 8 -------------------------------------------------------------------------------- amount of Advances from any Lender outstanding at any time exceed its Commitment then in effect and (ii) the Total Utilization of Commitments shall not exceed the aggregate Commitments then in effect.     (b) Each Borrowing shall be in an aggregate amount not less than $5,000,000 or a multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made 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 2.05(b) and reborrow under this Section 2.01.     Section 2.02  Making the Advances.       (a) Each Borrowing shall be made on notice, given not later than (x) 11:00 A.M. (New York City time) on the date of a proposed Borrowing consisting of Base Rate Advances and (y) 11:00 A.M. (New York City time) on the third Business Day prior to the date of a proposed Borrowing consisting of Eurodollar Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a "Notice of Borrowing") shall be sent by telecopier, confirmed immediately in writing, in substantially the form of Exhibit D 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 comprised of Eurodollar Rate Advances, the initial Interest Period for each such Advance. The Borrower may, subject to the conditions herein provided, borrow more than one Borrowing on any Business Day. Each Lender shall, before 2:00 P.M. (New York City time) in the case of a Borrowing consisting of Base Rate Advances and before 11:00 A.M. (New York City time) in the case of a Borrowing consisting of Eurodollar Rate Advances, in each case 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. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, 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,     (i)  the Borrower may not select Eurodollar Rate Advances for any Borrowing or with respect to the Conversion or continuance of any Borrowing if the aggregate amount of such Committed Borrowing or such Conversion or continuance is less than $10,000,000;     (ii) there shall be no more than five Interest Periods relating to Committed Borrowings consisting of Eurodollar Rate Advances outstanding at any time;     (iii) if any Lender shall, at least one Business Day before the date of any requested Borrowing, 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 that 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 Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, the Commitment of such Lender to make Eurodollar Rate Advances or to Convert all or any portion of Base Rate Advances shall forthwith be suspended until the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist and such Lender's then outstanding Eurodollar Rate Advances, if any, shall be converted to Base Rate Advances as of the end of any applicable Interest Period or at such earlier time as may be legally required; to the extent that such affected Eurodollar Rate Advances become Base Rate Advances, all payments of principal that would have been otherwise applied to such Eurodollar Rate Advances shall be applied instead to such Lender's Base Rate Advances; provided that if Requisite Lenders are subject to the same 9 -------------------------------------------------------------------------------- illegality or assertion of illegality, then the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or any subsequent Borrowing or to Convert all or any portion of Base Rate Advances shall forthwith be suspended until the Administrative Agent shall notify the Borrower that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance; and     (iv) if the Requisite Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Adjusted Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Requisite Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be made as a Base Rate Advance.     (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 incurred by such Lender by reason of 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 or by reason of the termination of hedging or other similar arrangements, in each case when such Advance is not made on such date (other than by reason of (i) a breach of a Lender's obligations hereunder or (ii) a suspension of Eurodollar Rate Advances under clauses (iii), (iv) or (v) of paragraph (b) of this Section 2.02), including without limitation, as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III.     (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 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.     (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but 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.     Section 2.03  Fees.       (a) Facility Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee on such Lender's daily average Commitment, whether used or unused, from the Effective Date in the case of each Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date of such Lender, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment, commencing December 31, 10 -------------------------------------------------------------------------------- 2000, and on the Termination Date of such Lender, in an amount equal to the product of (i) such Lender's daily average Commitment, whether used or unused, in effect during the period for which such payment that is to be made times (ii) the weighted average rate per annum that is derived from the rates determined pursuant to the table set forth below based upon ratings on the Long-Term Debt: Level --------------------------------------------------------------------------------   Facility Fee Rate -------------------------------------------------------------------------------- 1   0.07% 2   0.085% 3   0.10% 4   0.15% 5   0.20% provided that, (i) until the earlier of (a) the Rating Date or (b) July 1, 2001, the applicable Level shall be deemed to be Level 3 and (ii), on and after July 1, 2001, unless and until the Rating Date has occurred (or if, for any reason, a rating, once established, is unavailable), the applicable Level shall be deemed to be Level 5; provided further that, on and after July 1, 2001, if the Rating Date has not occurred, but a rating has been established by Moody's or S&P for the short-term, unsecured Debt of the Borrower, the applicable Level shall be deemed to be Level 3. If any change in the rating established by S&P or Moody's with respect to Long-Term Debt shall result in a change in the Level, the change in the facility fee shall be effective as of the date on which such rating change is publicly announced.     (b) Agents' Fees. The Borrower agrees to pay to the Administrative Agent and the Arranger the fees payable to each such Agent pursuant to the fee letter dated as of June 29, 2000 among the Borrower, CUSA and SSBI, in the amounts and at the times specified in such letter.     Section 2.04  Optional Termination and Reduction of the Commitments.  The Borrower shall have the right, upon at least three (3) 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 (i) each partial reduction shall be in the aggregate amount of $10,000,000 or a multiple of $1,000,000 in excess thereof, and (ii) the aggregate of the Commitments of the Lenders shall not be reduced to an amount which is less than the Total Utilization of Commitments. Once so reduced or terminated pursuant to this Section 2.04, Commitments of the Lenders shall not be reinstated.     Section 2.05  Repayment and Prepayment of Advances.       (a) Mandatory Repayment on Certain Date. The Borrower shall repay the outstanding principal amount of each Advance made by each Lender on the Termination Date of such Lender.     (b) Voluntary Prepayments of Borrowings.     (i)  The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in this subsection (b).     (ii) The Borrower may, upon notice to the Administrative Agent no later than 11:00 A.M. (New York time) (A) on the date the Borrower proposes to prepay, in the case of Base Rate Advances and (B) at least five (5) Business Days' notice to the Administrative Agent in the case of Eurodollar 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; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $2,000,000 and multiples of $1,000,000 in excess thereof, and (y) in the case of any such prepayment of any Eurodollar Rate Advance, the Borrower shall pay all accrued interest to the date of such prepayment on the portion of such Eurodollar Rate Advance being prepaid and shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). 11 --------------------------------------------------------------------------------     Section 2.06  Interest on Advances.  The Borrower shall pay to each Lender interest accrued on the principal amount of each Advance outstanding from time to time from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:     (a) Base Rate Advances. If such Advance is a Base Rate Advance, a rate per annum equal at all times to (i) the Base Rate in effect from time to time plus (ii) the Applicable Margin, if any, payable quarterly in arrears on the last day of each March, June, September and December during the term of this Agreement, commencing December 31, 2000, and on the Termination Date of the applicable Lender; provided that any amount of principal, interest, fees and other amounts payable under this Agreement (including, without limitation, the principal amount of Base Rate Advances, but excluding the principal amount of Eurodollar Rate Advances) which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to 2% per annum above the Base Rate in effect from time to time.     (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the sum of (i) the Adjusted Eurodollar Rate for such Interest Period plus (ii) the Applicable Margin, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on the day which occurs during such Interest Period three months from the first day of such Interest Period; provided that any principal amount of any Eurodollar Rate Advance which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to (A) during the Interest Period applicable to such Eurodollar Rate Advance, the greater of (x) 2% per annum above the Base Rate in effect from time to time and (y) 2% per annum above the rate per annum required to be paid on such amount immediately prior to the date on which such amount became due and (B) after the expiration of such Interest Period, 2% per annum above the Base Rate in effect from time to time.     Section 2.07  Interest Rate Determination.  The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a) or 2.06(b).     Section 2.08  Voluntary Conversion or Continuation of Advances.       (a) The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 12:00 noon (New York City time) on the third Business Day prior to the date of the Notice of Conversion/Continuation, and subject to the provisions of Section 2.02(b), (1) Convert all Advances of one Type comprising the same Borrowing into Advances of another Type and (2) upon the expiration of any Interest Period applicable to Advances which are Eurodollar Rate Advances, continue all (or, subject to Section 2.02(b), any portion of) such Advances as Eurodollar Rate Advances and the succeeding Interest Period(s) of such continued Advances shall commence on the last day of the Interest Period of the Advances to be continued; provided, however, that any Conversion of any Eurodollar Rate Advances into Base Rate Advances shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances. Each such Notice of Conversion/Continuation shall, within the restrictions specified above, specify (i) the date of such continuation or Conversion, (ii) the Advances (or, subject to Section 2.02(b), any portion thereof) to be continued or Converted, (iii) if such continuation is of, or such Conversion is into, Eurodollar Rate Advances, the duration of the Interest Period for each such Advance, and (iv) in the case of a continuation of or a Conversion into a Eurodollar Rate Advance, that no Potential Event of Default or Event of Default has occurred and is continuing.     (b) If upon the expiration of the then existing Interest Period applicable to any Advance which is a Eurodollar Rate Advance, the Borrower shall not have delivered a Notice of Conversion/ 12 -------------------------------------------------------------------------------- Continuation in accordance with this Section 2.08, then such Advance shall upon such expiration automatically be Converted to a Base Rate Advance.     (c) After the occurrence of and during the continuance of a Potential Event of Default or an Event of Default, the Borrower may not elect to have an Advance be made or continued as, or Converted into, a Eurodollar Rate Advance after the expiration of any Interest Period then in effect for that Advance.     Section 2.09  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 in the case of Eurodollar Rate Advances 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; provided that Borrower shall have no obligation to pay an additional amount in respect of any increased cost attributable to the period before 90 days prior to the date of such demand. A certificate as to the amount and manner of calculation 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; provided that Borrower shall have no obligation to pay an additional amount in respect of any additional amount attributable to the period before 90 days prior to the date of such demand. A certificate as to such amounts and the manner of calculation thereof submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.     (c) If a Lender shall change its Applicable Lending Office, such Lender shall not be entitled to receive any greater payment under Section 2.09 or 2.11 than the amount such Lender would have been entitled to receive if it had not changed its Applicable Lending Office, unless such change was made at the request of the Borrower or at a time when the circumstances giving rise to such greater payment did not exist.     Section 2.10  Payments and Computations.       (a) The Borrower shall make each payment hereunder not later than 1:00 P.M. (New York City time) on the day when due in Dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. Subject to the immediately succeeding sentence, the Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees ratably (other than amounts payable pursuant to Section 2.09 or 2.11 or, to the extent the Termination Date is not the same for all Lenders, pursuant to Section 2.05(a)) to the 13 -------------------------------------------------------------------------------- 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 receipt of principal or interest paid after an Event of Default and an acceleration or a deemed acceleration of amounts due hereunder, the Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest ratably in accordance with each Lender's outstanding Advances (other than amounts payable pursuant to Section 2.09 or 2.11) to the Lenders for the account of their respective Applicable Lending Offices. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(c), 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 the 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, and all computations of interest based on the Adjusted Eurodollar Rate or the Federal Funds Rate and of facility fees shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or such fees are 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 shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee, as the case may be; provided, however, 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.     Section 2.11  Taxes.       (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.10, 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 (i) in the case of each Lender and each Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or such Agent (as the case may be) is organized or any political subdivision thereof or in which its principal office is located, (ii) in the case of each Lender taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof and (iii) in the case of each Lender and each Agent, taxes imposed by the United States by means of withholding at the source if and to the extent that such taxes shall be in effect and shall be applicable on the date hereof 14 -------------------------------------------------------------------------------- in the case of each Bank and on the effective date of the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender, on payments to be made to the Agents or such Lender's Applicable Lending Office (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 either 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 2.11) such Lender or such 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 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 each Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by such Lender or such 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 such Agent (as the case may be) makes written demand therefor.     (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.     (e) Each Lender organized under the laws of a jurisdiction outside the United States, on the date of the Assignment and Acceptance pursuant to which it becomes a 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-8EC1, as appropriate, or any successor form prescribed by the Internal Revenue Service, to establish that such Lender is not subject to United States withholding tax with respect to any payments to such Lender of interest payable under this Agreement. 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 2.11(a).     (f)  For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.11(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 2.11(a) 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, at the expense of such Lender, take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.     (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.11 shall survive the payment in full of principal and interest hereunder.     Section 2.12  Sharing of Payments, Etc.  If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the 15 -------------------------------------------------------------------------------- Advances made by it (other than pursuant to Section 2.09 or 2.11 or, to the extent the Termination Date is not the same for all Lenders, pursuant to Section 2.05(a)) 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 2.12 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 2.13  Evidence of Debt.       (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 owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.     (b) The Register maintained by the Administrative Agent pursuant to Section 8.07(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date, amount and tenor, as applicable, of each Borrowing, the Type of Advances comprising such Borrowing and the Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof.     (c) The entries made in the Register shall be conclusive and binding for all purposes, absent manifest error.     (d) If, in the opinion of any Lender, a promissory note or other evidence of debt is required, appropriate or desirable to reflect or enforce the indebtedness of the Borrower resulting from the Advances made, or to be made, by such Lender to the Borrower, then, upon request of such Lender, the Borrower shall promptly execute and deliver to such Lender a promissory note substantially in the form of Exhibit E, payable to the order of such Lender in an amount up to the maximum amount of Advances payable or to be payable by the Borrower to the Lender from time to time hereunder.     Section 2.14  Use of Proceeds.       (a) Advances shall be used by the Borrower for commercial paper backup and for general corporate purposes; provided that proceeds of Advances and proceeds of commercial paper as to which this Agreement provides backup shall not be used for any Hostile Acquisition.     (b) No portion of the proceeds of any Advances under this Agreement shall be used by the Borrower or any of its Subsidiaries in any manner which might cause the Advances or the application of such proceeds to violate, or require any Lender to make any filing or take any other action under, Regulation U, Regulation T, or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Securities Exchange Act of 1934, in each case as in effect on the date or dates of such Advances and such use of proceeds. 16 --------------------------------------------------------------------------------     Section 2.15  Extension of the Commitment Termination Date.  The Borrower may, upon not less than 30 days (but not more than 45 days) notice prior to the then current Commitment Termination Date to the Administrative Agent (which shall notify each Lender of receipt of such request), propose to extend the Commitment Termination Date for an additional 364 days measured from the Commitment Termination Date then in effect. Each Lender shall endeavor to respond to such request, whether affirmatively or negatively (such determination to be in the sole discretion of such Lender), by notice to the Borrower and the Administrative Agent no earlier than 30 days prior to the then current Commitment Termination Date (but in any event no later than 20 days prior to the then current Commitment Termination Date). Subject to the execution by the Borrower, the Administrative Agent and such Lenders of a duly completed Extension Agreement in substantially the form of Exhibit F hereto, the Commitment Termination Date applicable to the Commitment of each Lender so affirmatively notifying the Borrower and the Administrative Agent shall be extended for the period specified above; provided that no Commitment Termination Date of any Lender shall be extended unless by the date 10 days prior to the Termination Date then in effect Lenders having more than 51% in aggregate amount of the Commitments in effect at the time any such extension is requested shall have elected so to extend their Commitments. Any Lender which does not give such notice to the Borrower and the Administrative Agent by the date 10 days prior to the Commitment Termination Date then in effect shall be deemed to have elected not to extend as requested, and the Commitment of each non-extending Lender shall terminate on its Termination Date determined without giving effect to such requested extension.     Section 2.16  Substitution of Lenders.  If any Lender requests compensation from the Borrower under Section 2.09(a) or (b) or Section 2.11 or if any Lender declines to extend its Commitment Termination Date pursuant to Section 2.15, the Borrower shall have the right, with the assistance of the Agents, to seek one or more Eligible Assignees (which may be one or more of the Lenders) reasonably satisfactory to the Administrative Agent and the Borrower to purchase the Advances and assume the Commitments of such Lender, and the Borrower, the Administrative Agent, such Lender, and such Eligible Assignees shall execute and deliver an appropriately completed Assignment and Acceptance pursuant to Section 8.07(a) hereof to effect the assignment of rights to and the assumption of obligations by such Eligible Assignees; provided that (i) such requesting Lender shall be entitled to compensation under Section 2.09 and 2.11 for any costs incurred by it prior to its replacement, (ii) no Event of Default, or Potential Event of Default, has occurred and is continuing, (iii) the Borrower has satisfied all of its obligations under the Loan Documents relating to such Lender, including without limitation obligations, if any, under Section 8.04(b), (iv) in the case of the Commitments of any Lenders that have declined to extend their Commitment Termination Date pursuant to Section 2.15, the Lenders that have extended their Commitment Termination Date pursuant to Section 2.15 shall on a ratable basis have the right (but no obligation), for a period of seven days following receipt of notice from the Administrative Agent at the request of the Borrower that the Commitments of non-extending Lenders may be assumed, to assume the Commitments of such declining Lenders before any other Eligible Assignees assume such Commitments, and (v) the Borrower shall have paid the Administrative Agent a $3,500 administrative fee if such replacement Lender is not an existing Lender. ARTICLE III CONDITIONS OF EFFECTIVENESS AND LENDING     Section 3.01  Conditions Precedent to Effectiveness.       (a) The effectiveness of the Agreement is subject to the prior or concurrent satisfaction of the following conditions and the Administrative Agent shall receive for the account of each Lender party to 17 -------------------------------------------------------------------------------- the Agreement the following, each, unless otherwise noted, dated the Effective Date, and in form and substance satisfactory to the Administrative Agent and the Arranger:      (i) Copies of resolutions of the Board of Directors of the Borrower (or its Executive Committee, together with evidence of the authority of the Executive Committee) approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, certified as of a recent date prior to the Effective Date.     (ii) 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 by the Borrower hereunder.     (iii) Certified copies of the Borrower's Certificate of Incorporation, together with good standing certificates from the state of Delaware and the State of Minnesota, each to be dated a recent date prior to the Effective Date;     (iv) Copies of the Borrower's Bylaws, certified as of the Effective Date by their respective Secretary or an Assistant Secretary;     (v) Executed originals of this Agreement and the other documents to be delivered by the Borrower hereunder;     (vi) A favorable opinion of Mahlon C. Schneider, General Counsel to the Borrower, substantially in the form of Exhibit G hereto;    (vii) A favorable opinion of O'Melveny & Myers LLP, counsel for the Agents, substantially in the form of Exhibit H hereto;    (viii) A certificate of an authorized officer of the Borrower to the effect that since October 30, 1999, there has been no material adverse change in the operations, business or financial or other condition or properties of the Borrower and its Subsidiaries, taken as a whole;     (ix) Payment of up front fees to the Lenders, as agreed by and among the Arranger, Lenders and the Borrower.     (b) The Administrative Agent shall have received such other approvals, opinions or documents as the Requisite Lenders through the Administrative Agent may reasonably request (which request shall be made in sufficient time to allow the Borrower to comply therewith).     Section 3.02  Conditions Precedent to Each Borrowing.  The obligation of each Lender to make an Advance on the occasion of a Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that (x) the Administrative Agent shall have received a Notice of Borrowing with respect thereto in accordance with Section 2.02 and (y) on the date of such Borrowing (a) 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):     (i)  The representations and warranties of the Borrower contained in Section 4.01 (other than in Section 4.01(e)(ii)) are correct 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, except to the extent that any such representation or warranty expressly relates only to an earlier date, in which case they were correct as of such earlier date; 18 --------------------------------------------------------------------------------     (ii) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or a Potential Event of Default. ARTICLE IV REPRESENTATIONS AND WARRANTIES     Section 4.01  Representations and Warranties of the Borrower.  The Borrower represents and warrants as follows:     (a) Due Organization, etc. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Material Subsidiary is listed in Schedule 4.01(a) and is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation in which failure to be so duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation would have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole. The Borrower and each of its Material Subsidiaries are qualified to do business in and are in good standing under the laws of each jurisdiction in which failure to be so qualified would have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole.     (b) Due Authorization, etc. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower's Certificate of Incorporation or (ii) applicable law or any material contractual restriction binding on or affecting the Borrower or any of its Material Subsidiaries.     (c) Governmental Consent. 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 the Borrower of this Agreement and the other Loan Documents, other than those that have been obtained, all of which are listed on Schedule 4.01(c).     (d) Validity. This Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors' rights generally and to the application of general principles of equity.     (e) Condition of the Borrower. (i) The consolidated balance sheet of the Borrower and its Subsidiaries as at October 30, 1999, and the related consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, copies of which have been previously furnished to each Bank, fairly present the consolidated financial condition of the Borrower and its Subsidiaries as at such date and the results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP consistently applied, and (ii) since October 30, 1999, 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.     (f)  Litigation. (i) There is no pending action or proceeding against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, and (ii) to the knowledge of the Borrower, there is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which in either case, in the reasonable judgement of the Borrower could reasonably be expected to materially adversely affect the financial condition or operations of the Borrower and its Subsidiaries, taken as a whole, or with respect to actions of third parties which purports to affect the legality, validity or enforceability of this Agreement or the other Loan Documents. 19 --------------------------------------------------------------------------------     (g) Margin Regulations. The 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 any Advance 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 in any manner that violates, or would cause a violation of Regulation T, Regulation U or Regulation X. Less than 10 percent of the fair market value of the assets of (i) the Borrower or (ii) the Borrower and its Subsidiaries consists of Margin Stock.     (h) Payment of Taxes. The Borrower and each of its Subsidiaries have filed or caused to be filed all material tax returns (federal, state, local and foreign) required to be filed and paid all material amounts of taxes shown thereon to be due, including interest and penalties, except for such taxes as are being contested in good faith and by proper proceedings and with respect to which appropriate reserves are being maintained by the Borrower or any such Subsidiary, as the case may be.     (i)  Governmental Regulation. The Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940, each as amended, or to any Federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed. No Subsidiary of the Borrower is subject to any regulation that would limit the ability of the Borrower to enter into or perform its obligations under this Agreement.     (j)  ERISA.     (i)  No ERISA Event which might result in liability of the Borrower or any of its ERISA Affiliates in excess of $10,000,000 (or, in the case of an event described in clause (v) of the definition of ERISA Event, $750,000) (other than for premiums payable under Title IV of ERISA) has occurred or is reasonably expected to occur with respect to any Pension Plan.     (ii) Schedule B (Actuarial Information) to the most recently completed annual report prior to the Effective Date (Form 5500 Series) for each Pension Plan, which report has been filed with the Internal Revenue Service by the Borrower or an ERISA Affiliate, copies of which have been furnished to the Agents, is complete and, to the best knowledge of the Borrower, accurate, and since the date of such Schedule B there has been no material adverse change in the funding status of any such Pension Plan.     (iii) Neither the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Borrower, is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan which has not been satisfied or which is or might be in excess of $10,000,000.     (iv) Neither the Borrower nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and, to the best knowledge of the Borrower, no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA.     (k) Environmental Matters. (i) The Borrower and each of its Subsidiaries is in compliance in all material respects with all Environmental Laws the non-compliance with which could reasonably be expected to have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries, taken as a whole, and (ii) there has been no "release or threatened release of a hazardous substance" (as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601 et seq.) or any other release, emission or discharge into the environment of any hazardous or toxic substance, pollutant or other materials from the Borrower's or its Subsidiaries' property other than as permitted under applicable Environmental Law and other than those which would not have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries, taken as a whole. Other than disposals (A) for which 20 -------------------------------------------------------------------------------- the Borrower has been indemnified in full or (B) which would not have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries, taken as a whole, all "hazardous waste" (as defined by the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq. (1976) and the regulations thereunder, 40 CFR Part 261 ("RCRA")) generated at the Borrower's or any Subsidiaries' properties have in the past been and shall continue to be disposed of at sites which maintain valid permits under RCRA and any applicable state or local Environmental Law.     (l)  Disclosure. As of the Effective Date, to the best of the Borrower's knowledge, no representation or warranty of the Borrower or any of its Subsidiaries contained in this Agreement or any other Loan Document or in any other document, certificate or written statement furnished to the Banks by or on behalf of the Borrower or any of its Subsidiaries contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such agreements, documents, certificates and statements not misleading in light of the circumstances in which the same were made. ARTICLE V COVENANTS OF THE BORROWER     Section 5.01  Affirmative Covenants.  So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will, unless the Requisite Lenders shall otherwise consent in writing:     (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, (i) complying with all Environmental Laws and (ii) paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith, except where failure to so comply would not have a material adverse effect on the business, condition (financial or otherwise), operations or properties of the Borrower and its Subsidiaries, taken as a whole.     (b) Reporting Requirements. Furnish to the Administrative Agent (in sufficient quantity for delivery to each Lender) for prompt distribution by the Administrative Agent to the Lenders:     (i)  as soon as available and in any event within 55 days after the end of each of the first three quarters of each fiscal year of the Borrower, consolidated balance sheets as of the end of such quarter and consolidated statements of source and application of funds of the Borrower and its Subsidiaries and consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for such quarter and the period commencing at the end of the previous fiscal year and ending with the end of such quarter and certified by the chief financial officer or chief accounting officer of the Borrower;     (ii) as soon as available and in any event within 100 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, containing financial statements (including a consolidated balance sheet and consolidated statement of income and cash flows of the Borrower and its Subsidiaries) for such year, certified by and accompanied by an opinion of Ernst & Young LLP or other nationally recognized independent public accountants. The opinion shall be unqualified (as to going concern, scope of audit and disagreements over the accounting or other treatment of offsets) and shall state that such consolidated financial statements present fairly in all material respects the financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; 21 --------------------------------------------------------------------------------     (iii) together with each delivery of the report of the Borrower and its Subsidiaries pursuant to subsections (i) and (ii) above, a Compliance Certificate for the relevant accounting period executed by the chief financial officer, treasurer or assistant treasurer of the Borrower demonstrating in reasonable detail compliance during and at the end of such accounting periods with the restriction contained in Section 5.02(d) (and setting forth the arithmetical computation required to show such compliance) and stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the compliance certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto;     (iv) as soon as possible and in any event within five days after the occurrence of each Event of Default and each Potential Event of Default, continuing on the date of such statement, a statement of an authorized financial officer of the Borrower setting forth details of such Event of Default or event and the action which the Borrower has taken and proposes to take with respect thereto;     (v) promptly after any material change in accounting policies or reporting practices, notice and a description in reasonable detail of such change;     (vi) promptly and in any event within 30 days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event referred to in clause (i) of the definition of ERISA Event with respect to any Pension Plan has occurred which might result in liability to the PBGC in excess of $500,000 a statement of the chief accounting officer of the Borrower describing such ERISA Event and the action, if any, that the Borrower or such ERISA Affiliate has taken or proposes to take with respect thereto;    (vii) promptly and in any event within 15 days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event (other than an ERISA Event referred to in (vi) above) with respect to any Pension Plan has occurred which might result in liability to the PBGC in excess of $500,000, a statement of the chief accounting officer of the Borrower describing such ERISA Event and the action, if any, that the Borrower or such ERISA Affiliate has taken or proposes to take with respect thereto;    (viii) promptly and in any event within five Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the PBGC, copies of each notice from the PBGC of its intention to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan;     (ix) promptly and in any event within 15 days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (w) the imposition of Withdrawal Liability by a Multiemployer Plan in excess of $500,000, (x) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (y) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (z) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (w), (x) or (y) above;     (x) promptly after the commencement thereof, notice of all material actions, suits and proceedings before any court or government department, commission, board, bureau, agency or 22 -------------------------------------------------------------------------------- instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries, of the type described in Section 4.01(f);     (xi) promptly after the occurrence thereof, notice of (A) any event which makes any of the representations contained in Section 4.01(k) inaccurate in any material respect or (B) the receipt by the Borrower of any notice, order, directive or other communication from a governmental authority alleging violations of or noncompliance with any Environmental Law which could reasonably be expected to have a material adverse effect on the financial condition of the Borrower and its Subsidiaries, taken as a whole;    (xii) promptly after any change in the rating established by S&P or Moody's, as applicable, with respect to Long-Term Debt, a notice of such change, which notice shall specify the new rating, the date on which such change was publicly announced, and such other information with respect to such change as any Lender through either Agent may reasonably request;    (xiii) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its public security holders, and copies of all reports and registration statements which the Borrower files with the SEC or any national security exchange;    (xiv) promptly after the Borrower or any ERISA Affiliate creates any employee benefit plan to provide health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Borrower or any of its ERISA Affiliates (except as provided in Section 4980B of the Code and except as provided under the terms of any employee welfare benefit plans provided pursuant to the terms of collective bargaining agreements) under the terms of which the Borrower and/or any of its ERISA Affiliates are not permitted to terminate such benefits, a notice detailing such plan; and    (xv) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Lender through either Agent may from time to time reasonably request.     (c) Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, at all times its fundamental business and preserve and keep in full force and effect its corporate existence (except as permitted under Section 5.02(b) hereof) and all rights, franchises and licenses necessary or desirable in the normal conduct of its business; provided, however, that this paragraph (c) shall not apply in any case when, in the good faith business judgment of the Borrower, such preservation or maintenance is neither necessary nor appropriate for the prudent management of the business of the Borrower.     (d) Inspection. Permit, and cause each of its Material Subsidiaries to permit, any authorized representative designated by the Administrative Agent or any Lender; at the expense of the Administrative Agent or such Lender, to visit and inspect any of the properties of the Borrower or any of its Material Subsidiaries, including its and their financial and accounting records, and to take copies and to take extracts therefrom, and discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all during normal hours, upon reasonable notice and as often as may be reasonably requested.     (e) Insurance. Maintain, and cause each of its Material Subsidiaries to maintain, insurance to such extent and covering such risks as is usual for companies engaged in the same or similar business and on request will advise the Lenders of all insurance so carried.     (f)  Taxes. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (x) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (y) all lawful claims that, if unpaid, might by law become a lien upon their property; provided, however, that neither the Borrower nor any such Subsidiary shall be required 23 -------------------------------------------------------------------------------- to pay or discharge any such tax, assessment, charge or levy (A) that is being contested in good faith and by proper proceedings and for which appropriate reserves are being maintained, or (B) the failure to pay or discharge which would not have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries taken as a whole.     (g) Maintenance of Books, Etc. Keep, and cause each of its Subsidiaries to keep, proper books of records and accounts, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each of its domestic Subsidiaries in accordance with GAAP and with respect to foreign Subsidiaries in accordance with customary accounting standards in the applicable jurisdiction, in each case consistently applied and consistent with prudent business practices.     Section 5.02  Negative Covenants.  So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, without the written consent of the Requisite Lenders:     (a) Liens, Etc. The Borrower will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien, upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, in each case to secure or provide for the payment of any Debt of any Person, unless the Borrower's obligations hereunder shall be secured equally and ratably with, or prior to, any such Debt; provided however that the foregoing restriction shall not apply to the following Liens which are permitted:      (i) Liens on assets of any Subsidiary of the Borrower existing at the time such Person becomes a Subsidiary (other than any such Lien created in contemplation of becoming a Subsidiary);     (ii) purchase money Liens upon or in any property acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of such property (provided that the amount of Debt secured by such Lien does not exceed 100% of the purchase price of such property and transaction costs relating to such acquisition) and Liens existing on such property at the time of its acquisition (other than any such Lien created in contemplation of such acquisition); and the interest of the lessor thereof in any property that is subject to a Capital Lease;     (iii) any Lien securing Debt that was incurred prior to or during construction or improvement of property for the purpose of financing all or part of the cost of such construction or improvement, provided that the amount of Debt secured by such Lien does not exceed 100% of the fair market value of such property after giving effect to such construction or improvement;     (iv) any Lien securing Debt of a Subsidiary owing to the Borrower;     (v) Liens resulting from any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Debt secured by any Lien referred to in clauses (i), (ii) and (iii) above so long as (x) the aggregate principal amount of such Debt shall not increase as a result of such extension, renewal or replacement and (y) Liens resulting from any such extension, renewal or replacement shall cover only such property which secured the Debt that is being extended, renewed or replaced;     (vi) Liens on accounts receivable resulting from the sale of such accounts receivable by the Borrower or a Subsidiary of the Borrower, so long as, at any time, the aggregate outstanding amount of such accounts receivable does not, together with the amount of Debt secured by Liens permitted by clause (vii), exceed 10% of the consolidated stockholder's equity of the Borrower and its consolidated subsidiaries; and    (vii) Liens other than Liens described in clauses (i) through (vi) hereof, whether now existing or hereafter arising, securing Debt in an aggregate amount that does not, together with the 24 -------------------------------------------------------------------------------- amount of accounts receivable subject to Liens permitted by clause (vi), exceed 10% of the consolidated stockholder's equity of the Borrower and its consolidated subsidiaries.     (b) Restrictions on Fundamental Changes. The Borrower will not, and will not permit any of its Material Subsidiaries to, merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or a substantial portion of its assets (whether now owned or hereafter acquired) to any Person, or enter into any partnership, joint venture, syndicate, pool or other combination, unless no Event of Default or Potential Event of Default has occurred and is continuing or would result therefrom and, in the case of a merger or consolidation of the Borrower, (i) the Borrower is the surviving entity or (ii) the surviving entity assumes all of the Borrower's obligations under this Agreement in a manner satisfactory to the Requisite Lenders.     (c) Plan Terminations. The Borrower will not, and will not permit any ERISA Affiliate to, terminate any Pension Plan so as to result in liability of the Borrower or any ERISA Affiliate to the PBGC in excess of $25,000,000, or permit to exist any occurrence of an event or condition which reasonably presents a material risk of a termination by the PBGC of any Pension Plan with respect to which the Borrower or any ERISA Affiliate would, in the event of such termination, incur liability to the PBGC in excess of $25,000,000.     (d) Maximum Debt Ratio. The Borrower will not permit the ratio of (i) Net Debt as of the end of any fiscal quarter to (ii) EBITDA, for each period consisting of the four consecutive fiscal quarters then ended, to exceed 2.50 to 1.00. ARTICLE VI 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 fees or other amounts payable hereunder within five Business Days of the date due; or     (b) Any representation or warranty made or deemed made by the Borrower herein or by the Borrower pursuant to this Agreement (including any notice, certificate or other document delivered hereunder) shall prove to have been incorrect in any material respect when made; or     (c) The Borrower shall fail to perform or observe (i) any term, covenant or agreement contained in this Agreement (other than any term, covenant or agreement contained in Section 5.01(b)(iv), 5.01(c) or 5.02) on its part to be performed or observed and the failure to perform or observe such other term, covenant or agreement shall remain unremedied for 30 days after the Borrower obtains knowledge of such breach or (ii) any term, covenant or agreement contained in Section 5.01(b)(iv), 5.01(c) or 5.02; or     (d) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal amount at least equal to 2% of consolidated net worth of the Borrower and its consolidated Subsidiaries in the aggregate (but excluding Debt arising under this Agreement) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or the Borrower or any of its Subsidiaries shall fail to perform or observe any other agreement, term or condition contained in any agreement or instrument relating to any such Debt (or if any other event or condition of default under any such agreement or instrument shall exist) and such failure, event or condition shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure, event or 25 -------------------------------------------------------------------------------- condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable as a result of such failure, event or condition; or     (e) The Borrower or any of its Material 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 Material 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 a substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or     (f)  Any judgment or order for the payment of money in excess of 2% of consolidated net worth of the Borrower and its consolidated Subsidiaries, individually or in the aggregate, shall be rendered against the Borrower or any of its Material Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon a final or nonappealable judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or     (g)      (i)  Any ERISA Event with respect to a Pension Plan shall have occurred and, 30 days after notice thereof shall have been given to the Borrower by either of the Agents, (x) such ERISA Event shall still exist and (y) the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Pension Plan and the Insufficiency of any and all other Pension Plans with respect to which an ERISA Event shall have occurred and then exist (or in the case of a Pension Plan with respect to which an ERISA Event described in clause (iii) through (vi) of the definition of ERISA Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $25,000,000; or     (ii) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred an aggregate Withdrawal Liability for all years to such Multiemployer Plan in an amount that, when aggregated with all other amounts then required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $25,000,000 and it is reasonably likely that all amounts then required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability will exceed $25,000,000; or     (iii) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and it is reasonably likely that as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan year of such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $25,000,000; or 26 --------------------------------------------------------------------------------     (h)      (i)  any Person or two or more Persons (other than the Hormel Foundation) acting in concert shall have acquired beneficial ownership or the right to acquire beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 35% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency ("Share Acquisition"); or     (ii) individuals who either (1) have been directors of the Borrower for the prior 24-month period or (2) were nominated or elected by directors in office during such period (but prior to any Share Acquisition) shall cease for any reason to constitute a majority of the board of directors of the Borrower; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Requisite 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 Requisite 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 actual or deemed entry of an order for relief with respect to the Borrower or any of its Subsidiaries under the Bankruptcy Code or the expiration of the 60-day grace period provided in Section 6.01(e), (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 VII ADMINISTRATIVE AGENT     Section 7.01  Authorization and Action.  Each Lender hereby appoints and authorizes CUSA to act as the Administrative Agent under this Agreement and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Advances and other amounts owing hereunder), 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 Requisite 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 any of the Loan Documents 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 the Loan Documents.     Section 7.02  Agents' Reliance, Etc.  Neither the Agents nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with any of the Loan Documents, except for their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agents: (i) may treat the Lender that made any Advance as the payee thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be 27 -------------------------------------------------------------------------------- liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) make 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 any of the Loan Documents; (iv) 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 any of the Loan Documents on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Loan Documents or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of any of the Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier) believed by it to be genuine and signed or sent by the proper party or parties.     Section 7.03  CUSA and Affiliates.  With respect to its respective Commitment and the respective Advances made by it, CUSA shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include CUSA respectively in its individual capacity. CUSA and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, acquire equity interests in and generally engage in any kind of commercial banking, investment banking, trust, financial advisory, underwriting or other business with, the Borrower, any of its Subsidiaries and other Affiliates and any Person who may do business with or own securities of the Borrower or any such Subsidiary or Affiliate, all as if CUSA was not an Agent and without any duty to account therefor or provide notice thereof, to the Lenders. The Lenders acknowledge that, pursuant to such activities, CUSA and its Affiliates may receive information regarding the Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or an Affiliate) and acknowledge that the Administrative Agent shall not be under any obligation to provide such information to them.     Section 7.04  Lender Credit Decision.  Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to, and the representations and warranties contained, 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 Agents 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 Agents (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Advances then held by each of them (or if no such Advances are at the time outstanding or if any such Advances are held by Persons which are not Lenders, 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 any such Agent in any way relating to or arising out of any of the Loan Documents or any action taken or omitted by such Agent under any of the Loan Documents, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse such Agent promptly upon demand for its ratable share of any reasonable out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, syndication, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or 28 -------------------------------------------------------------------------------- responsibilities under, the Loan Documents, to the extent that such Agent is not reimbursed for such expenses by the Borrower.     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 Requisite Lenders. Upon any such resignation or removal, the Requisite Lenders shall have the right to appoint a successor Administrative Agent (such Administrative Agent, so long as no Event of Default has occurred and is continuing, being reasonably acceptable to the Borrower). If no successor Administrative Agent shall have been so appointed by the Requisite Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Requisite 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 or any Bank and, in each case having a combined capital and surplus of at least $50,000,000 (and so long as no Event of Default has occurred and is continuing, that is reasonably acceptable to the Borrower). 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 the Loan Documents. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents.     Section 7.07  Other Agents.  None of the Lenders identified on the facing page of this Agreement or elsewhere herein as a "Syndication Agent", a "Documentation Agent", or an "Arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE VIII 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 Requisite 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) waive any of the conditions specified in Section 3.01, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (e) 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 (f) amend Section 2.14 or this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement.     Section 8.02  Notices, Etc.  All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered, if to the Borrower, 29 -------------------------------------------------------------------------------- at its address at 1 Hormel Place, Austin, Minnesota 55912-3690, Attn: Chief Financial Officer, Telecopier (507) 434-6981, Telephone (507) 437-5663; if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Administrative Agent at its address at Citicorp USA, Inc., Global Loans Operations, 2 Penns Way, Suite 200, New Castle, Delaware 19720; Attention: Brian Maxwell, Telecopier (302) 894-6120, Telephone (302) 894-6023 (with copy of notices, other than those given pursuant to Sections 2.1 through 2.13 hereof, to Citicorp USA, Inc., 500 W. Madison Street, 7th Floor, Chicago, Illinois; Attention: Shafique Janmohamed), Telecopier (312) 627-3990, Telephone (312) 627-5164, 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 Borrower and the Administrative Agent. All such notices and communications shall, when personally delivered, mailed or telecopied, be effective when personally delivered, after five (5) days after being deposited in the mails, or when confirmed by telecopy response, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or VII shall not be effective until received by the Administrative Agent.     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, regardless of whether the Effective Date occurs, to pay promptly on demand all reasonable costs and out-of-pocket expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, syndication, modification and amendment of this Agreement, and the other documents to be delivered hereunder or thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent (including the allocated time charges of the Administrative Agent's legal departments, as their respective internal counsel) 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 promptly on demand all costs and expenses of the Agents and of each Lender, if any (including, without limitation, reasonable counsel fees and out-of-pocket expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder or thereunder, including, without limitation, reasonable counsel fees and out-of-pocket expenses in connection with the enforcement of rights under this Section 8.04(a).     (b) If any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the interest period for such Advance, as a result of a payment pursuant to Section 2.05 or acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Administrative Agent), 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 which it may reasonably incur as a result of such payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance; provided that conversion of a Eurodollar Rate Advance to a Base Rate Advance in accordance with the provisions of Section 2.02(b)(iii) shall not be considered a payment for purposes of this Section 8.04(b).     (c) The Borrower agrees to indemnify and hold harmless each Agent, each Lender and each director, officer, employee, agent, attorney and affiliate of each Agent and each Lender (each an 30 -------------------------------------------------------------------------------- "indemnified person") in connection with any expenses, losses, claims, damages or liabilities to which an Agent, a Lender or such indemnified persons may become subject, insofar as such expenses, losses, claims, damages or liabilities (or actions or other proceedings commenced or threatened in respect thereof) arise out of the transactions referred to in this Agreement or arise from any use or intended use of the proceeds of the Advances, or in any way arise out of activities of the Borrower that violate Environmental Laws, and to reimburse each Agent, each Lender and each indemnified person, upon their demand, for any reasonable legal or other out-of-pocket expenses incurred in connection with investigating, defending or participating in any such loss, claim, damage, liability, or action or other proceeding, whether commenced or threatened (whether or not such Agent, such Lender or any such person is a party to any action or proceeding out of which any such expense arises). Notwithstanding the foregoing, the Borrower shall have no obligation hereunder to an indemnified person with respect to indemnified liabilities which have resulted from the gross negligence, bad faith or willful misconduct of such indemnified person.     Section 8.05  Right of Set-off.  Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (time or demand, provisional or final, or general, but not special) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement that are then due and payable, whether or not such Lender shall have made any demand under this Agreement. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have.     Section 8.06  Binding Effect; Entire Agreement.       (a) This Agreement shall be deemed to have been executed and delivered 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 all Lenders.     (b) This Agreement (including the Schedules and Exhibits attached hereto) shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, among the parties with respect to such subject matter.     Section 8.07  Assignments and Participations.       (a) Each Lender may assign to one or more Eligible Assignees 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) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) after giving effect to any such assignment, (1) the assigning Lender shall no longer have any Commitment or (2) the amount of the Commitment of both the assigning Lender and the Eligible Assignee party to such assignment (in each case determined as of the date of the Assignment and Acceptance with respect to such assignment) shall not be less than $5,000,000 and assigned amounts must be in increments of $1,000,000, (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 31 -------------------------------------------------------------------------------- acceptance and recording in the Register, an Assignment and Acceptance, and a processing and recordation fee of $3,500 to the Administrative Agent, and (v) the Borrower (unless an Event of Default shall exist and be continuing) and the Administrative Agent shall have consented to such assignment, which consent shall not be unreasonably withheld, unless such assignment is to an Affiliate of a Lender, in which case no such consent shall be necessary (but such Lender shall notify the Borrower and the Administrative Agent of any such assignment to an Affiliate of an Assigning Lender). 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); provided that with respect to any amounts payable as of the date of such assignment pursuant to Sections 2.09, 2.11 or 8.04, the Borrower shall have no greater obligation to the assignee then it had to the assignor. Any Lender may at any time pledge or assign all or any portion of its rights hereunder to a Federal Reserve Bank; provided, that no such pledge or assignment shall release such Lender from any of its obligations hereunder.     (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 any of the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (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 any of the Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of the Loan Documents, 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 Agents, 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 the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents 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 the Loan Documents are required to be performed by it as a Lender.     (c) Within five (5) days of its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee (together with a processing and recordation fee of $3,500 with respect thereto) and upon evidence of consent of the Borrower and the Administrative Agent thereto, which consent shall not be unreasonably withheld, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (1) accept such Assignment and Acceptance and (2) record the information contained therein in the Register. All communications with the Borrower with respect to such consent of the Borrower shall be sent pursuant to Section 8.02. 32 --------------------------------------------------------------------------------     (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 the Lenders and the Commitment of, the Commitment Termination Date 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 all purposes of the Loan Documents. 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 banks or other entities 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) such Lender shall remain the holder of any such Advance for all purposes of this Agreement, (iv) 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 the Loan Documents, (v) no Lender shall grant any participation under which the participant shall have rights to require such Lender to take or omit to take any action hereunder or under the other Loan Documents or approve any amendment to or waiver of this Agreement or the other Loan Documents, except to the extent such amendment or waiver would: (A) extend the Termination Date of such Lender; or (B) reduce the interest rate or the amount of principal or fees applicable to Advances or the Commitment in which such participant is participating or change the date on which interest, principal or fees applicable to Advances or the Commitment in which such participant is participating are payable, and (vi) the Person purchasing such participation shall agree to customary provisions relating to the confidentiality of non-public information received by such Person in connection with its purchase of the participation.     (f)  Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or Participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender.     (g)       (i) Notwithstanding anything to the contrary contained herein, any Lender (a "Designating Lender") may grant to one or more special purpose funding vehicles (each, an "SPV"), identified as such in writing from time to time by the Designating Lender to the Administrative Agent and the Borrowers, the option to provide to the Borrower all or any part of any Loan that such Designating Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (1) nothing herein shall constitute a commitment by any SPV to make any Loan, (2) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Designating Lender shall be obligated to make such Loan pursuant to the terms hereof and (3) the Designating Lender shall remain liable for any indemnity or other payment obligation with respect to its Commitment hereunder. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Designating Lender to the same extent, and as if, such Loan were made by such Designating Lender;     (ii) As to any Loans or portion thereof made by it, each SPV shall have all the rights that a Lender making such Loans or portion thereof would have had under this Agreement; provided, 33 -------------------------------------------------------------------------------- however, that each SPV shall have granted to its Designating Lender an irrevocable power of attorney to deliver and receive all communications and notices under this Agreement (and any related documents) and to exercise on such SPV's behalf, all of such SPV's voting rights under this Agreement. No additional Note shall be required to evidence the Loans or portion thereof made by an SPV; and the related Designating Lender shall be deemed to hold its Note (if any) as agent for such SPV to the extent of the Loans or portion thereof funded by such SPV. In addition, any payments for the account of any SPV shall be paid to its Designating Lender as agent for such SPV;     (iii) Each party hereto hereby agrees that no SPV shall be liable for any indemnity or payment under this Agreement for which a Lender would otherwise be liable; if an SPV, but for the operation of this sentence, would have liability for any such indemnity or payment, the Designating Lender shall be liable;     (iv) In addition, notwithstanding anything to the contrary contained in this Section 8.07(g) or otherwise in this Agreement, any SPV may (1) at any time and without paying any processing fee therefore, assign or participate all or a portion of its interest in any Loans to the Designating Lender or to any financial institutions providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans; provided that the Designating Lender in the event of an assignment or participation to any other financial institution shall remain liable for any indemnity or other payment obligation with respect to its Commitment, and shall be obligated to make such Loan pursuant to the terms hereof and of its Commitment and (2) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancements to such SPV.     Section 8.08  Confidentiality.  Each Agent and each Lender agrees, insofar as is legally possible, to use its reasonable best efforts to keep in confidence all financial data and other information relative to the affairs of the Borrower heretofore furnished or which may hereafter be furnished to it pursuant to the provisions of this Agreement; provided, however, that this Section 8.08 shall not be applicable to information which is or becomes available to a Lender from a source other than the Borrower; and provided further that such obligation of each Agent and each Lender shall be subject to each Agent's and each Lender's (a) obligation to disclose such information pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process, (b) right to disclose any such information to bank examiners, its affiliates, bank, auditors, accountants and its counsel and other Agents and Lenders, and (c) right to disclose any such information, (i) in connection with the transactions set forth herein including assignments and sales of participation interests pursuant to Section 8.07 hereof or (ii) in or in connection with any litigation or dispute involving the Agents, the Lenders and the Borrower or any transfer or other disposition by such Lender of any of its Advances or other extensions of credit by such Lender to the Borrower or any of its Subsidiaries, provided that information disclosed pursuant to this proviso shall be so disclosed subject to such procedures as are reasonably calculated to maintain the confidentiality thereof.     Section 8.09  Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.     Section 8.10  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.     Section 8.11  Consent to Jurisdiction; Waiver of Immunities.  The Borrower hereby irrevocably submits to the jurisdiction of any New York state or Federal court sitting in New York, New York in any action or proceeding arising out of or relating to this Agreement, and the Borrower hereby 34 -------------------------------------------------------------------------------- irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or Federal court. The Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 8.11 shall affect the right of any Lender or Agent to serve legal process in any other manner permitted by law or affect the right of any Lender or Agent to bring any action or proceeding against the Borrower or its property in the courts of any other jurisdiction.     Section 8.12  Waiver of Trial by Jury.  THE BORROWER, THE BANKS, THE AGENTS AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, OTHER LENDERS EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. The Borrower, the Banks, the Agents and, by its acceptance of the benefits hereof, other Lenders each (i) acknowledges that this waiver is a material inducement for the Borrower, the Lenders and the Agents to enter into a business relationship, that the Borrower, the Lenders and the Agents have already relied on this waiver in entering into this Agreement or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. [Remainder of page intentionally left blank] 35 --------------------------------------------------------------------------------     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.     HORMEL FOODS CORPORATION           By:   /s/ Joel W. Johnson Name: Joel W. Johnson Title: Chairman, President & CEO Notice Address: Attn: Chief Financial Officer 1 Hormel Place Austin, Minnesota 55912-3690 S-1 --------------------------------------------------------------------------------                     CITICORP USA, INC., as Administrative Agent and a Lender           By:   /s/ Henry J. Matthews Name: Henry J. Matthews Title: Vice President Notice Address: Global Loans Operations Attn: Brian Maxwell 2 Penns Way, Suite 200 New Castle, Delaware 19702 S-2 --------------------------------------------------------------------------------                     SUNTRUST BANK (As a Lender)           By:   /s/ Brian M. Davis Name: Brian M. Davis Title: Director Notice Address: Attn: S-3 --------------------------------------------------------------------------------                     U.S. BANK NATIONAL ASSOCIATION           By:   /s/ Noel Austin Name: Noel Austin Title: President—Austin Minnesota Office Notice Address: U.S. Bank 301 North Main Street Austin, Minnesota 55912 Attn: Noel Austin S-4 --------------------------------------------------------------------------------                     FUJI BANK           By:   /s/ Peter L. Chinnici Name: Peter L. Chinnici Title: Senior Vice President & Group Head Notice Address: Corporate Banking Division Attn: James S. Bell 225 W. Wacker Drive, Suite 2000 Chicago, Illinois 60606 S-5 --------------------------------------------------------------------------------                     BANK ONE, NA (Main Office Chicago) (As a Lender)           By:   Sabir A. Hashmy Name: Sabir A. Hashmy Title: Authorized Officer Notice Address: 1 Bank One Plaza Attn: J. Garland Smith IL1-0364 Chicago, IL 60670 S-6 -------------------------------------------------------------------------------- QUICKLINKS U.S. $425,000,000 CREDIT AGREEMENT (SHORT TERM FACILITY)

EXHIBIT 10.22 MANATRON, INC. RESTRICTED STOCK PLAN OF 2000 SECTION 1 Establishment of Plan; Purpose of Plan           1.1          Establishment of Plan. The Company hereby establishes the Restricted Stock Plan of 2000 for certain of its employees, including software development employees and other technical-related employees. Directors and officers are not eligible to participate in the Plan.           1.2          Purpose of Plan. The purpose of the Plan is to provide an opportunity for certain employees of the Company and its Subsidiaries to acquire shares of Common Stock of the Company thereby giving such persons an additional incentive to make significant contributions to the long-term performance and growth of the Company and its Subsidiaries, to join the interests of employees with the interests of the Company's shareholders through the opportunity for increased stock ownership and to assist the Company in attracting, rewarding and retaining employees. The Plan further is intended to provide flexibility to the Company in structuring long-term incentive compensation to best promote the foregoing objectives. SECTION 2 Definitions                     The following words have the following meanings unless a different meaning is plainly required by the context:           2.1          "Board" means the Board of Directors of the Company.           2.2          "Code" means the Internal Revenue Code of 1986, as amended.           2.3          "Committee" means the Stock Option Committee of the Board.           2.4          "Common Stock" means the common stock, without par value, of the Company.           2.5          "Company" means Manatron, Inc., a Michigan corporation, and its subsidiaries.           2.6          "Consensual Severance" means the voluntary termination of all employment by the Participant with the Company or any Subsidiary that the Committee determines to be in the best interests of the Company. --------------------------------------------------------------------------------           2.7          "Early Retirement" means the voluntary termination of all employment by a Participant with the written consent of the Committee after the Participant has attained 55 years of age and completed 10 years of service with the Company or any Subsidiary.           2.8          "Exchange Act" means the Securities Exchange Act of 1934, as amended.           2.9          "Normal Retirement" means the voluntary termination of all employment by a Participant after the Participant has attained 62 years of age, or such other age as shall be determined by the Committee in its sole discretion or as otherwise may be set forth in a Restricted Stock Agreement.           2.10          "Participant" means the employees of the Company and its Subsidiaries who are granted Restricted Stock under the Plan.           2.11          "Restricted Period" means a period of time following the date of the award of the Restricted Stock during which the Restricted Stock is subject to restrictions. The Restricted Period may differ among Participants and may have different expiration dates with respect to shares of Common Stock covered by the same award of Restricted Stock.           2.12          "Restricted Stock" means Common Stock awarded to a Participant under Section 5 of the Plan.           2.13          "Restricted Stock Agreement" means an agreement between the Company and a Participant that sets forth the terms and conditions of an individual award of Restricted Stock.           2.14          "Subsidiary" means a corporation or other entity of which a majority of the outstanding voting stock or voting ownership interest is directly or indirectly owned or controlled by the Company or one or more Subsidiaries.           2.15          "Total Disability" means that the Participant, for physical or mental reasons, is unable to perform the essential functions of his or her duties for the Company for 120 consecutive days, or 180 days during any 12-month period.           2.16          "Vest" or "vesting" means the time when the restrictions on transfer of the Restricted Stock lapse or are removed. SECTION 3 Administration           3.1          Power and Authority. The Committee shall administer the Plan. Except as limited in this Plan, the Committee shall have full power and authority to interpret the provisions of the Plan and Restricted Stock granted under the Plan, to supervise the administration of the Plan and the Restricted Stock granted under the Plan and to make all other determinations -2- -------------------------------------------------------------------------------- considered necessary or advisable under the Plan. All determinations, interpretations and decisions made by the Committee regarding the Plan shall be final and conclusive, but shall be based on recommendations of the Company's Chief Executive Officer. The Committee shall hold its meetings at such times and places as it deems advisable. Action may be taken by a written instrument signed by all of the members of the Committee, and any action so taken shall be as effective as if it had been taken at a meeting duly called and held. The Committee may delegate recordkeeping, calculation, payment and other ministerial administrative functions to individuals designated by the Committee, who may be employees of the Company or its Subsidiaries.           3.2          Grants or Awards to Participants. In accordance with and subject to the provisions of the Plan, the Committee shall, based upon recommendations of the Chief Executive Officer, have the authority to determine all provisions of awards of Restricted Stock as the Committee may deem necessary or desirable and as are consistent with the terms of the Plan, including, without limitation, the authority to: (a) determine whether and when Restricted Stock will be granted, the persons to be granted Restricted Stock, the amount of Restricted Stock to be granted to each person and the terms of the Restricted Stock to be granted; (b) determine and amend vesting schedules, if any; (c) permit delivery or withholding of stock in payment of exercise price or to satisfy tax withholding obligations; and (d) waive any restrictions or conditions applicable to any Restricted Stock. Restricted Stock shall be granted or awarded by the Committee, and Restricted Stock may be amended by the Committee consistent with the Plan, provided that no such amendment may become effective without the consent of the Participant, except to the extent that the amendment operates solely to the benefit of the Participant.           3.3          Indemnification of Committee Members. Neither any current or former member of the Committee nor any individual to whom authority is or has been delegated shall be personally responsible or liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each person who is or shall have been a member of the Committee shall be indemnified and held harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with such person's or the Committee's taking or failing to take any action under the Plan. Each such person shall be justified in relying on information furnished in connection with the Plan's administration by any appropriate person or persons. SECTION 4 Shares Subject to the Plan           4.1          Number of Shares. Subject to adjustment, a maximum of 100,000 shares of authorized Common Stock may be available for awards of Restricted Stock under the Plan. Such shares may be authorized but unissued shares. If any such shares are forfeited through -3- -------------------------------------------------------------------------------- termination of employment or otherwise before lapse of restrictions, such shares may be reissued in subsequent grants of Restricted Stock under the Plan.           4.2          Limitation Upon Awards of Restricted Stock. No Participant shall be granted, during any calendar year, Restricted Stock with respect to more than 50% of the total number of shares of Common Stock available for awards of Restricted Stock under the Plan set forth in Section 4.1 of the Plan, subject to adjustment as provided in Section 4.3 of the Plan.           4.3          Adjustments. If the number of shares of Common Stock outstanding changes by reason of a stock dividend. stock split, recapitalization, merger, consolidation, combination, exchange of shares or any other change in the corporate structure or shares of the Company, the aggregate number and class of shares available for grants or awards under the Plan, together with award limits and other appropriate terms of this Plan, shall be appropriately adjusted. No fractional shares shall be issued pursuant to the Plan, and any fractional shares resulting from adjustments shall be eliminated from the respective award of Restricted Stock, with an appropriate cash adjustment for the value of any Restricted Stock eliminated. If an award of Restricted Stock is canceled, surrendered, modified, expires or is terminated during the term of the Plan but before the exercise or vesting of the Restricted Stock in full, the shares subject to but not purchased or retained by the Participant under the Restricted Stock shall be available for other awards of Restricted Stock. SECTION 5 Restricted Stock           5.1          Grant. A Participant may be granted Restricted Stock under the Plan. Restricted Stock shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as shall be determined by the Committee and based on the recommendations of the Company's Chief Executive Officer. Restricted Stock shall be awarded on the condition that the Participant remain in the employ of the Company or one of its Subsidiaries during the Restricted Period. Such condition shall have no effect on the right of the Company or any Subsidiary to terminate the Participant's employment at any time. No payment is required from a Participant for an award of Restricted Stock.           5.2          Restricted Stock Agreements. Each award of Restricted Stock under the Plan shall be evidenced by a Restricted Stock Agreement containing such terms and conditions, consistent with the provisions of the Plan, as the Committee and the Chief Executive Officer may deem appropriate.           5.3          Termination of Employment.           (a)          General. If a Participant ceases to be employed by the Company or one of its Subsidiaries for any reason other than the Participant's death, Total Disability or any other additional provisions as determined by the Committee pursuant to Section 5.3(c), -4- -------------------------------------------------------------------------------- then any shares of Restricted Stock still subject to restrictions on the date of such termination automatically shall be forfeited to the Company. For purposes of the Plan, the following shall not be deemed a termination of employment: (i) a transfer of employment among the Company and its Subsidiaries; (ii) a leave of absence, duly authorized in writing by the Company, for military service or for any other purpose approved by the Company if the period of such leave does not exceed 90 days; or (iii) a leave of absence in excess of 90 days, duly authorized in writing by the Company, provided the employee's right to reemployment is guaranteed either by statute or contract. For purposes of the Plan, termination of employment shall be considered to occur on the date on which the employee is no longer obligated to perform services for the Company or any of its Subsidiaries and the employee's right to reemployment is not guaranteed either by statute or contract, regardless of whether the employee continues to receive compensation from the Company or any of its Subsidiaries after such date.           (b)          Death or Total Disability. Unless the terms of a Restricted Stock Agreement or grant provide otherwise, in the event a Participant terminates employment with the Company or one of its Subsidiaries because of death or Total Disability during the Restricted Period, the restrictions applicable to the shares of Restricted Stock automatically shall terminate and the Restricted Stock shall vest as of the date of termination.           (c)          Additional Provisions as Determined by Committee. The Committee may, based upon recommendations of the Chief Executive Officer, provide provisions in any Restricted Stock Agreement permitting, or by resolution approve, vesting of all or part of any Restricted Stock awarded to a Participant upon termination due to Early Retirement, Normal Retirement or Consensual Severance.           5.4          Restrictions on Transferability.           (a)          General. Unless the Committee otherwise consents or unless the terms of a Restricted Stock Agreement provide otherwise, shares of Restricted Stock shall not be sold, exchanged, transferred, pledged or otherwise disposed of by a Participant during the Restricted Period other than to the Company pursuant to subsection 5.3 or 5.4(b) or by will or the laws of descent and distribution.           (b)          Forfeiture to the Company. If any sale, exchange, transfer, pledge or other disposition, voluntary or involuntary, of Restricted Stock that has not vested shall be made or attempted during the Restricted Period, except as provided above in subsections 5.3 and 5.4(a), the Participant's right to the Restricted Stock immediately shall cease and terminate and the Participant promptly shall forfeit to the Company any Restricted Stock granted to the Participant that is still subject to restrictions.           (c)          Other Restrictions. The Committee may impose other restrictions on any Restricted Stock as the Committee deems advisable. -5- --------------------------------------------------------------------------------           5.5          Rights as a Shareholder. During the Restricted Period, a Participant shall have all rights of a shareholder with respect to his or her Restricted Stock, including (a) the right to vote any shares at shareholders' meetings- (b) the right to receive, without restriction, all cash dividends paid with respect to such Restricted Stock; and (c) the right to participate with respect to such Restricted Stock in any stock dividend, stock split, recapitalization or other adjustment in the Common Stock of the Company or any merger, consolidation or other reorganization involving an increase or decrease or adjustment in the Common Stock of the Company. Any new, additional or different shares or other security received by the Participant pursuant to any such stock dividend, stock split, recapitalization or reorganization shall be subject to the same terms, conditions and restrictions as those relating to the Restricted Stock for which such shares were received.           5.6          Deposit of Certificates; Legending of Restricted Stock.           (a)          Deposit of Certificates. Any certificates evidencing shares of Restricted Stock awarded pursuant to the Plan shall be registered in the name of the relevant Participant and deposited, together with a stock power endorsed in blank, with the Company. Certificates for shares of Restricted Stock that have vested shall be delivered to the Participant upon written request within a reasonable period of time. The Participant shall sign all documents necessary or appropriate to facilitate such delivery.           (b)          Legend. Any certificates evidencing shares of Restricted Stock awarded pursuant to the Plan shall bear the following legend: > > This certificate is held subject to the terms and conditions contained in a > > restricted stock agreement that includes a prohibition against the sale or > > transfer of the stock represented by this certificate except in compliance > > with that agreement, and that provides for forfeiture upon certain events. A > > copy of that agreement is on file in the office of the Corporation. After the applicable Restricted Period has expired with respect to an award of Restricted Stock and the shares of Restricted Stock have vested, a Participant may request in writing that the restrictive legend be removed from any certificate delivered to such Participant.           5.7          Resale. The Participant shall agree not to resell or redistribute such Restricted Stock after the Restricted Period except upon such conditions as the Company reasonably may specify to ensure compliance with federal and state securities laws. -6- -------------------------------------------------------------------------------- SECTION 6 General Provisions           6.1          No Rights to Awards. No Participant or other person shall have any claim to be granted any Restricted Stock, and there is no obligation of uniformity of treatment of employees, Participants or holders or beneficiaries of Restricted Stock. The terms and conditions of the Restricted Stock of the same type and the determination of the Committee to grant a waiver or modification of any Restricted Stock and the terms and conditions thereof need not be the same with respect to each Participant.           6.2          Withholding. The Company or a Subsidiary shall be entitled to (a) withhold and deduct from future wages of a Participant (or from other amounts that may be due and owing to a Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts deemed necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to Restricted Stock, including, without limitation, the grant or vesting of, or payment of dividends with respect to, Restricted Stock; or (b) require a Participant promptly to remit the amount of such withholding to the Company before taking any action with respect to Restricted Stock.           6.3          Compliance With Laws; Listing and Registration of Shares. All Restricted Stock granted under the Plan (and all issuances of Common Stock or other securities under the Plan) shall be subject to applicable laws, rules and regulations, and to the requirement that if at any time the Committee determines that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Restricted Stock or the issue or purchase of shares thereunder, such Restricted Stock may not be exercised in whole or in part, or the restrictions on such Restricted Stock shall not lapse, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.           6.4          No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.           6.5          No Right to Employment. The grant of Restricted Stock shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Subsidiary. The Company or any Subsidiary may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any written agreement with a Participant. -7- --------------------------------------------------------------------------------           6.6          Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the state of Michigan and applicable federal law, without regard to conflict of law principles.           6.7          Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. SECTION 7 Effective Date and Duration of the Plan           This Plan shall take effect August 1, 2000, which is the effective date of approval by the Board of Directors, provided that Restricted Stock granted before shareholder approval shall be subject to approval of the Plan by the Company's shareholders at a regular or special meeting. Unless earlier terminated by the Board of Directors, no Restricted Stock shall be granted under this Plan after July 31, 2010. SECTION 8 Termination and Amendment           The Board may terminate the Plan at any time, or may from time to time amend the Plan, provided that no such amendment may impair any outstanding Restricted Stock without the consent of the Participant, except according to the terms of the Restricted Stock. No termination, amendment or modification of the Plan shall become effective with respect to any Restricted Stock previously granted under the Plan without the prior written consent of the Participant holding such Restricted Stock unless such amendment or modification operates solely to the benefit of the Participant. -8-

Exhibit 10.1 to Recoton Form 10-Q for the Quarter Ended June 30, 2000 Approved by Board: 3/23/98 Approved by Shareholders: 6/10/98 Amendment to Increase Shares Approved by Board: 4/5/00 Amendment to Increase Shares Approved by Shareholders: 6/7/00 RECOTON CORPORATION 1998 STOCK OPTION PLAN      1.  Purpose. The purpose of this Stock Option Plan is to advance the interests of the Corporation by encouraging and enabling the acquisition of a larger personal proprietary interest in the Corporation by directors, employees and consultants of the Corporation and its Subsidiaries upon whose judgment and keen interest the Corporation is largely dependent for the successful conduct of its operations. It is anticipated that the acquisition of such proprietary interest in the Corporation will stimulate the efforts of such directors, employees and consultants on behalf of the Corporation and its Subsidiaries and strengthen their desire to remain with the Corporation and its Subsidiaries. It is also expected that the opportunity to acquire such a proprietary interest will enable the Corporation and its Subsidiaries to attract desirable personnel, directors and consultants.      2.  Definitions. When used in this Plan, unless the context otherwise requires: "Board of Directors" shall mean the Board of Directors of the Corporation, as constituted at any time.    a) "Chairman of the Board" shall mean the person who at the time shall be Chairman (or Co-Chairman) of the Board of Directors.    b) "Committee" shall mean the Committee hereinafter described in Section 3.    c) "Corporation" shall mean Recoton Corporation.    d) Fair Market Value” on a specified date shall mean the closing price at which one Share was traded on the stock exchange, if any, on which Shares are primarily traded on the prior day, or the last sale price or average of the bid and asked closing prices at which one Share was traded on the over-the-counter market on the prior day, as reported on the National Association of Security Dealers Automated Quotation System, but if no Shares were traded on such date, then on the last previous date on which a Share was so traded, or, if none of the above are applicable the value of a Share as established by the Committee for such date using any reasonable method of valuation.    e) "Options" shall mean the stock options granted pursuant to this Plan.    f) "Plan" shall mean this 1998 Stock Option Plan of Recoton Corporation, as adopted by the Board of Directors on March 23, 1998, as such Plan from time to time may be amended.    g) "Share" shall mean a common share of the Corporation.    h) "Subsidiary" shall mean any corporation 50% or more of whose stock having general voting power is owned by the Corporation, or by another Subsidiary as herein defined, of the Corporation.      3.  Committee. The Plan shall be administered by a Committee which shall consist of two or more directors of the Corporation, each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director" within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), to the extent that such persons are available to serve (and at any time when there are not at least two of such persons, the Board of Directors shall function as the Committee). The members of the Committee shall be selected by the Board of Directors. Any member of the Committee may resign by giving written notice thereof to the Board of Directors, and any member of the Committee may be removed at any time, with or without cause, by the Board of Directors. If, for any reason, a member of the Committee shall cease to serve, the vacancy shall be filled by the Board of Directors. The Committee shall establish such rules and procedures as are necessary or advisable to administer the Plan.      4.  Participants. The class of persons who are potential recipients of Options granted under this Plan consist of the (i) employees of the Corporation or a Subsidiary, as determined by the Committee in its sole discretion; (ii) directors of the Corporation or a Subsidiary who are not also employees of the Corporation or a Subsidiary, as determined by the Board of Directors in its sole discretion and (iii) consultants to the Corporation or a Subsidiary, as determined by the Committee or the Board of Directors in its sole discretion. Notwithstanding any other provision of the Plan to the contrary, all determinations with respect to any Option granted to a director of the Corporation or a Subsidiary who is not also an employee of the Corporation or a Subsidiary shall be made by the Board of Directors and, with respect to any such Option and Options to consultants granted by the Board of Directors, all references in the Plan to the Committee shall be deemed to refer to the Board of Directors.      5.  Shares. Subject to the provisions of Section 14, the aggregate number of Shares which may be the subject of Options granted under this Plan shall be 2,500,000 Shares, which may be either Shares held in treasury or authorized but unissued Shares. The maximum number of Shares which may be the subject of Options granted to any individual during any calendar year shall not exceed 250,000 Shares. If the Shares that would be issued or transferred pursuant to any Option are not issued or transferred and cease to be issuable or transferable for any reason, the number of Shares subject to such Option will no longer be charged against the limitation provided for herein and may again be made subject to Options; provided, however, that with respect to any Option granted to any person who is a "covered employee" as defined in Section 162(m) of the Code and the regulations promulgated thereunder that is canceled or repriced, the number of Shares subject to such Option shall continue to count against the maximum number of Shares which may be the subject of Options granted to such person and such maximum number of Shares shall be determined in accordance with Section 162(m) of the Code and the regulations promulgated thereunder.      6.  Grant of Options. The number of Options to be granted to any individual shall be determined by the Committee in its sole discretion.      At the time an Option is granted, the Committee may, in its sole discretion, designate whether such Option (a) is to be considered as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code, or (b) is not to be treated as an incentive stock option for purposes of this Plan and the Internal Revenue Code. No Option which is intended to qualify as an incentive stock option shall be granted under this Plan to any individual who, at the time of such grant, is not an employee of the Corporation or a Subsidiary.      Notwithstanding any other provision of this Plan to the contrary, to the extent that the aggregate Fair Market Value (determined as of the date an Option is granted) of the Shares with respect to which Options which are designated as incentive stock options, and any other incentive stock options, granted to an employee (under this Plan, or any other incentive stock option plan maintained by the Corporation or any Subsidiary that meets the requirements of Section 422 of the Internal Revenue Code) first become exercisable in any calendar year exceeds $100,000, such Options shall be treated as Options which are not incentive stock options. Options with respect to which no designation is made by the Committee shall be deemed to be incentive stock options to the extent that the $100,000 limitation described in the preceding sentence is met. This paragraph shall be applied by taking options into account in the order in which they are granted.      If any Option shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased Shares subject thereto may again be made subject to Options under the Plan.      Nothing herein contained shall be construed to prohibit the issuance of Options at different times to the same employee, director or consultant.      A certificate of Option signed by the Chairman of the Board of Directors or the President or a Vice President of the Corporation, shall be issued to each person to whom an Option is granted, in the form attached hereto as Exhibit A with respect to an incentive stock option, in the form attached hereto as Exhibit B with respect to a non-qualified stock option granted to an employee or consultant and in the form attached hereto as Exhibit C with respect to a non-qualified stock option granted to a director who is not also an employee.      7. Price. The price per Share of the Shares to be purchased pursuant to the exercise of any Option shall be determined by the Committee at the time of grant; provided, however, that the purchase price per share of the Shares to be purchased pursuant to the exercise of an Option which is intended to be an incentive stock option shall not be less than the Fair Market Value of a Share on the day on which the Option is granted.      8.  Duration of Options. The duration of any Option granted under this Plan shall be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Option which is intended to be an incentive stock option shall remain in effect for a period of more than ten years from the date upon which the Option is granted.      9.  Ten Percent Shareholders. Notwithstanding any other provision of this Plan to the contrary, no Option which is intended to qualify as an incentive stock option may be granted under this Plan to any employee who, at the time the Option is granted, owns shares possessing more than ten percent of the total combined voting power or value of all classes of stock of the Corporation, unless the exercise price under such Option is at least 110% of the Fair Market Value of a Share on the date such Option is granted and the duration of such Option is no more than five years.      10.  Consideration for Options. The Corporation shall obtain such consideration for the grant of an Option as the Committee in its discretion may request.      11  Restrictions on Transferability of Options. Options shall not be transferable otherwise than by will or by the laws of descent and distribution or as provided in this Section 11. Notwithstanding the preceding, the Committee may, in its discretion, authorize a transfer of all or a portion of any Option, other than an Option which is intended to qualify as an incentive stock option, by such holders who are or were executive officers of the Company (as such officers are determined from time to time by the Board of Directors of the Company) to (i) the spouse, children, stepchildren, grandchildren or other family members of the initial holder ("Family Members"), (ii) a trust or trusts for the exclusive benefit of such Family Members or (iii) such other persons or entities which the Committee may permit; provided, however, that subsequent transfers of such Options shall be prohibited except by will or the laws of descent and distribution. Any transfer of such an Option shall be subject to such terms and conditions as the Committee shall approve, including that such Option shall continue to be subject to the terms and conditions of the Option and of the Plan as amended from time to time. The events of termination of employment or service under Section 13 shall continue to be applied with respect to the initial holder, following which a transferred Option shall be exercisable by the transferee only to the extent and for the periods provided pursuant to Section 13. An Option which is intended to qualify as an incentive stock option shall not be transferable otherwise than by will or by the laws of descent and distribution and shall be exercisable during the holder's lifetime only by the holder thereof.      12.  Exercise of Options. An Option, after the grant thereof, shall be exercisable by the holder at such rate and times as may be determined by the Committee.      Notwithstanding the foregoing, all or any part of any remaining unexercised Option granted to any person may be exercised in the following circumstances (but in no event prior to approval of the Plan by shareholders as provided in Section 18 or after the expiration of the Option): (a) subject to the provisions of Section 13 hereof, upon the holder's retirement as an employee from the Corporation and all Subsidiaries at or after age 65, (b) subject to the provisions of Section 13 hereof, upon the disability (to the extent and in a manner as shall be determined by the Committee in its sole discretion) or death of the holder, (c) upon the occurrence of such special circumstance or event as in the opinion of the Committee merits special consideration, or (d) if, while the holder is employed by, or serving as a director of or consultant to, the Corporation or a Subsidiary, there occurs a Change in Control. For purposes of this Plan, a "Change in Control" shall be deemed to have occurred if (i) any "person" or group of "persons" (as the term "person" is used in Sections 13(d) and 14(d) of the Exchange Act ("Person"), acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such Person) the beneficial ownership, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the then outstanding securities of the Corporation; (ii) during any period of twelve months, individuals who at the beginning of such period constitute the Board of Directors, and any new director whose election or nomination was approved by the directors in office who either were directors at the beginning of the period or whose election or nomination was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) a Person acquires beneficial ownership of stock of the Corporation that, together with stock held immediately prior to such acquisition by such Person, possesses more than 50% of the total fair market value or total voting power of the stock ("50% Ownership") of the Corporation, unless the additional stock is acquired by a Person possessing, immediately prior to such acquisition, beneficial ownership of 40% or more of the Common Stock; or (iv) a Person acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such Person) assets from the Corporation that have a total fair market value equal to or more than one-third of the total fair market value of all of the assets of the Corporation immediately prior to such acquisition. Notwithstanding the foregoing, for purposes of clauses (i) and (ii), a Change in Control will not be deemed to have occurred if the power to control (directly or indirectly) the management and policies of the Corporation is not transferred from a Person to another Person; and for purposes of clause (iv), a Change in Control will not be deemed to occur if the assets of the Corporation are transferred: (A) to a shareholder in exchange for his or her stock, (B) to an entity in which the Corporation has (directly or indirectly) 50% Ownership, or (C) to a Person that has (directly or indirectly) at least 50% ownership of the Corporation with respect to its stock outstanding, or to any entity in which such Person possesses (directly or indirectly) 50% Ownership.      An Option shall be exercised by the delivery of a written notice duly signed by the holder thereof to such effect ("Exercise Notice"), together with the Option certificate and the full purchase price of the Shares purchased pursuant to the exercise of the Option, to the Chairman of the Board or an officer of the Corporation appointed by the Chairman of the Board for the purpose of receiving the same. Payment of the full purchase price shall be made as follows: in cash or by check payable to the order of the Corporation; by delivery to the Corporation of Shares which shall be valued at their Fair Market Value on the date of exercise of the Option (provided, that a holder may not use any previously owned Shares unless the holder has beneficially owned such Shares for at least six months); by providing with the Exercise Notice an order to a designated broker to sell part or all of the Shares and to deliver sufficient proceeds to the Corporation, in cash or by check payable to the order of the Corporation, to pay the full purchase price of the Shares and all applicable withholding taxes; or by such other methods as the Committee may permit from time to time.      Within a reasonable time after the exercise of an Option, the Corporation shall cause to be delivered to the person entitled thereto, a certificate for the Shares purchased pursuant to the exercise of the Option. If the Option shall have been exercised with respect to less than all of the Shares subject to the Option, the Corporation shall also cause to be delivered to the person entitled thereto a new Option certificate in replacement of the certificate surrendered at the time of the exercise of the Option, indicating the number of Shares with respect to which the Option remains available for exercise, or the original Option certificate shall be endorsed to give effect to the partial exercise thereof.      13.  Termination of Employment or Service. All or any part of any Option, to the extent unexercised, shall terminate immediately (i) in the case of an employee, upon the cessation or termination for any reason of the Option holder's employment by the Corporation and all Subsidiaries, or (ii) in the case of a director of the Corporation or a Subsidiary who is not also an employee of the Corporation or a Subsidiary or in the case of a consultant to the Corporation or a Subsidiary, upon the holder's ceasing to serve as a director of or consultant to (as the case may be) the Corporation or a Subsidiary, except that in either case under clause (i) or (ii) above, the Option holder shall have three months following the cessation of the holder's employment with the Corporation and Subsidiaries or his service as a director of or consultant to the Corporation or a Subsidiary, as the case may be, and no longer, to exercise any unexercised Option that the holder could have exercised on the day on which such employment, or service as a director or consultant, terminated; provided, however, that such exercise must be accomplished prior to the expiration of the term of such Option and provided, further, that if the cessation of employment or service as a director or consultant is due to disability (to an extent and in a manner as shall be determined in each case by the Committee in its sole discretion) or to death, the Option holder or the representative of the Estate or the heirs of a deceased Option holder shall have the privilege of exercising the Options which are unexercised at the time of such disability or death, at any time within one year after the Option holder's disability or death, as the case may be, but prior to the expiration of the term of such Option. Notwithstanding the foregoing or any other provision of the Plan to the contrary, with respect to any Option, the Committee may determine, in its sole discretion, either at the time of grant or thereafter, to permit such Option to be exercised for such period extending beyond the three-month and one-year periods specified above as the Committee deems appropriate, but in no event beyond the expiration of the term of such Option. If the employment or service of any Option holder with the Corporation or a Subsidiary shall be terminated because of the Option holder's violation of the duties of such employment or service with the Corporation or a Subsidiary as such holder may from time to time have, the existence of which violation shall be determined by the Committee in its sole discretion (which determination by the Committee shall be conclusive), all unexercised Options of such Option holder shall terminate immediately upon such termination of the holder's employment or service with the Corporation and all Subsidiaries, and an Option holder whose employment or service with the Corporation and Subsidiaries is so terminated, shall have no right after such termination to exercise any unexercised Option that such holder might have exercised prior to the termination of employment or service with the Corporation and Subsidiaries.      Nothing contained herein or in the Option certificate shall be construed to confer on any employee, director or consultant any right to be continued in the employ of the Corporation or any Subsidiary or as a director of or consultant to the Corporation or a Subsidiary or derogate from any right of the Corporation and any Subsidiary to request the resignation of or discharge any employee, director or consultant (without or with pay), at any time, with or without cause.      14.  Adjustment of Optioned Shares. If prior to the complete exercise of any Option there shall be declared and paid a stock dividend upon the common stock of the Corporation or if the common stock of the Corporation shall be split up, converted, exchanged, reclassified, or in any way substituted for, the Option, to the extent that it has not been exercised, shall entitle the holder thereof upon the future exercise of the Option to such number and kind of securities or other property subject to the terms of the Option to which such holder would have been entitled had such holder actually owned the Shares subject to the unexercised portion of the Option at the time of the occurrence of such stock dividend, split-up, conversion, exchange, reclassification or substitution; and the aggregate purchase price upon the future exercise of the Option shall be the same as if the originally optioned Shares were being purchased thereunder. Any fractional shares or securities payable upon the exercise of the Option as a result of such adjustment shall be payable in cash based upon the Fair Market Value of such shares or securities at the time of such exercise. If any such event should occur, the number of Shares with respect to which Options remain to be issued, or with respect to which Options may be reissued, shall be adjusted in a similar manner. Notwithstanding any other provision of the Plan, in the event of a recapitalization, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or outstanding Shares, the Committee may make such equitable adjustments to the number of Shares and the class of shares available hereunder or to any outstanding Options as it shall deem appropriate to prevent dilution or enlargement of rights.      15.  Issuance of Shares and Compliance with Securities Act. The Corporation may postpone the issuance and delivery of Shares upon any exercise of an Option until (a) the admission of such Shares to listing on any stock exchange on which Shares of the Corporation of the same class are then listed, and (b) the completion of such registration or other qualification of such Shares under any State or Federal law, rule or regulation as the Corporation shall determine to be necessary or advisable. Any person exercising an Option shall make such representations and furnish such information as may, in the opinion of counsel for the Corporation, be appropriate to permit the Corporation, in the light of the then existence or non-existence with respect to such Shares of an effective Registration Statement under the Securities Act of 1933, as from time to time amended (the "Securities Act"), to issue the Shares in compliance with the provisions of the Securities Act or any comparable act. The Corporation shall have the right, in its sole discretion, to legend any Shares which may be issued pursuant to the exercise of an Option, or may issue stop transfer orders in respect thereof.      16.  Income Tax Withholding. If the Corporation or a Subsidiary shall be required to withhold any amounts by reason of any national, state or local tax rules or regulations in respect of the issuance of Shares pursuant to the exercise of such Option, the Corporation or the Subsidiary shall be entitled to deduct and withhold such amounts from any cash payments to be made to the holder of such Option. In any event, the holder shall make available to the Corporation or Subsidiary, promptly when requested by the Corporation or such Subsidiary, sufficient funds to meet the requirements of such withholding; and the Corporation or Subsidiary shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds made available to the Corporation or Subsidiary out of any funds or property due or to become due to the holder of such Option.      17.  Administration and Amendment of the Plan. Except as hereinafter provided, the Board of Directors or the Committee may at any time withdraw or from time to time amend the Plan as it relates to, and the terms and conditions of, any Options not theretofore granted, and the Board of Directors or the Committee, with the consent of the affected holder of an Option, may at any time withdraw or from time to time amend the Plan as it relates to, and the terms and conditions of, any outstanding Option. Notwithstanding the foregoing, any amendment by the Board of Directors or the Committee which would increase the number of Shares issuable under Options granted pursuant to the Plan or to any individual during any calendar year or change the class of persons to whom Options may be granted shall be subject to the approval of the shareholders of the Corporation within one year of such amendment.      Determinations of the Committee as to any question which may arise with respect to the interpretation of the provisions of the Plan and Options shall be final. The Committee may authorize and establish such rules, regulations and revisions thereof not inconsistent with the provisions of the Plan, as it may deem advisable to make the Plan and Options effective or provide for their administration, and may take such other action with regard to the Plan and Options as it shall deem desirable to effectuate their purpose.      18.  Effective Date. This Plan is conditioned upon its approval by the hareholders of the Corporation on or before March 22, 1999, at any special or annual meeting of the shareholders of the Corporation, except that this Plan is adopted and approved by the Board of Directors effective March 23, 1998, to permit the grant of Options prior to the approval of the Plan by the shareholders of the Corporation as aforesaid. If this Plan is not approved by the shareholders of the Corporation within the time period noted above, this Plan and any Options granted hereunder shall be void and of no force or effect.      19.  Final Issuance Date. No Option shall be granted under the Plan after March 22, 2008. Exhibit A      Form of Certificate for Incentive Stock Options OPTION CERTIFICATE INCENTIVE STOCK OPTION (Non-Assignable) To Purchase _____________ Common Shares of RECOTON CORPORATION Issued Pursuant to the 1998 Stock Option Plan of Recoton Corporation      THIS CERTIFIES that on ________________, 19__, _________________________________ (the "Holder") was granted an option ("Option"), to purchase at the Option price of $_________ per share all or any part of _____________ fully paid and non-assessable shares Common Shares, p.v. $.20 (the "Shares") of Recoton Corporation ("Corporation"), upon and subject to the following terms and conditions.      This Option shall expire on _________________, 20__.      This Option may be exercised or surrendered during the Holder's lifetime only by the Holder. This Option shall not be transferable by the Holder otherwise than by will or by the laws of descent and distribution.      Except as otherwise provided in the 1998 Stock Option Plan of Recoton Corporation (the "Plan"), this Option shall be exercisable as follows: [insert vesting schedule; also insert any extension of post-termination exercise period beyond three-month and one-year periods, if determined at time of grant].1 In no event, however, may this Option be exercised after the Option's expiration date. __________         1 If, at the time of grant, the post-termination exercise period extends beyond the three-month and one-year periods, then also add the following: In the event the Option is exercised more than three months after the Holder’s termination of employment for reasons other than death or disability, or more than one year after the Holder’s termination of employment due to the Holder’s disability, then the Option, to the extent so exercised, shall be deemed not to be an incentive stock option.      The Option and this Option certificate are issued pursuant to and are subject to all of the terms and conditions of the Plan, the terms and conditions of which are hereby incorporated by reference and a copy of which is attached to this certificate. A determination of the Committee under the Plan as to any questions which may arise with respect to the interpretation of the provisions of the Option and of the Plan shall be final. The Committee may authorize and establish such rules, regulations and revisions thereof not inconsistent with the provisions of the Plan, as it may deem advisable.      WITNESS the signature of the Corporation's duly authorized officer. Dated: _______________________, 19__. RECOTON CORPORATION By:                                             Exhibit B          Form of Certificate for Employees' and Consultants' Non-Qualified Options OPTION CERTIFICATE NON-QUALIFIED STOCK OPTION To Purchase _____________ Common Shares of RECOTON CORPORATION Issued Pursuant to the 1998 Stock Option Plan of Recoton Corporation      THIS CERTIFIES that on ________________, 19__, ____________________ (the "Holder") was granted an option ("Option"), which is not an incentive stock option, to purchase at the Option price of $_________ per share all or any part of _____________ fully paid and non-assessable Common Shares, p.v. $.20 (the "Shares"). of Recoton Corporation ("Corporation"), upon and subject to the following terms and conditions.      This Option shall expire on _________________, 20__.      This Option shall not be transferable by the Holder otherwise than by will or by the laws of descent and distribution or as provided pursuant to the 1998 Stock Option Plan of Recoton Corporation (the "Plan").      Except as otherwise provided in the Plan, this Option shall be exercisable as follows: [insert vesting schedule; also insert any extension of post-termination exercise period beyond three-month and one-year periods, if determined at time of grant]. In no event, however, may this Option be exercised after the Option's expiration date.      The Option and this Option certificate are issued pursuant to and are subject to all of the terms and conditions of the Plan, the terms and conditions of which are hereby incorporated by reference and a copy of which is attached to this certificate. A determination of the Committee or the Board of Directors under the Plan as to any questions which may arise with respect to the interpretation of the provisions of the Option and of the Plan shall be final. The Committee or the Board of Directors may authorize and establish such rules, regulations and revisions thereof not inconsistent with the provisions of the Plan, as it may deem advisable.      WITNESS the signature of the Corporation's duly authorized officer. Dated: _______________________, 19__. RECOTON CORPORATION By:                                             Exhibit C    Form of Certificate for Non-Employee Directors' Options OPTION CERTIFICATE NON-QUALIFIED STOCK OPTION To Purchase _____________ Common Shares of RECOTON CORPORATION Issued Pursuant to the 1998 Stock Option Plan of Recoton Corporation      THIS CERTIFIES that on ________________, 19__, _____________________ (the "Holder") was granted an option ("Option"), which is not an incentive stock option, to purchase at the Option price of $_________ per share all or any part of _____________ fully paid and non-assessable shares Common Shares, p.v. $.20 (the "Shares") of Recoton Corporation ("Corporation"), upon and subject to the following terms and conditions.      This Option shall expire on _________________, 20__.      This Option shall not be transferable by the Holder otherwise than by will or by the laws of descent and distribution or as provided pursuant to the 1998 Stock Option Plan of Recoton Corporation (the "Plan").      Except as otherwise provided in the Plan, this Option shall be exercisable as follows: [insert vesting schedule; also insert any extension of post-termination exercise period beyond three-month and one-year periods, if determined at time of grant]. In no event, however, may this Option be exercised after the Option's expiration date.      The Option and this Option certificate are issued pursuant to and are subject to all of the terms and conditions of the Plan, the terms and conditions of which are hereby incorporated by reference and a copy of which is attached to this certificate. A determination of the Board of Directors of the Corporation as to any questions which may arise with respect to the interpretation of the provisions of the Option and of the Plan shall be final. The Board of Directors of the Corporation may authorize and establish such rules, regulations and revisions thereof not inconsistent with the provisions of the Plan, as it may deem advisable.      WITNESS the signature of the Corporation's duly authorized officer. Dated: _______________________, 19__. RECOTON CORPORATION By:                                            

ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR EXECUTIVE VICE PRESIDENT AND GROUP PRESIDENT         THIS AGREEMENT, made as of the 1st day of June, 1999 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI") and NSI SERVICES, L.P. (GA), a Subsidiary of NSI (together, the "Company"), and GEORGE H. GILMORE, JR. (the "Grantee").         WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the “Plan”) in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and         WHEREAS, the Grantee, as an executive of the above-referenced Subsidiary, performs services with respect to the CHEMICAL GROUP, NATIONAL LINEN SERVICE, AND AECO operations of the Company (the “Operations”); and         WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein.         NOW, THEREFORE, the parties hereto agree as follows:         1. Grant of Aspiration Award.         1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the “Award”), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1997 to August 31, 2000. As provided in the Plan, Grantee’s right to payment of this Award is dependent upon Grantee’s continued employment in Grantee’s current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the remainder of the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee’s employment terminates prior to the end of the Performance Cycle.         1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.         2. Performance Measure and Performance Levels.         The Committee has established the performance measure (the “Performance Measure”), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 109         3. Determination of Aspiration Award.         3.1 Determination Notice. Subject to Section 3.2, as soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations’ financial results for the Performance Cycle to exclude the effect of unusual charges or income items which are distortive of financial results for the Performance Cycle; provided, that, in determining financial results, items whose exclusion from consideration will increase the performance level of the Operations shall only have their effects excluded if they constitute “extraordinary items” under generally accepted accounting principles and all such items shall be excluded. The Committee shall also adjust the performance calculations to exclude the unanticipated effect on financial results of changes in the Code, or other tax laws, and the regulations thereunder. The Committee shall also exclude from consideration the effect on financial performance of each of the following events or items where the result of excluding the particular event or item is to increase the performance level of the Operations: (i) an acquisition or a divestiture involving more than $10 million in net worth or $25 million in business revenues; (ii) an equity restructuring involving more than $1 million; (iii) asset impairment charges involving more than $1 million and restructuring costs involving more than $1 million associated with facility closings or reduction in employment levels; (iv) changes in accounting treatment or rules involving more than $1 million. The Committee may decrease the amount of the Award otherwise payable to Grantee if, in the Committee’s view, such adjustment is necessary or desirable, regardless of the extent to which the Performance Measure has been achieved. The Committee may establish such guidelines and procedures for reducing the amount of an Award as it deems appropriate.         The Company will notify the Grantee (or the executors or administrators of the Grantee’s estate, if applicable) of the Committee’s determination (the “Determination Notice”). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. Unless the Committee determines otherwise at the time the Award is paid and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares. The Shares will be valued at their Fair Market Value as of the last day of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms and conditions to the Shares issued as part of the Award. 110         3.2 Significant Events Involving the Operations. If, during a Performance Cycle, NSI consummates an acquisition or disposition involving the Operations that (i) involves assets whose value equals or exceeds 20% of the total value of the Operations’ assets, (ii) represents a part of the business whose revenues equal or exceed 20% of the total of the Operations’ revenues, or (iii) causes a material restructuring of the Operations, the following rules shall apply:         (a) If the transaction is consummated during the first year of the Performance Cycle, the Performance Cycle and the Grantee’s outstanding Award will be terminated with no payout and a new Performance Cycle containing a new Award will be started.         (b) If the transaction is consummated after the first year of the Performance Cycle, the Performance Cycle will end and the outstanding Award will be determined and paid at the Operations’ actual performance level to such date, taking into account the adjustments provided for in Section 3.1 above and using prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that had elapsed as of the date of consummation of the acquisition or disposition. Payment of the Award will be made as soon as practical after it is determined. A new Performance Cycle will be started to cover the period remaining in the initial Performance Cycle or, if that result is not practical, the Committee will make an appropriate adjustment to reflect the premature termination of the initial Performance Cycle.         If, during a Performance Cycle, NSI consummates an acquisition or disposition that is not covered by the special provisions of this Section 3.2, the financial effects of such acquisition or disposition shall be handled as provided in Section 3.1.         Any actions under this Section 3.2 shall be taken in accordance with the requirements of Code Section 162(m) and the regulations thereunder.         4. Termination of Employment.         4.1 In General. Except as provided in Sections 4.2, 4.3 and 4.4 below, in the event that a Grantee’s employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee.         4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of a Grantee is terminated by reason of death or Disability during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. 111         In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if the Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3.         Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle.         4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee’s Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award which would result in reduction of the Award by more than 50% shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to a Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction or other event which resulted in a Change in Control.         4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle         5. No Right to Continued Employment.         Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee’s employment at any time. 112         6. Nonassignment.         The Grantee shall not have the right to assign, alienate, pledge, transfer or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee’s rights or benefits shall be null and void and not recognized by the Plan or the Company. 113         7. Modification of Agreement.         This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.         8. Severability; Governing Law         Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.         The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.         9. Successors in Interest.         This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee’s heirs, executors, and administrators.         10. Resolution of Disputes.         Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.         11. Withholding of Taxes.         The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the “Tax Election”), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 114 NATIONAL SERVICE INDUSTRIES, INC. By: /s/ JAMES S. BALLOUN ----------------------------------------------------------------- JAMES S. BALLOUN Chairman, President and Chief Executive Officer NSI SERVICES, L.P. (GA), Subsidiary By: /s/ JAMES S. BALLOUN ----------------------------------------------------------------- JAMES S. BALLOUN Chairman, President and Chief Executive Officer /s/ GEORGE H. GILMORE, JR. ---------------------------------------------------------------------- Name of Grantee: GEORGE H. GILMORE, JR. 115 NSI ASPIRATION AWARD PROGRAM ILLUSTRATION - FY 1998-2000 Name George H. Gilmore, Jr. Position Executive Vice President and GroupPresident Salary $ 450,000 Division Corporate Total LTI Multiple 160% AAI % of LTI 30% Prorated Months 15 of 36 FY 98-00 Economic Profit ($000,000) Threshold 35.8 Commitment 65.6 Aspiration 106.1 Individual AAI Opportunity Threshold $22,500 Commitment $90,000 Aspiration $450,000 116

Exhibit 10.2   EMPLOYMENT AGREEMENT           THIS AGREEMENT ("Agreement") is made and entered into as of this 31st day of August, 2000, by and between SCOTT D. DORFMAN, an individual resident of the State of Georgia ("Employee"), and INNOTRAC CORPORATION, a Georgia corporation (the "Employer"). W I T N E S S E T H:           WHEREAS, the parties hereto desire to enter into an agreement for the Company's continued employment of Employee on the terms and conditions contained herein;           NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1.     Employment.           Subject to the terms hereof, the Employer hereby employs Employee, and Employee hereby accepts such employment. Employee will serve as President, Chief Executive Officer and Chairman of the Board of Directors of the Employer or in such other executive capacity as the Board of Directors of Employer (the "Board of Directors") may hereafter from time to time determine. Employee agrees to devote his full business time and best efforts to the performance of the duties that Employer may assign Employee from time to time; provided that the Employee may also serve as an officer or director of Return.com Online, Inc. and may perform services for Return.com Online, Inc.; and provided further that the Employee may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder. Section 2.     Term of Employment.           The term of Employee's employment (the "Term") shall continue from the date hereof until the earlier of (a) December 31, 2005 or (b) the occurrence of any of the following events:           (i)          The death or total disability of Employee (total disability meaning the failure to fully perform his normal required services hereunder for a period of three (3) months during any consecutive twelve (12) month period during the term hereof, as determined by the Board of Directors, by reason of mental or physical disability);           (ii)          The termination by Employer of Employee's employment hereunder, upon prior written notice to Employee, for "good cause", as determined by the Board of Directors. For purposes of this Agreement, "good cause" for termination of Employee's employment shall exist (A) if Employee is convicted of, pleads guilty to, or confesses to any felony or any act of fraud, misappropriation or embezzlement, (B) if Employee fails to comply with the terms of this Agreement, and, within thirty (30) days after written notice from Employer of such failure, Employee has not corrected such failure or, having once received such notice of failure and having so corrected such failure, Employee at any time thereafter again so fails, (C) if Employee violates any of the provisions contained in Section 4 of this Agreement, or (D) if Employee tests positive for illegal drugs; or          (iii)          The termination of this Agreement by either party upon at least ninety (90) days prior written notice. Section 3.     Compensation.           3.1          Term of Employment. Employer will provide Employee with the following salary, expense reimbursement and additional employee benefits during the term of employment hereunder:           (a)          Salary. Employee will be paid a salary (the "Salary") of no less than Four Hundred Twenty-Five Thousand Dollars ($ 425,000) per annum, less deductions and withholdings required by applicable law. The Salary shall be paid to Employee in equal monthly installments (or on such more frequent basis as other executives of Employer are compensated). The Salary shall be reviewed by the Board of Directors of Employer on at least an annual basis.           (b)          Bonus. Employee will be entitled to an annual bonus (the "Bonus") of 100% of Salary at Plan (to be defined) with a 3-up-3-down formula. The Bonus shall be paid promptly upon the availability of annual financial results (which is expected to occur in early February of each year).           (c)          Car Allowance. Employee shall be reimbursed for reasonable automobile expenses, including gas, repairs, maintenance and insurance.           (d)          Club Dues. Employee will be provided a corporate membership at Employer's expense under its existing corporate membership at Sugar Loaf and at the 1818 Club, and will reimburse Employee for his annual dues and membership fees for his personal membership at the Standard Club, so that these facilities may be used for client entertainment.           (e)          Vacation. Employee shall receive eight (8) weeks vacation time per calendar year during the term of this Agreement. Any unused vacation days in any calendar year may not be carried over to subsequent years.           (f)          Expenses. Employer shall reimburse Employee for all reasonable and necessary expenses incurred by Employee at the request of and on behalf of Employer.           (g)          Benefit Plans. Employee may participate in such medical, dental, disability, hospitalization, life insurance and other benefit plans (such as pension and profit sharing plans) as Employer maintains from time to time for the benefit of other senior executives of Employer, on the terms and subject to the conditions set forth in such plans. 3.2          Effect of Termination.           (a)          Except as hereinafter provided, upon the termination of the employment of Employee hereunder for any reason, Employee shall be entitled to all compensation and benefits earned or accrued under Section 3.1 as of the effective date of termination (the "Termination Date"), but from and after the Termination Date no additional compensation or benefits shall be earned by Employee hereunder. Employee shall be deemed to have earned any Bonus payable with respect to the calendar year in which the Termination Date occurs on a prorated basis (based on the number of days in such calendar year through and including the Termination Date divided by 365) based upon the year to date financials and performance of the Employer and assuming performance at the target level for any individual performance criteria. Any such Bonus shall be payable upon termination.           (b)          If Employee's employment hereunder is terminated by Employer pursuant to Section 2(b)(iii) hereof, then, in addition to any other amount payable hereunder, Employer shall continue to pay Employee his normal Salary pursuant to Section 3.1(a) for a six-month period (on the same basis as if Employee continued to serve as an employee hereunder for such applicable period). If Employee's employment is terminated pursuant to Section 2(b)(i) hereof or if Employee's employment is terminated by Employer pursuant to Section 2(b)(iii), all options to purchase stock of the Company or an affiliate of the Company granted to Employee shall immediately become exercisable upon such termination. In the case of a termination pursuant to Section 2(b)(i) hereof, the options will expire in accordance with their respective scheduled expiration dates. Except as provided in Section 3.3, in the case of a termination by Employer pursuant to Section 2(b)(iii) hereof, the options will expire on the first anniversary after the effective date of the termination of Employee's employment hereunder. Upon the death of Employee, any options that Employee would otherwise be entitled to exercise hereunder may be exercised by his personal representatives or heirs, as applicable. Except as provided in Section 3.3, if Employee's employment is terminated by Employer pursuant to Section 2(b)(ii) or by Employee pursuant to Section 2(b)(iii), those options which are exercisable as of the date of such termination shall be exercisable for a period of 90 days after such termination (and all other options not then exercisable shall be forfeited as of such date), and after such 90-day period, all unexercised options will expire. To the extent necessary, this provision shall be deemed an amendment of any option agreement between the Employee and the Employer or an affiliate of the Employer .           3.3          Effect of Change in Control. Notwithstanding Section 3.2(b) above, if there is a Change in Control (as defined below) of the Employer and the Employee's employment is terminated within 18 months following the date of the Change in Control, the following provisions shall apply.           (a)          If Employee's employment hereunder is terminated by Employer pursuant to Section 2(b)(iii) hereof or by Employee for "Good Reason" as defined below, then, in addition to any other amount payable pursuant to Section 3.2(a), the Employee shall be entitled to received the compensation and benefits set forth in subsections (i) through (iv) below:           (i)          Base Salary. Employee will continue to receive his Salary as then in effect (subject to withholding of all applicable taxes) for a period of eighteen (18) months from his date of termination in the same manner as it was being paid as of the date of termination.           (ii)          Health, Dental and Life Insurance Coverage. The health, dental and group term life insurance benefits coverage provided to Employee at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Employee retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date eighteen (18) months from the date of such termination. Any additional coverages Employee had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Employee was paying for such coverages at the time of termination shall be paid by Employee by separate check payable to the Company each month in advance or by reduction of amounts owed to Employee by the Employer. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Employee, then the Company will arrange for other coverage at its expense providing substantially similar benefits. The coverages provided for in this paragraph shall be applied against and reduce the period for which COBRA will be provided.           (iii)          Stock Options. Notwithstanding any provision in any option agreement, all outstanding stock options granted to Employee by Employer or an affiliate of Employer shall become fully vested on the date of Employee's termination of employment and shall remain exercisable as provided in the applicable option agreement or, if longer, for a period of three (3) years following the date of termination of employment. To the extent necessary, this provision shall be deemed an amendment of any option agreement between the Employee and the Employer or an affiliate of the Employer.           (iv)          Other Benefits. For a period of 18 months following the date of Employee's termination of Employment, the Employee shall continue to receive a car allowance as provided in Section 3.1(c) of this Agreement and reimbursement of club membership dues as provided in Section 3.1(d) of this Agreement.           (b)          If Employee's employment hereunder is terminated by Employee pursuant to Section 2(b)(iii) hereof other than for "Good Reason" as defined below, then, in addition to any other amount payable pursuant to Section 3.2(a), the Employee shall be entitled to receive the compensation and benefits set forth in subsections (i) through (iv) of Subsection 3.3(a) above, provided, however, that a period of 12 months shall be substituted for 18 months in subsections 3.3(a)(i), (ii) and (iv).           3.4          Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (a)          "Change in Control" means any of the following events:           (i)          The acquisition (other than from the Employer) by any person of beneficial ownership of fifty percent (50%) or more of the combined voting power of the Employer's then outstanding voting securities; provided, however, that for purposes of this Section, person shall not include any person who on the date hereof owns 25% or more of the Employer's outstanding securities, and a Change in Control shall not be deemed to occur solely because fifty percent (50%) or more of the combined voting power of the Employer's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Employer or any of its subsidiaries, or (ii) any corporation, which, immediately prior to such acquisition, is owned directly or indirectly by the shareholders of the Employer in the same proportion as their ownership of stock in the Employer immediately prior to such acquisition.           (ii)          Approval by shareholders of the Employer of (1) a merger or consolidation involving the Employer if the shareholders of the Employer, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Employer outstanding immediately before such merger or consolidation, or (2) a complete liquidation or dissolution of the Employer, or (3) an agreement for the sale or other disposition of all or substantially all of the assets of the Employer.           (iii)          A change in the composition of the Board such that the individuals who, as of the date of this Agreement, constitute the Board (such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section that any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Employer's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or t hreatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, including any successor to such Rule), or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, shall not be so considered as a member of the Incumbent Board.           (iv)          The occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement.           (b)          A "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without the Employee's express written consent), within the eighteen (18) month period following the date of a Change in Control, of any one of the following acts by the Employer, or failures by the Employer to act, unless, in the case of any act or failure to act described in paragraph (i) or (iv) below, such act or failure to act is corrected within 30 days after notice by the Employee to the Employer of the act or failure to act:           (i) the assignment to Employee of any duties inconsistent with Employee's title and status set forth herein, or a substantial adverse alteration in the nature or status of Employee's responsibilities at the Employer from those in effect immediately prior to the Change in Control;                                 (ii) a substantial reduction by the Employer in Employee's Base Salary;           (iii) the relocation of Employee's principal office to a place more than 50 miles from Atlanta, Georgia;           (iv) the failure by the Employer to continue in effect any compensation or benefit plan or program in which Employee participates immediately prior to the Change in Control, which is material to Employee's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Employer to continue the Employee's participation in such plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Employee's participation relative to other participants, as existed at the time of the Change in Control.           The Employee's right to terminate the Employee's employment for Good Reason shall not be affected by the Employee's incapacity due to physical or mental illness, except for a total disability as defined in Section 2 above. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. Section 4.     Partial Restraint on Post-termination Competition.           4.1          Definitions. For the purposes of this Section 4, the following definitions shall apply:           (a)          "Company Activities" means the business of selling caller ID technology and hardware, fulfillment services, e-commerce fulfillment and e-commerce return services as well as other similar services that Innotrac or its subsidiaries is involved in at the date of this agreement.           (b)          "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, other than the Employer or its affiliates or subsidiaries, engaged, wholly or partly, in Company Activities.           (c)          "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) any employment or independent contractor arrangement with any Competitor whereby Employee will serve such Competitor in any managerial capacity.           (d)          "Confidential Information" means any confidential, proprietary business information or data belonging to or pertaining to Employer that does not constitute a "Trade Secret" (as hereinafter defined) and that is not generally known by or available through legal means to the public, including, but not limited to, information regarding Employer's customers or actively sought prospective customers, suppliers, manufacturers and distributors gained by Employee as a result of his employment with Employer.           (e)          "Customer" means actual customers or actively sought prospective customers of Employer during the Term.           (f)          "Noncompete Period" or "Nonsolicitation Period" means the period beginning the date hereof and ending on the first anniversary of the termination of Employee's employment with Employer.           (g)          "Territory" means the area within a thirty-five (35) mile radius of any corporate office of Employer or any of its subsidiaries, affiliates or divisions.           (h)          "Trade Secrets" means information or data of or about Employer, including but not limited to technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential customers, clients, distributees or licensees, information concerning Employer's finances, services, staff, contemplated acquisitions, marketing investigations and surveys, that (i) derive 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 their disclosure or use; and (ii) are the subject of efforts that are reasonable under the circumstances to maintain their secrecy.           (i)          "Work Product" means any and all work product, property, data documentation or information of any kind, prepared, conceived, discovered, developed or created by Employee for Employer or its affiliates, or any of Employer's or its affiliates' clients or customers.           4.2          Trade Name and Confidential Information.           (a)          Employee hereby agrees that (i) with regard to each item constituting all or any portion of the Trade Secrets, at all times during the Term and all times during which such item continues to constitute a Trade Secret under applicable law; and (ii) with regard to any Confidential Information, during the Term and the Noncompete Period:           (i)          Employee shall not, directly or by assisting others, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be connected in any manner with, any business conducted under any corporate or trade name of Employer or name similar thereto, without the prior written consent of Employer;           (ii)          Employee shall hold in confidence all Trade Secrets and all Confidential Information and will not, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, appropriate or otherwise communicate any Trade Secrets or Confidential Information, without the prior written consent of Employer; and           (iii)          Employee shall immediately notify Employer of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. Employee shall assist Employer, to the extent necessary, in the procurement or any protection of Employer's rights to or in any of the Trade Secrets or Confidential Information.           4.3          Noncompetition.           (a)          The parties hereto acknowledge that Employee is conducting Company Activities throughout the Territory. Employee acknowledges that to protect adequately the interest of Employer in the business of Employer it is essential that any noncompete covenant with respect thereto cover all Company Activities and the entire Territory.           (b)          Employee hereby agrees that, during the Term and the Noncompete Period, Employee will not, in the Territory, either directly or indirectly, alone or in conjunction with any other party, accept, enter into or take any action in conjunction with or in furtherance of a Competitive Position. Employee shall notify Employer promptly in writing if Employee receives an offer of a Competitive Position during the Noncompete Term, and such notice shall describe all material terms of such offer.           Nothing contained in this Section 4 shall prohibit Employee from acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securities exchange or in the over-the-counter market.           4.4          Nonsolicitation During Employment Term. Employee hereby agrees that Employee will not, during the Term, either directly or indirectly, alone or in conjunction with any other party solicit, divert or appropriate or attempt to solicit, divert or appropriate, any Customer for the purpose of providing the Customer with services or products competitive with those offered by Employer during the Term.           4.5          Nonsolicitation During Nonsolicitation Period. Employee hereby agrees that Employee will not, during the Nonsolicitation Period, either directly or indirectly, alone or in conjunction with any other party solicit, divert or appropriate or attempt to solicit, divert or appropriate, any Customer for the purpose of providing the Customer with services or products competitive with those offered by Employer during the Term; provided, however, that the covenant in this clause shall limit Employee's conduct only with respect to those Customers with whom Employee had substantial contact (through direct or supervisory interaction with the Customer or the Customer's account) during a period of time up to but no greater than two (2) years prior to the last day of the Term. Section 5.     Miscellaneous.           5.1          Severability. The covenants in this Agreement shall be construed as covenants independent of one another and as obligations distinct from any other contract between Employee and Employer. Any claim that Employee may have against Employer shall not constitute a defense to enforcement by Employer of this Agreement.           5.2          Survival of Obligations. The covenants in Section 4 of this Agreement shall survive termination of Employee's employment, regardless of who causes the termination and under what circumstances.           5.3          Notices. Any notice or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered in person or by courier, by telecopy transmission or sent by any express mail service, postage or fees prepaid at the following addresses:                     Employer                     Innotrac Corporation                     6655 Sugarloaf Parkway                     Duluth, GA 30097                     Attention: David Gamsey, CFO                     Telephone No.: (678) 584-4000                     Employee                     Mr. Scott D. Dorfman                     8241 Nesbit Ferry Road                     Atlanta, GA 30350 or at such other address or number for a party as shall be specified by like notice. Any notice which is delivered in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party or its agent.           5.4          Binding Effect. This Agreement inures to the benefit of, and is binding upon, Employer and their respective successors and assigns, and Employee, together with Employee's executor, administrator, personal representative, heirs, and legatees.           5.5          Entire Agreement. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreements to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by all of the parties hereto.           5.6          Governing Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed, and governed by and in accordance with, the laws of the State of Georgia. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority or by any board of arbitrators by reason of such party or its counsel having or being deemed to have structured or drafted such provision.           5.7          Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.           5.8          Specific Performance. Each party hereto hereby agrees that any remedy at law for any breach of the provisions contained in this Agreement shall be inadequate and that the other parties hereto shall be entitled to specific performance and any other appropriate injunctive relief in addition to any other remedy such party might have under this Agreement or at law or in equity.           5.9          Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.           5.10          Public Announcement. Neither party shall disclose that this Agreement has been executed until such time as both parties mutually agree to such disclosure.           IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.   INNOTRAC CORPORATION           By:            /s/ David L. Gamsey                        Name: David L. Gamsey   Title: Chief Financial Officer           EMPLOYEE                       /s/ Scott Dorfman                                    Scott D. Dorfman

Exhibit 10.23 ADDENDUM DATED AS OF AUGUST 31, 2000 TO THE MASTER LEASE AGREEMENT DATED AS OF AUGUST 2,2000 (THE "AGREEMENT") BETWEEN EXELIXIS, INC. ("LESSEE") ACTING ON BEHALF OF ITSELF AND ITS AFFILIATES, AND COMDISCO LABORATORY AND SCIENTIFIC GROUP, A DIVISION OF COMDISCO, INC. ("LESSOR") The terms and conditions of this Addendum shall be incorporated into the Agreement and supersedes the Agreement to the extent expressly provided herein. Each capitalized terms used herein and not otherwise defined shall have the same meaning attributed to it in the Agreement. The terms and conditions of the following sections of the Agreement are hereby modified: Add a new SECTION 1A, AFFILIATES "Exelixis, Inc. shall, without notice, be jointly and severally liable for the due performance of the obligations of its Affiliates under all Equipment Schedules executed hereunder, including, without limitation, all terms and conditions negotiated by its Affiliate." SECTION 3, RENT AND PAYMENT Delete the last sentence and replace with the following: "If any payment is not made within ten (10) days of the due date, Lessee will pay interest from the due date at the Overdue Rate." SECTION 7.1, CARE, USE AND MAINTENANCE Delete the second, third and fourth sentences and replace with the following: "Lessee shall be responsible for maintenance of the Equipment and, if Lessee does not purchase the Equipment pursuant to the terms of a Schedule, Lessee shall bring the Equipment to original manufacturer specifications applicable at the Commencement Date of the Schedule, normal wear and tear excepted, and re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term." SECTION 7.2, ATTACHMENTS AND RECONFIGURATIONS At the end of line 1, insert the words "which consent will not be unreasonably withheld,". SECTION 8, REPRESENTATIONS AND WARRANTIES OF LESSEE In paragraph (e), line 2, before the word "clinical" insert the word "human". SECTION 9, DELIVERY AND RETURN OF EQUIPMENT In line 9, after the word "depreciation)", delete the remainder of the sentence and replace with the following: "and in accordance with Section 7.1, and accompanied by all spare parts and accessories and maintenance records for the duration of the Schedule." SECTION 13.3, MITIGATION In line 2, delete the words "its best" and insert the words "commercially reasonable". In paragraph (b), delete the parenthetical and replace with the following: "(discounted at the implicit interest rate of the re- lease as determined by Lessor based upon the new lessee's credit rating)". SECTION 14.3, BINDING NATURE Line 3, after the word "OBLIGATIONS" insert the words "WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, WHICH SHALL NOT BE UNREASONABLE WITHHELD". SECTION 14.10, ADDITIONAL DOCUMENTS In line 5, before the word "counsel" insert the words "in-house". Add the following at the end of this section: "Lessor will accept Lessee's certified board resolutions in lieu of an opinion from Lessee's in-house counsel with respect to the representations and warranties set forth in Section 8." SECTION 14.12, DEFINITIONS Add the following definition: "Affiliates of Exelixis, Inc," shall mean those enterprises in which Exelixis, Inc., or its parent company owns and/or shall own at anytime after the date hereof, directly or indirectly, the majority of the voting stock, or a controlling interest, including without limitation all present Affiliates of Exelixis, Inc. Add the following definition: "Lessee" shall mean, with respect to any Equipment Schedule, the Affiliate of Exelixis, Inc. entering into such Equipment Schedule, or Exelixis, Inc., if Exelixis, Inc. enters into such Equipment Schedule. IN WITNESS WHEREOF, the parties have caused this Addendum to be executed by their authorized representatives as of the date and year set forth below. ACCEPTED AND AGREED TO: Exelixis, Inc. Comdisco Laboratory and Scientific Group, a division of Comdisco, Inc. By: By: Printed Name: Printed Name: Title: Title: Date: Date:

EXHIBIT 10.2 SECURITY AGREEMENT     THIS SECURITY AGREEMENT (this "Agreement") dated as of September15, 2000, is among FARGO ELECTRONICS, INC., a Delaware corporation (the "Company"); the other persons or entities which are listed on the signature pages hereof as debtors or which from time to time become parties hereto as debtors (collectively, including the Company, the "Debtors" and individually each a "Debtor"); and LASALLE BANK NATIONAL ASSOCIATION in its capacity as agent for the Lender Parties referred to below (in such capacity, the "Agent"). W I T N E S S E T H:     WHEREAS, the Company has entered into a Credit Agreement dated as of September 15, 2000 (as amended or otherwise modified from time to time, the "Credit Agreement") with various financial institutions and the Agent, pursuant to which such financial institutions have agreed to make loans to, and issue or participate in letters of credit for the account of, the Company;     WHEREAS, each of the other Debtors has executed and delivered a guaranty (as amended or otherwise modified from time to time, the "Guaranty") of certain obligations of the Company, including all obligations of the Company under the Credit Agreement; and     WHEREAS, the obligations of the Company under the Credit Agreement and the obligations of each other Debtor under the Guaranty are to be secured pursuant to this Agreement;     NOW, THEREFORE, for and in consideration of any loan, advance or other financial accommodation heretofore or hereafter made to the Company under or in connection with the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:     1.  Definitions.  When used herein, (a) the terms Certificated Security, Chattel Paper, Deposit Account, Document, Equipment, Financial Asset, Fixture, Goods, Inventory, Instrument, Investment Property, Security, Security Entitlement and Uncertificated Security have the respective meanings assigned thereto in the UCC (as defined below); (b) capitalized terms which are not otherwise defined have the respective meanings assigned thereto in the Credit Agreement; and (c) the following terms have the following meanings (such definitions to be applicable to both the singular and plural forms of such terms):     Account Debtor means the party who is obligated on or under any Account Receivable, Contract Right or General Intangible.     Account Receivable means, with respect to any Debtor, any right of such Debtor to payment for goods sold or leased or for services rendered.     Assignee Deposit Account—see Section 4.     Collateral means, with respect to any Debtor, all property and rights of such Debtor in which a security interest is granted hereunder.     Computer Hardware and Software means, with respect to any Debtor, all of such Debtor's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in whatsoever form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, software and firmware described -------------------------------------------------------------------------------- in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes.     Contract Right means, with respect to any Debtor, any right of such Debtor to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.     Default means the occurrence of: (a) any Unmatured Event of Default under Section 12.1.1 or 12.1.4 of the Credit Agreement; or (b) any Event of Default.     General Intangibles means, with respect to any Debtor, all of such Debtor's "general intangibles" as defined in the UCC and, in any event, includes (without limitation) all of such Debtor's trademarks, trade names, patents, copyrights, trade secrets, customer lists, inventions, designs, software programs, mask works, goodwill, registrations, licenses, franchises, tax refund claims, guarantee claims, security interests and rights to indemnification.     Intellectual Property means all past (to the extent still owned), present and future: trade secrets and other proprietary information; trademarks, service marks, business names, designs, logos, indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights; unpatented inventions (whether or not patentable); patent applications and patents; industrial designs, industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, source codes, object codes and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; and all common law and other rights throughout the world in and to all of the foregoing.     Lender Party means each Bank under and as defined in the Credit Agreement and any Affiliate of such a Bank which is a party to a Hedging Agreement with a Debtor.     Liabilities means, as to each Debtor, all obligations (monetary or otherwise) of such Debtor under the Credit Agreement, any Note, the Guaranty, any other Loan Document or any other document or instrument executed in connection therewith and all Hedging Obligations owed by any Debtor to any Lender Party, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due.     Non-Tangible Collateral means, with respect to any Debtor, collectively, such Debtor's Accounts Receivable, Contract Rights and General Intangibles.     UCC means the Uniform Commercial Code as in effect in the State of Minnesota on the date of this Agreement; provided that, as used in Section 8 hereof, "UCC" shall mean the Uniform Commercial Code as in effect from time to time in any applicable jurisdiction.     2.  Grant of Security Interest.  As security for the payment of all Liabilities, each Debtor hereby assigns to the Agent for itself and for the ratable benefit of the Lender Parties, and grants to the Agent for itself and for the ratable benefit of the Lender Parties a continuing security interest in, the following, whether now or hereafter existing or acquired:     All of such Debtor's:       (i)   Accounts Receivable; 2 --------------------------------------------------------------------------------   (ii)       Certificated Securities;   (iii)       Chattel Paper;   (iv)       Computer Hardware and Software and all rights with respect thereto, including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing;   (v)       Contract Rights;   (vi)       Deposit Accounts;   (vii)       Documents;   (viii)       Financial Assets;   (ix)       General Intangibles;   (x)       Goods (including all of its Equipment, Fixtures and Inventory), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor;   (xi)       Instruments;   (xii)       Intellectual Property;   (xiii)       Investment Property;   (xiv)       money (of every jurisdiction whatsoever);   (xv)       Security Entitlements;   (xvi)       Uncertificated Securities; and   (xvii)       to the extent not included in the foregoing, other personal property of any kind or description;             together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided that to the extent that the provisions of any lease or license of Computer Hardware and Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) the assignment thereof, and the grant of a security interest therein, such Debtor's rights in such lease or license shall be excluded from the foregoing assignment and grant for so long as such prohibition continues, it being understood that upon request of the Agent, such Debtor will in good faith use reasonable efforts to obtain consent for the creation of a security interest in favor of the Agent in such Debtor's rights under such lease or license and such exclusion does not extend to any Account Receivable or other right to payment under any such lease or license.     3.  Warranties.  Each Debtor warrants that: (i) no financing statement (other than any which may have been filed on behalf of the Agent or in connection with liens expressly permitted by the Credit Agreement ("Permitted Liens")) covering any of the Collateral is on file in any public office; (ii) such Debtor is and will be the lawful owner of all Collateral, free of all liens and claims whatsoever, other than the security interest hereunder and Permitted Liens, with full power and authority to execute this Agreement and perform such Debtor's obligations hereunder, and to subject the Collateral to the security interest hereunder; (iii) all information with respect to Collateral and Account Debtors set forth in any schedule, certificate or other writing at any time heretofore or hereafter furnished by such Debtor to the Agent or any Lender Party is and will be true and correct in all material respects as of the date furnished; (iv) such Debtor's chief executive office and principal place of business are as set 3 -------------------------------------------------------------------------------- forth on Schedule I hereto (and such Debtor has not maintained its chief executive office and principal place of business at any other location during the five years preceding the date hereof); (v) each other location where such Debtor maintains a place of business is set forth on Schedule II hereto; (vi) except as set forth on Schedule III hereto, such Debtor is not now known and during the five years preceding the date hereof has not previously been known by any trade name; (vii) except as set forth on Schedule III hereto, during the five years preceding the date hereof such Debtor has not been known by any legal name different from the one set forth on the signature pages of this Agreement nor has such Debtor been the subject of any merger or other corporate reorganization; (viii) Schedule IV hereto contains a complete listing of all of such Debtor's Intellectual Property which is subject to registration statutes; (ix) such Debtor is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; (x) the execution and delivery of this Agreement and the performance by such Debtor of its obligations hereunder are within such Debtor's corporate powers, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the charter or by-laws of such Debtor or of any material agreement, indenture, instrument or other document, or any material judgment, order or decree, which is binding upon such Debtor; (xi) this Agreement is a legal, valid and binding obligation of such Debtor, enforceable in accordance with its terms, except that the enforceability of this Agreement may be limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); and (xii) such Debtor is in compliance with the requirements of all applicable laws (including the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, the non-compliance with which would reasonably be expected to result in a Material Adverse Effect.     4.  Collections, etc.  Until such time during the existence of a Default as the Agent shall notify such Debtor of the revocation of such power and authority, each Debtor (a) may, in the ordinary course of its business, at its own expense, sell, lease or furnish under contracts of service any of the Inventory normally held by such Debtor for such purpose, use and consume, in the ordinary course of its business, any raw materials, work in process or materials normally held by such Debtor for such purpose, and use, in the ordinary course of its business (but subject to the terms of the Credit Agreement), the cash proceeds of Collateral and other money which constitutes Collateral, (b) will, at its own expense, endeavor to collect, as and when due, all amounts due under any of the Non-Tangible Collateral, including the taking of such action with respect to such collection as the Agent may reasonably request or, in the absence of such request, as such Debtor may deem advisable, and (c) may grant, in the ordinary course of business, to any party obligated on any of the Non-Tangible Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of Goods, the sale or lease of which shall have given rise to such Non-Tangible Collateral. The Agent, however, may, at any time that a Default exists, whether before or after any revocation of such power and authority or the maturity of any of the Liabilities, notify any parties obligated on any of the Non-Tangible Collateral to make payment to the Agent of any amounts due or to become due thereunder and enforce collection of any of the Non-Tangible Collateral by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Upon the request of the Agent during the existence of a Default, each Debtor will, at its own expense, notify any or all parties obligated on any of the Non-Tangible Collateral to make payment to the Agent of any amounts due or to become due thereunder.     Upon request by the Agent during the existence of a Default, each Debtor will forthwith, upon receipt, transmit and deliver to the Agent, in the form received, all cash, checks, drafts and other instruments or writings for the payment of money (properly endorsed, where required, so that such items may be collected by the Agent) which may be received by such Debtor at any time in full or 4 -------------------------------------------------------------------------------- partial payment or otherwise as proceeds of any of the Collateral. Except as the Agent may otherwise consent in writing, any such items which may be so received by any Debtor will not be commingled with any other of its funds or property, but will be held separate and apart from its own funds or property and upon express trust for the Agent until delivery is made to the Agent. Each Debtor will comply with the terms and conditions of any consent given by the Agent pursuant to the foregoing sentence.     During the existence of a Default, all items or amounts which are delivered by any Debtor to the Agent on account of partial or full payment or otherwise as proceeds of any of the Collateral shall be deposited to the credit of a deposit account (each an "Assignee Deposit Account") of such Debtor with LaSalle (or another financial institution selected by the Agent) over which the Agent has sole dominion and control, as security for payment of the Liabilities. No Debtor shall have any right to withdraw any funds deposited in the applicable Assignee Deposit Account. The Agent may, from time to time, in its discretion, and shall upon request of the applicable Debtor made not more than once in any week, apply all or any of the then balance, representing collected funds, in the Assignee Deposit Account toward payment of the Liabilities, whether or not then due, in such order of application as the Agent may determine, and the Agent may, from time to time, in its discretion, release all or any of such balance to the applicable Debtor.     The Agent (or any designee of the Agent) is authorized to endorse, in the name of the applicable Debtor, any item, howsoever received by the Agent, representing any payment on or other proceeds of any of the Collateral.     5.  Certificates, Schedules and Reports.  Each Debtor will from time to time, as the Agent may request, deliver to the Agent such schedules, certificates and reports respecting all or any of the Collateral at the time subject to the security interest hereunder, and the items or amounts received by such Debtor in full or partial payment of any of the Collateral, as the Agent may reasonably request. Any such schedule, certificate or report shall be executed by a duly authorized officer of such Debtor and shall be in such form and detail as the Agent may specify. Each Debtor shall immediately notify the Agent of the occurrence of any event causing any loss or depreciation in the value of its Inventory or other Goods which is material to the Company and its Subsidiaries taken as a whole, and such notice shall specify the amount of such loss or depreciation.     6.  Agreements of the Debtors.  Each Debtor (a) will, upon request of the Agent, execute such financing statements and other documents (and pay the cost of filing or recording the same in all public offices reasonably deemed appropriate by the Agent) and do such other acts and things (including, delivery to the Agent of any Instruments or Certificated Securities which constitute Collateral), all as the Agent may from time to time reasonably request, to establish and maintain a valid security interest in the Collateral (free of all other liens, claims and rights of third parties whatsoever, other than Permitted Liens) to secure the payment of the Liabilities; (b) will keep all its Inventory at, and will not maintain any place of business at any location other than, its address(es) shown on Schedules I and II hereto or at such other addresses of which such Debtor shall have given the Agent not less than 10 days' prior written notice, (c) will keep its records concerning the Non-Tangible Collateral in such a manner as will enable the Agent or its designees to determine at any time the status of the Non-Tangible Collateral; (d) will furnish the Agent such information concerning such Debtor, the Collateral and the Account Debtors as the Agent may from time to time reasonably request; (e) will permit the Agent and its designees, from time to time, on reasonable notice and at reasonable times and intervals during normal business hours (or at any time without notice during the existence of a Default) to inspect such Debtor's Inventory and other Goods, and to inspect, audit and make copies of and extracts from all records and other papers in the possession of such Debtor pertaining to the Collateral and the Account Debtors, and will, upon request of the Agent during the existence of a Default, deliver to the Agent all of such records and papers; (f) will, upon request of the Agent, stamp on its records concerning the Collateral, and add on all Chattel Paper constituting a 5 -------------------------------------------------------------------------------- portion of the Collateral, a notation, in form satisfactory to the Agent, of the security interest of the Agent hereunder; (g) except for the sale or lease of Inventory in the ordinary course of its business and sales of Equipment which is no longer useful in its business or which is being replaced by similar Equipment, will not sell, lease, assign or create or permit to exist any Lien on any Collateral other than Permitted Liens; (h) without limiting the provisions of Section 10.3 of the Credit Agreement, will at all times keep all of its Inventory and other Goods insured under policies maintained with reputable, financially sound insurance companies against loss, damage, theft and other risks to such extent as is customarily maintained by companies similarly situated, and cause all such policies to provide that loss thereunder shall be payable to the Agent as its interest may appear (it being understood that (A) so long as no Default shall be existing, the Agent shall deliver any proceeds of such insurance which may be received by it to such Debtor and (B) whenever a Default shall be existing, the Agent may apply any proceeds of such insurance which may be received by it toward payment of the Liabilities, whether or not due, in such order of application as the Agent may determine), and such policies or certificates thereof shall, if the Agent so requests, be deposited with or furnished to the Agent; (i) will take such actions as are reasonably necessary to keep its Inventory in good repair and condition; (j) will take such actions as are reasonably necessary to keep its Equipment in good repair and condition and in good working order, ordinary wear and tear excepted; (k) will promptly pay when due all license fees, registration fees, taxes, assessments and other charges which may be levied upon or assessed against the ownership, operation, possession, maintenance or use of its Equipment and other Goods; (l) will, upon request of the Agent, (i) cause to be noted on the applicable certificate, in the event any of its Equipment is covered by a certificate of title, the security interest of the Agent in the Equipment covered thereby, and (ii) deliver all such certificates to the Agent or its designees; (m) will take all steps reasonably necessary to protect, preserve and maintain all of its rights in the Collateral; (n) except as listed on Schedule V, will keep all of the tangible Collateral in the United States; and (o) will reimburse the Agent for all expenses, including reasonable attorney's fees and charges (including time charges of attorneys who are employees of the Agent), incurred by the Agent in seeking to collect or enforce any rights in respect of such Debtor's Collateral.     Any expenses incurred in protecting, preserving or maintaining any Collateral shall be borne by the applicable Debtor. Whenever a Default shall be existing, the Agent shall have the right to bring suit to enforce any or all of the Intellectual Property or licenses thereunder, in which event the applicable Debtor shall at the request of the Agent do any and all lawful acts and execute any and all proper documents required by the Agent in aid of such enforcement and such Debtor shall promptly, upon demand, reimburse and indemnify the Agent for all costs and expenses incurred by the Agent in the exercise of its rights under this Section 6. Notwithstanding the foregoing, the Agent shall have no obligation or liability regarding the Collateral or any thereof by reason of, or arising out of, this Agreement.     7.  Default.  Whenever a Default shall be existing, the Agent may exercise from time to time any right or remedy available to it under applicable law. Each Debtor agrees, in case of Default, (a) to assemble, at its expense, all its Inventory and other Goods (other than Fixtures) at a convenient place or places acceptable to the Agent, and (b) at the Agent's request, to execute all such documents and do all such other things which may be necessary or desirable in order to enable the Agent or its nominee to be registered as owner of the Intellectual Property with any competent registration authority. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least ten days before such disposition. Any proceeds of any disposition by the Agent of any of the Collateral may be applied by the Agent to payment of expenses in connection with the Collateral, including reasonable attorney's fees and charges (including time charges of attorneys who are employees of the Agent), and any balance of such proceeds may be applied by the Agent toward the payment of such of the Liabilities, and in such order of application, as the Agent may from time to time elect. 6 --------------------------------------------------------------------------------     8.  General.  The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral in its possession if it takes such action for that purpose as any applicable Debtor requests in writing, but failure of the Agent to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of the Agent to preserve or protect any right with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by any Debtor, shall be deemed of itself a failure to exercise reasonable care in the custody or preservation of such Collateral.     Any notice from the Agent to any Debtor, if mailed, shall be deemed given five days after the date mailed, postage prepaid, addressed to such Debtor either at such Debtor's address shown on Schedule I hereto or at such other address as such Debtor shall have specified in writing to the Agent as its address for notices hereunder.     Each of the Debtors agrees to pay all expenses, including reasonable attorney's fees and charges (including time charges of attorneys who are employees of the Agent or any Lender Party) paid or incurred by the Agent or any Lender Party in endeavoring to collect the Liabilities of such Debtor, or any part thereof, and in enforcing this Agreement against such Debtor, and such obligations will themselves be Liabilities.     No delay on the part of the Agent in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Agent of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.     This Security Agreement shall remain in full force and effect until all Liabilities have been paid in full and all Commitments have terminated. If at any time all or any part of any payment theretofore applied by the Agent or any Lender Party to any of the Liabilities is or must be rescinded or returned by the Agent or such Lender Party for any reason whatsoever (including the insolvency, bankruptcy or reorganization of any Debtor), such Liabilities shall, for the purposes of this Agreement, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Agent or such Lender Party, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Agent or such Lender Party had not been made.     This Agreement shall be construed in accordance with and governed by the laws of the State of Minnesota applicable to contracts made and to be performed entirely within such State, subject, however, to the applicability of the UCC of any jurisdiction in which any Goods of any Debtor may be located at any given time. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.     The rights and privileges of the Agent hereunder shall inure to the benefit of its successors and assigns.     This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. At any time after the date of this Agreement, one or more additional Persons may become parties hereto by executing and delivering to the Agent a counterpart of this Agreement together with supplements to the Schedules hereto setting forth all relevant information with respect to such party as of the date of such delivery. Immediately upon such execution and delivery (and without any further action), each such additional Person will become a party to, and will be bound by all the terms of, this Agreement. 7 --------------------------------------------------------------------------------     ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF MINNESOTA SITTING IN HENNEPIN COUNTY, MINNESOTA OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA SITTING IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF MINNESOTA AND OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS SET FORTH ON SCHEDULE I HERETO (OR SUCH OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO THE AGENT AS ITS ADDRESS FOR NOTICES HEREUNDER) OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.     EACH OF EACH DEBTOR, THE AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH LENDER PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written.     DEBTORS:           FARGO ELECTRONICS, INC.           By   /s/ Gary R. Holland --------------------------------------------------------------------------------     Title President and CEO --------------------------------------------------------------------------------           AGENT:           LASALLE BANK NATIONAL ASSOCIATION as Agent           By   /s/ J.D. Gatzlaff --------------------------------------------------------------------------------     Title Senior Vice President -------------------------------------------------------------------------------- 9 --------------------------------------------------------------------------------

EXHIBIT 10.2 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT         This Amended and Restated Registration Rights Agreement, dated as of November 9, 2000, is among DAOU Systems, Inc., a Delaware corporation (the “Company”), and the investors listed on Schedule 1 to this Agreement, each of which is referred to in this Agreement as an “Investor.” RECITALS         WHEREAS, the Company and the Investors are parties to the Series A Stock Purchase Agreement, dated July 26, 1999 (the “Series A Agreement”), and the Investment Agreement dated of even date herewith (the “Investment Agreement”);         WHEREAS, the Company and the Investors previously entered into a Registration Rights Agreement, dated July 26, 1999 (the “Registration Rights Agreement”), to cause the Company to register the shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), issuable upon the conversion of shares of Series A Preferred Stock, par value $0.001 per share (the “ Series A Preferred Stock”), as set forth therein; and         WHEREAS, in order to induce the Investors to enter into the Investment Agreement pursuant to which the Company granted certain warrants exercisable for shares of Common Stock (the “Warrants”) to the Investors and in return the Investors waived certain redemption rights associated with the Series A Preferred Stock, the Company and Investors hereby agree to amend and restate the Registration Rights Agreement to cause the Company to register shares of the Common Stock issuable to the Investors upon conversion of the Series A Preferred Stock and upon the exercise the Warrants.         NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I REGISTRATION RIGHTS 1.1.  Definitions. For Purposes of this Agreement:         (a)  the term “Register,” “Registered,” and “Registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the “Act”), and the declaration or ordering of effectiveness of such registration statement or document;         (b)  the term “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock whether or not sold pursuant to the Series A Agreement or upon exercise of the Warrants and (ii) any Common Stock 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, such Series A Preferred Stock, the Warrants or Common Stock, as applicable, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person’s rights under this Article I are not assigned;         (c)  the number of shares of “Registrable Securities then outstanding” will be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities;         (d)  the term “Holder” means any person owning or having the right to acquire Registrable Securities or any permitted assignee thereof; and         (e)  the term “Form S-3” means such form under the Act as in effect on the date of this Agreement or any registration form under the Act subsequently adopted by the Securities and Exchange Commission (“SEC”) which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. -------------------------------------------------------------------------------- 1.2.  Form S-3 Registration.         As soon as reasonably practicable after the date hereof (currently anticipated to be approximately 45 days), the Company shall file with the SEC one or more Registration Statements on Form S-3 (or other similar form) covering the continuous sale of the Registrable Securities pursuant to Rule 415 under the Securities Act or any successor thereto (each, a “Shelf Registration Statement”), in the manner specified therein. The Company shall use all reasonable efforts to cause each Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable after its filing with the SEC, and to remain effective until the earlier of (x) such time as all of the Registrable Securities are sold pursuant to such Shelf Registration Statement or (y) each Holder is able to sell within any 90-day period all Registrable Securities owned by such Holder pursuant to SEC Rules as then in effect, including Rule 144 und er the Securities Act, or any successor thereto (“SEC Rule 144”) (the “Effective Period”); provided that in the event that Company determines in good faith that, because it has under consideration a significant (as defined under Regulation S-X of the SEC) acquisition or disposition or other material transaction or corporate event that has not been publicly disclosed or that it is in the process of preparing for filing with the SEC a Current Report on Form 8-K or other form, a Shelf Registration Statement may contain a material misstatement or omission, Parent may cause such Shelf Registration Statement to not be used during the period in question. The Company agrees it will use its best efforts to ensure that such deferral will be for the shortest period of time reasonably required not exceeding, in the aggregate, 90 days in any 12-month period. 1.3.  Company Registration.         In the event that (i) the Company fails to satisfy its obligations pursuant to Section 1.2 or (ii) for any period of not less than 30 consecutive days a Shelf Registration Statement may not be used for any reason, and if (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a 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 Securities), the Company will, at such time, promptly give each Holder written notice of such registration. Upon the wr itten request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 2.5, the Company will, subject to the provisions of Section 1.7, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4.  Obligations of the Company.         Except as otherwise expressly specified in this Agreement, whenever required under this Article I to effect the registration of any Registrable Securities, the Company will, as expeditiously as reasonably practicable:         (a)  Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.         (b)  Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.         (c)  Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as will be reasonably requested by the Holders, provided that the Company will 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.         (d)  In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting will also enter into and perform its obligations under such an agreement.         (e)  Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2 -------------------------------------------------------------------------------- 1.5.  Furnish Information.         It will be a condition precedent to the obligations of the Company to take any action pursuant to this Article I with respect to the Registrable Securities of any selling Holder that such Holder will furnish to the Company such information regarding itself, the Registrable Securities held by it, the intended method of disposition of such securities and all of the other pertinent information as will be required to effect the registration of such Holder’s Registrable Securities. 1.6.  Expenses of Registration.         Subject to restrictions under applicable state securities laws, all expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2 and 1.3, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, and fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel representing the Holders will be borne by the Company. 1.7.  Underwriting Requirements.         In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company will not be required under Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then the Company will have a right to limit the number of shares to such number as it will determine in good faith will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the Company determines in good faith is compatible with the success of the offering, then the Company will be required to include in the offering only that number of such securities, including Registrable Securities, which the Company determines in good faith will not jeopardize the success of the offering (the securities so included to be apportioned pro rata first among selling shareholders which are Holders of Registrable Securities according to the total amount of securities entitled to be included therein owned by each such Holder or holders until all securities desired by such Holders are included, then among the other selling shareholders according to the total amount of securities entitled to be included therein owned by each other selling shareholder or in such other proportions as will mutually be agreed to by such selling shareholder; provided that any Registrable Securities held by officers and directors of the Company will be excluded from such registration to the extent required by such limitations). For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a Holder of Registrable Securities and which is a pa rtnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners an any trusts for the benefit of any of the foregoing persons will be deemed to be a single “Selling Shareholder,” and any pro-rata reduction with respect to such “selling shareholder” will be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling shareholder,” as defined in this sentence. 1.8.  Indemnification. If any Registrable Securities are included in a registration statement under this Article I:         (a)  To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its directors and each of its officers, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, or the Exchange Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendmen ts or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, or any rule or regulation promulgated under the Act, or the Exchange Act; and the Company will pay to each such Holder, director, officer, underwriter or controlling person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Subsection 1.8(a) will not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if 3 -------------------------------------------------------------------------------- such settlement is effected without the consent of the Company (which consent will not be unreasonably withheld), nor will the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, director, officer, underwriter or controlling person.         (b)  To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act or the Exchange Act insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; an d each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Subsection 1.8(b) will not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent will not be unreasonably withheld; provided, that, in no event will any indemnity under this Subsection 1.8(b) exceed the proceeds from the offering net of sales commission, if any, received by such Holder.         (c)  Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party will have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel satisfactory to the indemnified party (which shall not unreasonably withhold its approval); provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) will have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party is inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, will relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8.         (d)  If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party to this Agreement, will contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense 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 statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party will be determined 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.         (e)  Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement will control.         (f)  The obligations of the Company and Holders under this Section 1.8 will survive the completion of any offering of Registrable Securities in a registration statement under this Article I, and otherwise. 4 -------------------------------------------------------------------------------- 1.9.  Reports Under 1934 Act.         With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company will:         (a)  make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times;         (b)  file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act; and         (c)  furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.10.  “Market Stand-Off” Agreement.         Notwithstanding the rights granted pursuant to Section 1.2, each Investor hereby agrees that, during the period of duration (not to exceed 180 days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it will not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that all executive officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into simil ar agreements. The right of the Company hereunder may be exercised by it not more than once in any one-year period.         In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.11.  Rule 144 Availability.         Notwithstanding anything to the contrary above in this Article I, prior to exercising any right provided for in this Article I each Holder will (i) evaluate in good faith whether such Holder is otherwise permitted to sell the entire amount of Registrable Securities it is then seeking to register within the time period it desires to sell pursuant to Rule 144 of the Exchange Act, or any successor regulation thereto and (ii) exercise such rights only in the case that it determines in good faith that such rights are necessary to sell such Registrable Securities in a timely manner. ARTICLE II MISCELLANEOUS 2.1.  Successors and Assigns.         Except as otherwise provided in this Agreement, the terms and conditions of this Agreement will inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2.2.  Governing Law.         This Agreement will be governed by and construed under the laws of the State of Delaware. 5 -------------------------------------------------------------------------------- 2.3.  Counterparts.         This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 2.4.  Titles and Subtitles.         The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 2.5.  Notices.         Unless otherwise provided, any notice required or permitted under this Agreement will be given in writing and will be deemed effectively given upon personal delivery to the party to be notified, by telecopy upon the appropriate answer-back, or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on Schedule 1 or at such other address as such party may designate by ten days’ advance written notice to the other parties. 2.6.  Expenses.         If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 2.7.  Amendments and Waivers.         Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph will be binding upon each Holder of any Registrable Securities then outstanding, each future Holder of all such Registrable Securities, and the Company. 2.8.  Severability.         If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision will be excluded from this Agreement and the balance of the Agreement will be interpreted as if such provision were so excluded and will be enforceable in accordance with its terms. 2.9.  Aggregation of Stock.         All shares of Registrable Securities held or acquired by affiliated entities or persons will be aggregated together for the purpose of determining the availability of any rights under this Agreement. 2.10.  Entire Agreement, Amendment, Waiver.         This Agreement (including the Schedules to this Agreement, if any) constitutes the full and entire understanding and agreement between the parties with regard to the subjects of this Agreement and thereof. 2.11.  Adjustments for Stock Splits.         Wherever in this Agreement there is a reference to a specific number of shares of Common Stock or Preferred Stock of the Company of any class or series, or a reference to any amount of dollars per any such share, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares or the specific dollar amount so referenced in this Agreement will automatically be proportionately adjusted to reflect the effect on the outstanding shares of such class of series of stock by such subdivision, combination or stock dividend. 6 --------------------------------------------------------------------------------         IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.      THE COMPANY: DAOU SYSTEMS, INC.   By:   /s/  Neil R. Cassidy      --------------------------------------------------------------------------------        Name:   Neil R. Cassidy Title:   Executive Vice President and    Chief Financial Officer      THE INVESTORS: GALEN PARTNERS III, L.P., a Delaware Limited Partnership   By:    Claudius, L.L.C., a Delaware Limited Liability Company                    By:   /s/  Bruce F. Wesson      --------------------------------------------------------------------------------        Name:   Bruce F. Wesson Title:   Senior Managing Member      GALEN PARTNERS INTERNATIONAL III, L.P., a Delaware Limited Partnership   By:   Claudius, L.L.C., a Delaware Limited Liability Company                    By:   /s/  Bruce F. Wesson      --------------------------------------------------------------------------------        Name:   Bruce F. Wesson Title:   Senior Managing Member      GALEN EMPLOYEE FUND III, L.P., a Delaware Limited Partnership   By:    Wesson Enterprises, Inc.                    By:   /s/  Bruce F. Wesson      --------------------------------------------------------------------------------        Name:   Bruce F. Wesson Title:   President 7 -------------------------------------------------------------------------------- SCHEDULE 1 INVESTORS NAME AND ADDRESS Galen Partners III, L.P. 610 Fifth Avenue 5th Floor New York, NY 10020 Galen Partners International III, L.P. 610 Fifth Avenue 5th Floor New York, NY 10020 Galen Employee Fund III, L.P. 610 Fifth Avenue 5th Floor New York, NY 10020 8

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10(s) MANAGEMENT AGREEMENT     AGREEMENT made as of this 11th day of December, 1996 by and between Minntech Corporation, a Minnesota corporation, with its principal executive office at Plymouth, Minnesota ("Company") and Jules L. Fisher residing at 16005 37th Avenue North, Plymouth, Minnesota 55446 (the "Executive").     WHEREAS, Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of Company and its shareholders; and     WHEREAS, the Executive is expected to make a significant contribution to the profitability, growth and financial strength of Company; and     WHEREAS, Company, as a publicly held corporation, recognizes that the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of the Executive in the performance of the Executive's duties to the detriment of Company and its shareholders; and     WHEREAS, the Executive is willing to be an employee of Company upon the understanding that Company will provide income security if the Executive's employment is terminated under certain terms and conditions; and     WHEREAS, it is in the best interests of Company and its shareholders to reinforce and encourage the continued attention and dedication of management personnel, including the Executive, to their assigned duties without distraction and to increase the likelihood of the continued availability to Company of the Executive in the event of a Change in Control.     THEREFORE, in consideration of the foregoing and other respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:     1.  Term of Agreement.  This Agreement shall commence on the date hereof and shall continue in effect until such time as Company notifies the Executive or the Executive notifies Company of termination of this Agreement; provided, however, that in no event may this Agreement be terminated prior to two years from the date hereof, and notice of termination on the second or any subsequent anniversary date hereof must be given by Company in writing mailed to the Executive at his or her last known address within 60 days prior to such anniversary date or by the Executive by notice in writing mailed to Company at the principal executive office of Company within 60 days prior to such anniversary date. If no such notice is given, then the term of this Agreement shall be extended for additional periods of one year. Notwithstanding the preceding sentence, if a Change in Control occurs during the term of this Agreement (including any extension hereof), this Agreement shall continue in effect for a period of 36 months from the date of the occurrence of a Change in Control. Except as provided in Section 2(b) or Section 3(e) of this Agreement, nothing stated herein shall limit the right of the Executive or Company to terminate the employment of the Executive with Company at any time prior to the expiration of the term of this Agreement, with or without Cause (as defined in Section 3(b) of this Agreement) and for any reason whatsoever, subject to the right of the Executive to receive any payment and other benefits that may be due pursuant to the terms and conditions of Section 4 of this Agreement.     2.  Change in Control.  No amounts shall be payable hereunder unless a Change in Control, as set forth below, shall occur during the term of this Agreement.     (a) For purposes of this Agreement, a "Change in Control" of Company shall be deemed to occur if any of the following occur:      (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the "Exchange Act")) acquires or becomes a "beneficial owner" (as defined in Rule 13d-3 or any successor rule -------------------------------------------------------------------------------- under the Exchange Act), directly or indirectly, of securities of Company representing 30% or more of the combined voting power of Company's then outstanding securities entitled to vote generally in the election of directors ("Voting Securities"), provided, however, that the following shall not constitute a Change in Control pursuant to this Section 2(a)(i):     (A) any acquisition or beneficial ownership by Company or a subsidiary of Company;     (B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by Company or one or more of its subsidiaries;     (C) any acquisition or beneficial ownership by any corporation with respect to which, immediately following such acquisition, more than 70% of both the combined voting power of Company's then outstanding Voting Securities and the common stock of Company is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and common stock of Company immediately prior to such acquisition in substantially the same proportions as their ownership of such Voting Securities and common stock, as the case may be, immediately prior to such acquisition;     (ii) A majority of the members of the Board of Directors of Company shall not be Continuing Directors. For purposes of this subsection 2(a)(ii), "Continuing Directors" shall mean: (A) individuals who, on the date hereof, are directors of Company, (B) individuals elected as directors of Company subsequent to the date hereof for whose election proxies shall have been solicited by the Board of Directors of Company or (C) any individual elected or appointed by the Board of Directors of Company to fill vacancies on the Board of Directors of Company caused by death or resignation (but not by removal) or to fill newly-created directorships;     (iii) Approval by the shareholders of Company of a reorganization, merger or consolidation of Company (other than a merger or consolidation with a subsidiary of Company) or a statutory exchange of outstanding Voting Securities of Company, unless immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and common stock of Company immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 70% of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and common stock of Company, as the case may be;     (iv) Approval by the shareholders of Company of (x) a complete liquidation or dissolution of Company or (y) the sale or other disposition of all or substantially all of the assets of Company (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 70% of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of the Voting Securities and common stock of Company immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Voting Securities and common stock of Company, as the case may be; or 2 --------------------------------------------------------------------------------     (v) Company enters into a letter of intent, an agreement in principle or a definitive agreement relating to a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) above that ultimately results in such a Change in Control or a tender or exchange offer or proxy contest is commenced which ultimately results in a Change in Control described in Section 2(a)(i) or 2(a)(ii) hereof. Notwithstanding the above, a Change in Control shall not be deemed to occur with respect to the Executive if (x) the acquisition or beneficial ownership of the 30% or greater interest referred to in Section 2(a)(i) is by the Executive or by a group, acting in concert, that includes the Executive or (y) if a majority of the then combined voting power of the then outstanding voting securities (or voting equity interests) of the surviving corporation or of any corporation (or other entity) acquiring all or substantially all of the assets of Company shall, immediately after a reorganization, merger, consolidation, statutory share exchange or disposition of assets referred to in Section 2(a)(iii) or 2(a)(iv), be beneficially owned, directly or indirectly, by the Executive or by a group, acting in concert, that includes the Executive.     (b) The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Change in Control of Company described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv), occurring after the date hereof, the Executive, if employed by Company immediately prior to such a Change in Control, will not voluntarily terminate employment with Company except for Good Reason for a period of 90 days after the occurrence of such a Change in Control of Company.     (c) For purposes of this Agreement, a "subsidiary" of Company shall mean any entity of which securities or other ownership interests having general 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 Company.     3.  Termination Following Change in Control.  If a Change in Control shall occur during the term of this Agreement, the Executive shall be entitled to the payments and other benefits provided in subsection 4(d) in the event of the termination of the Executive's employment with Company unless the Executive's termination is (A) because of the Executive's death, (B) by Company for Cause or Disability, or (C) by the Executive other than for Good Reason.     (a)  Disability.  If, as a result of incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with Company for six consecutive months, and within 30 days after written Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties, Company may terminate the Executive's employment for "Disability". Any question as to the existence of the Executive's Disability upon which the Executive and Company cannot agree shall be determined by a qualified independent physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by any adult member of the Executive's immediate family), and approved by Company. The determination of such physician made in writing to Company and to the Executive shall be final and conclusive for all purposes of this Agreement.     (b)  Cause.  Termination of the Executive's employment for "Cause" shall mean termination upon the conviction of the Executive by a court of competent jurisdiction for felony criminal conduct.     (c)  Good Reason.  Termination by the Executive for "Good Reason" shall mean termination by the Executive if, without the Executive's express written consent, any of the following shall occur:      (i) the assignment to the Executive of any duties inconsistent with the Executive's status or position with Company, or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; 3 --------------------------------------------------------------------------------     (ii) a reduction by Company in the Executive's annual base salary in effect immediately prior to a Change in Control;     (iii) the relocation of Company's principal executive offices to a location more than fifty miles from Plymouth, Minnesota or Company requiring the Executive to be based anywhere other than Company's principal executive office (or if the Executive is based at a location other than Company's principal executive office immediately prior to the first Change in Control, anywhere other than such location) except for required travel on Company's business to an extent substantially consistent with the Executive's prior business travel obligations;     (iv) the failure by Company to continue to provide the Executive with benefits at least as favorable to those enjoyed by the Executive under any of Company's pension, life insurance, medical, health and accident, disability, deferred compensation, incentive awards, employee stock options, or savings plans in which the Executive was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed at the time of the Change in Control, or the failure by Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of the Change in Control, provided, however, that Company may amend any such plan or programs as long as such amendments do not reduce any benefits to which the Executive would be entitled upon termination;     (v) a termination pursuant to Section 3(d) of this Agreement;     (vi) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6; or    (vii) any purported termination of the Executive's employment which is not made pursuant to a Notice of Termination satisfying the requirements of subsection (e) below; for purposes of this Agreement, no such purported termination shall be effective.     (d)  Voluntary Termination Deemed Good Reason.  Notwithstanding anything herein to the contrary, during the period commencing on the 91st day following a Change in Control under Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) of this Agreement and ending on the 180th day following such a Change in Control, the Executive may voluntarily terminate his or her employment for any reason, and such termination shall be deemed "Good Reason" for all purposes of this Agreement. In the event of such voluntary termination pursuant to this subsection 3(d)), the multiple applied to the Severance Payment (as defined in Section 4(d)), if any, payable to the Executive pursuant to subsection 4(d)(ii) below shall be reduced by 50%.     (e)  Notice of Termination.  Any purported termination of the Executive's employment by Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment.     (f)  Date of Termination.  For purposes of this Agreement, "Date of Termination" shall mean:      (i) if the Executive's employment is terminated for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such 30 day period); and     (ii) if the Executive's employment is terminated pursuant to subsections (b), (c) or (d) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (b) above, shall not be 4 -------------------------------------------------------------------------------- less than 10 days, and, in the case of a termination pursuant to subsection (c) or (d) above, shall not be less than 10 nor more than 30 days, respectively, from the date such Notice of Termination is given).     (g)  Dispute of Termination.  If, within 10 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, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, Company shall continue to pay the Executive full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and, except as provided in Section 4(d)(v), shall not be offset against or reduce any other amounts under this Agreement.     4.  Compensation Upon Termination or During Disability.  Upon termination of the Executive's employment (or, with respect to Section 4(a), during a period of Disability) following a Change in Control, as defined in Section 2(a), of Company or if there shall be a termination by Company of the Executive's employment prior to a Change in Control, or the Executive shall terminate employment with Company for Good Reason prior to a Change in Control (for which purpose the references in Section 3(c) to changes from circumstances existing immediately prior to or at the time of a Change in Control that constitute Good Reason for termination shall instead be deemed to be references to circumstances existing immediately prior to or at the time that the Change in Control is first anticipated), and the Executive reasonably demonstrates that such termination by Company or event constituting Good Reason for termination by the Executive (x) was requested by a third party that had previously taken other steps reasonably calculated to result in a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) and ultimately resulting in such a Change in Control following termination of the Executive's employment or (y) otherwise arose in connection with or in anticipation of a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) that ultimately occurs following termination of the Executive's employment, the Executive shall be entitled to the following benefits:     (a) Except as provided in Section 4(b), during any period that the Executive fails to perform full-time duties with Company as a result of Disability, Company shall pay the Executive the base salary of the Executive at the rate in effect at the commencement of any such period, until such time as the Executive is determined to be eligible for long term disability benefits in accordance with Company's insurance programs then in effect.     (b) If the Executive's employment shall be terminated by Company for Cause or Disability or by the Executive, following a Change in Control, other than for Good Reason, Company shall pay to the Executive his or her full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and Company shall have no further obligation to the Executive under this Agreement.     (c) If the Executive's employment shall be terminated by Company for Cause or Disability, or is terminated by reason of death, Company shall immediately cause to be commenced payment to the Executive (or the Executive's designated beneficiaries or estate, if no beneficiary is designated) 5 -------------------------------------------------------------------------------- of any and all benefits to which the Executive is entitled, if any, under Company's insurance programs then in effect.     (d) Except for termination of the Executive's employment with Company by reason of death, if the Executive's employment with Company shall be terminated (A) by Company other than for Cause or Disability or (B) by the Executive for Good Reason, then the Executive shall be entitled to the benefits provided below:      (i) Company shall pay the Executive the Executive's full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given.     (ii) In lieu of any further salary payments for periods subsequent to the Date of Termination, Company shall pay as a severance payment (the "Severance Payment") an amount equal to (A) one (1) time (subject to reduction pursuant to Section 3(d) in the event of a termination of employment by the Executive pursuant to Section 3(d)) the average of the annual compensation which was paid to the Executive by Company (or any corporation affiliated with Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code")) and includible in the Executive's gross income for federal income tax purposes for the shorter of the period consisting of (1) the five most recently completed taxable years of the Executive ending before the earlier of the first Change in Control (for which purpose the first Change in Control shall not be deemed to be a Change in Control pursuant to Section 2(a)(v) unless the Executive's termination of employment with Company occurs prior to the first Change in Control pursuant to Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or (2) that portion of such five-year period during which the Executive was employed by Company (for which purpose compensation for a partial year shall be annualized before determining average annual compensation for the period in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto), less (B) $1.00. Such average shall be determined in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto. The Severance Payment shall be made in full within 60 days after termination of employment. Such Severance Payment shall be reduced by any severance pay that the Executive receives from Company, any subsidiary of Company or any successor thereof under any other policy or agreement of Company in the event of involuntary termination of the Executive's employment.     (iii) For a 36 month period after the Date of Termination, Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving or entitled to receive immediately prior to the Notice of Termination. Benefits otherwise receivable by the Executive pursuant to this paragraph (iii) shall be reduced to the extent comparable benefits are actually received by the Executive from another employer or other third party during such 36 month period, and any such benefits actually received by the Executive shall be reported to Company.     (iv) Company shall also pay to the Executive all legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement).     (v) Notwithstanding any provision to the contrary contained herein except the last sentence of this Section 4(d)(v), if the lump sum cash payment due and the other benefits to which the Executive shall become entitled under this Section 4 hereof, either alone or together with other payments in the nature of compensation to the Executive which are contingent on a change in the ownership or effective control of Company or in the ownership of a substantial portion of the assets of Company or otherwise, would constitute a "parachute 6 -------------------------------------------------------------------------------- payment" as defined in Section 280G of the Code or any successor provision thereto, such lump sum payment and/or such other benefits and payments shall be reduced (but not below zero) to the largest aggregate amount as will result in no portion thereof being subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or being non-deductible to Company for federal income tax purposes pursuant to Section 280G of the Code (or any successor provision thereto). The Executive in good faith shall determine the amount of any reduction to be made pursuant to this Section 4(d)(v) and shall select from among the foregoing benefits and payments those which shall be reduced. No modification of, or successor provision to, Section 280G or Section 4999 subsequent to the date of this Agreement shall, however, reduce the benefits to which the Executive would be entitled under this Agreement in the absence of this Section 4(d)(v) to a greater extent than they would have been reduced if Section 280G and Section 4999 had not been modified or superseded subsequent to the date of this Agreement, notwithstanding anything to the contrary provided in the first sentence of this Section 4(d)(v).     (e) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise except as specifically provided in this Section 4.     (f)  In addition to all other amounts payable to the Executive under this Section 4, the Executive shall be entitled to receive all benefits payable to the Executive under any other plan or agreement relating to retirement benefits except as specifically provided in this Section 4.     (g) If Company fails to make any payment at the times and in the amounts specified herein, or with respect to any fringe benefits, fails to provide such benefit as specified herein, within 10 days from the date of written notice from the Executive to Company of such failure, Company shall be deemed to have waived any right to enforce any restriction on employment or non-competition provision contained in any agreement between Company and the Executive then in existence which limits the ability of the Executive to accept other employment and, thereafter, the Executive may work or consult for any person or business organization which is engaged in the design, development, assembly, manufacture, marketing or sale of any product which competes with any product of Company, or for any person or business organization which is in competition with Company, without liability to Company for such acts. A waiver of such restrictive covenant or non-competition provision shall not in any way restrict or limit the Executive's right to enforce the provisions of this Agreement, including any legal or equitable action to enforce any and all payments, rights or benefits under this Agreement, it being the intention of this subsection that such waiver shall be in addition to, not in substitution of, any other rights to which the Executive is entitled hereunder. Once waived, any such restrictive covenant or non-competition provision shall not thereafter be enforceable even though the Executive may later receive the payment, right or benefit which was the basis of the waiver of such restrictive covenant or non-competition provision.     5.  Funding of Payments.  In order to assure the performance of Company or its successor of its obligations under this Agreement, Company may deposit in trust an amount equal to the maximum payment that will be due the Executive under the terms hereof. Under a written trust instrument, the Trustee shall be instructed to pay to the Executive (or the Executive's legal representative, as the case may be) the amount to which the Executive shall be entitled under the terms hereof, and the balance, if any, of the trust not so paid or reserved for payment shall be repaid to Company. If Company deposits funds in trust, payment shall be made no later than the occurrence of the first Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv). Company shall give notice of such a Change in Control to any such trustee upon any occurrence as defined herein. If and to the extent that the Executive becomes a beneficiary of any such funds deposited in trust, Company shall give prompt 7 -------------------------------------------------------------------------------- notice to the Executive, which shall include a copy of the trust instrument and amendments from time to time. The rights of the Executive under such trust instrument shall be enforceable against Company and any trustees named therein, as though the provisions of said trust were incorporated into this Agreement. If and to the extent there are not amounts in trust sufficient to pay the Executive under this Agreement, Company shall remain liable for any and all payments due to the Executive. In accordance with the terms of such trust, at all times during the term of this Agreement, the Executive shall have no rights, other than as an unsecured general creditor of Company, to any amounts held in trust and all trust assets shall be general assets of Company and subject to the claims of creditors of Company.     6.  Successors; Binding Agreement.       (a) 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 Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. Failure of Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from Company in the same amount and on the same terms as he would be entitled hereunder if he terminated his employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.     (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, successors, heirs, and designated beneficiaries. If the Executive should die while any amount 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 designated beneficiaries, or, if there is no such designated beneficiary, to the Executive's estate.     7.  Notice.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage pre-paid, addressed to the last known residence address of the Executive or in the case of Company, to its principal executive office to the attention of each of the then directors of Company with a copy to its Secretary, 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.     8.  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 parties. No waiver by either party hereto at any time of any breach by the other party to this Agreement 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 to similar time. No legally binding or enforceable agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof that remain in effect 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 Minnesota. 8 --------------------------------------------------------------------------------     9.  Validity.  The invalidity or unenforceability or 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. MINNTECH CORPORATION   EXECUTIVE:   By       /s/ Barbara A. Wrigley       /s/ Jules L. Fisher     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Its Vice President   Jules L. Fisher 9 -------------------------------------------------------------------------------- AMENDMENT TO MANAGEMENT AGREEMENT     This AMENDMENT made as of this 1st day of April, 1997, by and between Minntech Corporation, a Minnesota corporation (the "Company") and Jules L. Fisher, a Minnesota resident (the "Executive"), as an amendment to the Management Agreement dated as of December 11, 1996, between the Company and the Executive.     WHEREAS, the Company and the Executive entered into the Management Agreement for the reasons set forth in the recitals to the Management Agreement; and     WHEREAS, for the reasons set forth in the recitals to the Management Agreement, the Company has determined that it is in the best interests of the Company and its shareholders to provide for increased payments to the Executive upon the termination of the Executive's employment in certain circumstances following a Change in Control of the Company or as otherwise set forth in the lead-in sentence to Section 4 of the Management Agreement.     THEREFORE, in consideration of the foregoing, the parties hereto agree to amend Section 4(d)(ii) of the Management Agreement in its entirety to read as follows:     (ii) In lieu of any further salary payments for periods subsequent to the Date of Termination, Company shall pay as a severance payment (the "Severance Payment") an amount equal to (A) three (3) times (subject to reduction pursuant to Section 3(d) in the event of a termination of employment by the Executive pursuant to Section 3(d)) the average of the annual compensation which was paid to the Executive by Company (or any corporation affiliated with Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code")) and includible in the Executive's gross income for federal income tax purposes for the shorter of the period consisting of (1) the five most recently completed taxable years of the Executive ending before the earlier of the first Change in Control (for which purpose the first Change in Control shall not be deemed to be a Change in Control pursuant to Section 2(a)(v) unless the Executive's termination of employment with Company occurs prior to the first Change in Control pursuant to Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or (2) that portion of such five-year period during which the Executive was employed by Company (for which purpose compensation for a partial year shall be annualized before determining average annual compensation for the period in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto), less (B) $1.00. Such average shall be determined in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto. The Severance Payment shall be made in full within 60 days after termination of employment. Such Severance Payment shall be reduced by any severance pay that the Executive receives from Company, any subsidiary of Company or any successor thereof under any other policy or agreement of Company in the event of involuntary termination of the Executive's employment.     The Management Agreement, subject only to this Amendment and any other amendments entered into in accordance with Section 8 of the Management Agreement, shall remain in full force and effect without modification. All references in the Management Agreement to "this Agreement" shall be deemed to be references to the Management Agreement as amended by this Amendment. All terms used in this Amendment which are not defined in this Amendment shall have the meanings set forth in the Management Agreement.     IN WITNESS WHEREOF, the parties hereto have signed this Amendment as of the date above written. MINNTECH CORPORATION   EXECUTIVE:   By       /s/ Thomas J. McGoldrick       /s/ Jules L. Fisher     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Its President   Jules L. Fisher -------------------------------------------------------------------------------- QUICKLINKS MANAGEMENT AGREEMENT AMENDMENT TO MANAGEMENT AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document AVOCENT CORPORATION 2000 TRANSITION STOCK OPTION PLAN     1.  Purposes of the Plan.  The purposes of this 2000 Transition Stock Option Plan are: •to attract and retain the best available personnel for positions of substantial responsibility, •to provide additional incentive to Employees, Directors and Consultants, and •to promote the success of the Company's business.     Options granted under the Plan will be Nonstatutory Stock Options.     2.  Definitions.  As used herein, the following definitions shall apply:     (a)  "Administrator"  means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.     (b)  "Applicable Laws"  means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan.     (c)  "Board"  means the Board of Directors of the Company.     (d)  "Code"  means the Internal Revenue Code of 1986, as amended.     (e)  "Committee"  means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.     (f)  "Common Stock"  means the Common Stock of the Company.     (g)  "Company"  means Avocent Corporation, a Delaware corporation.     (h)  "Consultant"  means any person, including an advisor or independent contractor, engaged by the Company or a Parent or Subsidiary to render services to such entity.     (i)  "Director"  means a member of the Board.     (j)  "Disability"  means total and permanent disability as defined in Section 22(e)(3) of the Code.     (k)  "Employee"  means any person, including Officers, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.     (l)  "Exchange Act"  means the Securities Exchange Act of 1934, as amended.     (m)  "Fair Market Value"  means, as of any date, the value of Common Stock determined as follows:     (i)  If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such 1 -------------------------------------------------------------------------------- exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;     (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;     (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.     (n)  "Notice of Grant"  means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement.     (o)  "Officer"  means a person who is an officer of the Company within the meaning of Nasdaq guidelines, including all employees with the corporate rank of vice-president or higher, and employees with lesser rank but comparable authority.     (p)  "Option"  means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.     (q)  "Optioned Stock"  means the Common Stock subject to an Option.     (r)  "Optionee"  means the holder of an outstanding Option granted under the Plan.     (s)  "Parent"  means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.     (t)  "Plan"  means this 2000 Nonstatutory Stock Option Plan.     (u)  "Service Provider"  means an Employee including an Officer, Consultant or Director.     (v)  "Share"  means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan.     (w)  "Subsidiary"  means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.     3.  Stock Subject to the Plan.  Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 400,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.     If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated).     4.  Administration of the Plan.       (a)  Administration.  The Plan shall be administered by (i) the Board or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws.     (b)  Powers of the Administrator.  Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:     (i)  to determine the Fair Market Value of the Common Stock;     (ii) to select the Service Providers to whom Options may be granted hereunder; 2 --------------------------------------------------------------------------------     (iii) to determine whether and to what extent Options are granted hereunder;     (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder;     (v) to approve forms of agreement for use under the Plan;     (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;     (vii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;     (viii)to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;     (ix) to modify or amend each Option (subject to Section 14(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;     (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator;     (xi) to determine the terms and restrictions applicable to Options;     (xii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and     (xiii)to make all other determinations deemed necessary or advisable for administering the Plan.     (c)  Effect of Administrator's Decision.  The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options.     5.  Eligibility.       (a)  General.  Options may be granted to Service Providers; provided, however, that notwithstanding anything to the contrary contained in the Plan, Options may not be granted to Officers and Directors.     (b)  No Right to Continued Employment.  This Plan shall not confer upon any Optionee any right with respect to the continuation of his or her employment (or other relationship) with the Company (or any Parent or Subsidiary), nor shall it restrict, limit, or interfere in any way with the right of the Company (or any Parent or Subsidiary) to terminate the employment (or other) relationship of any Optionee at any time, with or without cause.     6.  Limitation.  Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall 3 -------------------------------------------------------------------------------- they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause.     7.  Term of Plan.  The Plan shall become effective upon its adoption by the Board. It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan.     8.  Term of Option.  The term of each Option shall be stated in the Option Agreement.     9.  Option Exercise Price and Consideration.       (a)  Exercise Price.  The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator.     (b)  Waiting Period and Exercise Dates.  At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised.     (c)  Form of Consideration.  The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of:     (i)  cash;     (ii) check;     (iii) promissory note;     (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;     (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;     (vi) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or     (vii) any combination of the foregoing methods of payment.     10.  Exercise of Option.       (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share.     An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. 4 --------------------------------------------------------------------------------     Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.     (b)  Termination of Relationship as a Service Provider.  If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.     (c)  Disability of Optionee.  If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.     (d)  Death of Optionee.  If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.     (e)  Buyout Provisions.  The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.     11.  Non-Transferability of Options.  Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate.     12.  Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.   5 --------------------------------------------------------------------------------     (a)  Changes in Capitalization.  Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.     (b)  Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.     (c)  Merger or Asset Sale.  In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock, immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 6 --------------------------------------------------------------------------------     13.  Date of Grant.  The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.     14.  Amendment and Termination of the Plan.       (a)  Amendment and Termination.  The Board may at any time amend, alter, suspend or terminate the Plan.     (b)  Effect of Amendment or Termination.  No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination.     15.  Conditions Upon Issuance of Shares.       (a)  Legal Compliance.  Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.     (b)  Investment Representations.  As a condition to the exercise of an Option the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.     16.  Inability to Obtain Authority.  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.     17.  Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 7 -------------------------------------------------------------------------------- QUICKLINKS AVOCENT CORPORATION 2000 TRANSITION STOCK OPTION PLAN

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 EMPLOYMENT AGREEMENT     THIS EMPLOYMENT AGREEMENT, dated as of June 8, 2000 (this "Agreement"), is entered into by and between ROHN Industries, Inc., a Delaware corporation (the "Company"), and James F. Hurley (the "Executive").     WHEREAS, the Executive has developed and possesses skills and experience that are of value to the Company; and     WHEREAS, the Company desires to secure the services and employment of the Executive on behalf of the Company and the Executive is willing to render such services on the terms and conditions set forth herein.     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:     1.  Employment Term.  Subject to the terms and provisions of this Agreement, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, for the period commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement, unless terminated sooner as hereinafter provided (the "Employment Term").     2.  Duties.  During the Employment Term the Executive shall serve as Vice President & Chief Financial Officer of the Company, and shall perform such duties, services and responsibilities on behalf of the Company and its subsidiaries as may be determined from time to time by the President and the Board of Directors of the Company (the "Board") and shall have the authority commensurate with such position. In performing his duties hereunder, the Executive will report directly to the President. The Executive shall devote his full business time, attention and skill to the performance of such duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Executive may engage in any civic or charitable activity or deliver lectures, fulfill speaking engagements or teach at educational institutions, provided such activities do not materially interfere with the performance of his duties hereunder.     3.  Compensation.  In full consideration of the performance by the Executive of the Executive's obligations during the Employment Term (including any services by the Executive as an officer, director, employee or member of any committee of any subsidiary or affiliate of the Company, or otherwise on behalf of Company), the Executive shall be compensated as follows:     (a)  Base Salary.  The Executive shall receive a base salary (the "Base Salary") at an annual rate of $220,000 per year, subject to review by the Board from time to time in the Board's sole discretion, provided, however, that the Board shall review the Base Salary on or prior to March 31st of each year during the Employment Term. The Base Salary shall be payable in accordance with the normal payroll practices of the Company then in effect.     (b)  Bonus.  During the Employment Term, and subject to review by the Board from time to time in the Board's sole discretion, the Executive shall be eligible to participate in the Company's annual incentive bonus plan, under which the Executive's target bonus will be 50% of his Base Salary with a maximum annual bonus opportunity available to the Executive equal to 100% of the Base Salary. For the 2000 bonus plan year, the Executive's bonus shall be prorated for his start date, but the financial performance award shall be based on the Company's financial performance for the entire 2000 calendar year.     (c)  Benefits.  During the Employment Term, the Executive shall be entitled to participate in any employee or executive benefit plans, policies or programs that are provided generally to senior executives of the Company as such plans, policies or programs may be in effect from time to time, including all of the executive benefits, policies or programs set forth in the offer letter from the Company to the Executive dated June 1, 2000, which offer letter is incorporated by reference herein and made a part hereof. --------------------------------------------------------------------------------     (d)  Vacations.  During the Employment Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company in accordance with the Company's policies in effect from time to time.     (e)  Taxes.  The Executive shall be solely responsible for taxes imposed on the Executive by reason of any compensation and benefits provided under this Agreement and all such compensation and benefits shall be subject to applicable withholding taxes.     The Company shall provide, and pay for, assistance to the Executive in the preparation of the Executive's state and federal income tax returns during the first two years of the Employment Term.     4.  Termination.  The Executive's employment with the Company hereunder and the Employment Term shall terminate upon the occurrence of any of the following events (the date of termination, the "Termination Date"):     (a)  Death.  The death of the Executive.     (b)  Disability.  The termination of employment by the Company for Disability upon thirty (30) days written notice to the Executive, provided the Executive has not returned to work on a full-time, permanent basis prior to the end of such thirty (30) day period.     (c)  Cause.  The termination of employment by the Company for Cause. The Executive's termination for Cause shall be effective upon delivery of written notice specifying the matter or matters the Company deems to constitute Cause.     (d)  Without Cause.  The termination of employment by the Company other than for Cause or Disability.     (e)  Good Reason.  The termination of employment by the Executive for Good Reason; provided, however that (i) the Executive must deliver a notice of termination within sixty (60) days after the occurrence of the event(s) constituting Good Reason, and (ii) the Company shall have (30) days following the receipt of the Executive's notice of termination within which to cure the event(s) identified by the Executive as constituting Good Reason and, if so cured, Good Reason shall be deemed not to have occurred.     (f)  Expiration of Agreement.  The third anniversary of the date of this Agreement.     In the event of termination of the Executive's employment, for whatever reason (other than death), the Executive agrees to cooperate with the Company, its subsidiaries and affiliates and to be reasonably available to the Company, its subsidiaries and affiliates with respect to continuing and/or future matters arising out of the Executive's employment hereunder or any other relationship with the Company, its subsidiaries and affiliates, whether such matters are business-related, legal or otherwise.     5.  Termination Payments.       (a)  Death or Disability.  If the Executive's employment with the Company is terminated by reason of the Executive's death, or by the Company for Disability, the Company's sole obligation hereunder, shall be to pay the Executive or his estate, as the case may be, the Accrued Compensation and the Pro Rata Bonus Amount.     (b)  By Company for Cause; By Executive Without Good Reason.  If the Executive's employment with the Company is terminated by the Company for Cause or by the Executive without Good Reason, or the Executive's employment hereunder terminates pursuant to Section 4(f) of this Agreement, the Company's sole obligation hereunder shall be to pay the Executive the Accrued Compensation.     (c)  By Company Without Cause.  If the Executive's employment with the Company is terminated by the Company for any reason other than Cause or Disability, the Company's sole obligation hereunder shall be to pay the Executive the Accrued Compensation, the Pro Rata Bonus Amount and, 2 -------------------------------------------------------------------------------- so long as the Executive is not in violation of the covenants contained in Section 6 hereof, to continue to pay the Executive the Base Salary (at the rate in effect on the Termination Date) in accordance with the normal payroll practices of the Company for twelve (12) months following the Termination Date. The obligation of the Company to make payments to the Executive in accordance with this paragraph 5(c) shall survive the non-renewal or termination of this Agreement.     (d)  Good Reason.  If the Executive's employment with the Company is terminated by the Executive for Good Reason, the Company's sole obligation hereunder shall be to pay the Executive the Accrued Compensation, the Pro Rata Bonus Amount and to continue to pay the Executive the Base Salary (at the rate in effect on the Termination Date) in accordance with the normal payroll practices of the Company, for twelve (12) months following the Termination Date.     (e)  No 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, nor shall such amounts be reduced by any earnings or benefits that the Executive may receive from any other source.     (f)  Internal Revenue Code Section 280G.  Notwithstanding anything contained in this Agreement to the contrary, to the extent that any payment or distribution of any type to or for the benefit of the Executive by the Company, any affiliate of the Company, any person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code (the "Code"), and the regulations thereunder), or any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments") is or will be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (but not below zero) if and to the extent that a reduction in the Total Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Employee received the entire amount of such Total Payments. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Total Payments, by first reducing or eliminating the portion of the Total Payments which are not payable in cash (other than Total Payments attributable to stock options or other equity awards ("Equity Awards")) and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the latest in time, and then by reducing Equity Awards in the manner which will maximize the after-tax benefit to the Executive. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. The determination of whether the Total Payments shall be reduced pursuant to the foregoing and the amount of such reduction shall be made, at the Company's expense, by an accounting firm selected by the Company which is one of the five largest accounting firms in the United States (other than the Company's regular independent auditor).     (g)  For purposes of this Section 5,  the Executive's employment shall not be treated as terminated for so long as he is an employee of the Company or any of its subsidiaries.     6.  Executive Covenants.       (a)  Unauthorized Disclosure.  The Executive agrees and understands that in the Executive's position with the Company, the Executive has been and will be exposed to and has and will receive information relating to the confidential affairs of the Company, its subsidiaries and affiliates, including but not limited to technical information, intellectual property, business and marketing plans, strategies, customer information, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company, its subsidiaries and affiliates, and other forms of information considered by the Company to be confidential and in the 3 -------------------------------------------------------------------------------- nature of trade secrets ("Confidential Information"). The Executive agrees that during the Employment Term and thereafter, the Executive will not disclose such Confidential Information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Employment Term, the Executive will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Employment Term. Any material breach of the terms of this paragraph shall be considered Cause.     (b)  Non-competition.  By and in consideration of the Company's entering into this Agreement and the payments to be made and benefits to be provided by the Company hereunder, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that the Executive will not, during the Employment Term, and thereafter during the "Non-competition Term" (as defined below), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including but not limited to holding any position as a shareholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any "Restricted Enterprise" (as defined below); provided, that in no event shall the ownership of less than 1% of the outstanding equity securities of any issuer whose securities are registered under the Securities and Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 6(b). For purposes of this Section 6(b), the term "Restricted Enterprise" shall mean any person, corporation, partnership or other entity that competes, directly or indirectly, with any business or activity conducted or proposed to be conducted by the Company or any of its subsidiaries or affiliates as of the date of the Executive's termination of employment. Following termination of the Employment Term, upon request of the Company, the Executive shall notify the Company of the Executive's then current employment status. For purposes of this Agreement, the "Non-competition Term" shall mean the period beginning on the Termination Date and ending on the second anniversary of such date. Any material breach of the terms of this Section 6(b) shall be considered Cause. Notwithstanding the foregoing, in the event the Executive's employment with the Company is terminated following a Change in Control by the Company without Cause or by the Executive for Good Reason, the Executive shall not be subject to this Section 6(b), and this Section 6(b) shall have no force or effect.     (c)  Non-solicitation.  During the Non-competition Term, the Executive shall not, and shall not cause any other person to, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company, any of its subsidiaries or affiliates with, or endeavor to entice away from the Company, any of its subsidiaries or affiliates, or hire, any person who at any time during the Employment Term was an employee or customer of the Company, or any of its subsidiaries or affiliates. Notwithstanding the foregoing, in the event the Executive's employment with the Company is terminated following a Change in Control by the Company without Cause or by the Executive for Good Reason, the Executive shall not be subject to this Section 6(c), and this Section 6(c) shall have no force or effect.     (d)  Remedies.  The Executive agrees that any breach of the terms of this Section 6 would result in irreparable injury and damage to the Company, its subsidiaries and/or affiliates for which the Company, its subsidiaries and/or affiliates would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company, its subsidiaries and/or affiliates, as applicable, shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company, its subsidiaries and/or affiliates may be entitled at law or in equity. The terms of this Section 6(d) shall not prevent the 5 -------------------------------------------------------------------------------- Company, its subsidiaries and/or affiliates from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants contained in this Section 6 are reasonable and necessary to protect the businesses of the Company, its subsidiaries and affiliates because of the Executive's access to Confidential Information and his material participation in the operation of such businesses. The Executive hereby acknowledges that due to the global aspects of the Company's, its subsidiaries' and affiliates' businesses and competitors it would not be appropriate to include any geographic limitation on this Section 6. Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 6 are not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such covenants should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.     The existence of any claim or cause of action by the Executive against the Company, its subsidiaries and/or affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 6.     7.  Non-Waiver of Rights.  The failure to enforce at any time the provisions of this Agreement or to require at any time performance by any other party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part hereof, or the right of any party to enforce each and every provision in accordance with its terms.     8.  Notices.  Every notice relating to this Agreement shall be in writing and shall be given by personal delivery, by a reputable same-day or overnight courier service (charges prepaid), by registered or certified mail, postage prepaid, return receipt requested or by facsimile to the recipient with a confirmation copy to follow the next day to be delivered by personal delivery or by a reputable same-day or overnight courier service; to: If to the Company:   ROHN Industries, Inc. 6718 West Plank Road Peoria, Illinois 61604 Attention: President   If to the Employee:       James F. Hurley 2224 Norcrest Dr. Muskegon, MI 49441     Either of the parties hereto may change their address for purposes of notice by given notice in writing to such other party pursuant to this Section 8. The date of service of such notice shall be the date such notice is personally delivered, three business days after the date of mailing if sent by certified or registered mail, two business days after the date of delivery to the courier if sent by courier, or the next business day after the date of transmittal if by facsimile.     9.  Binding Effect/Assignment.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Executive shall not assign all or any portion of this Agreement without the prior written consent of the Company.     10.  Entire Agreement.  This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, written or oral, between them as to such subject matter. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 6 --------------------------------------------------------------------------------     11.  Severability.  If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement.     12.  Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois, without reference to the principles of conflict of laws.     13.  Headings.  The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement.     14.  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.     15.  Definitions.  As used in this Agreement, the following terms shall have the following meanings:     "Accrued Compensation" shall mean any accrued and unpaid Base Salary as of the Termination Date, all benefits accrued under any benefit plans, programs or arrangements in which the Executive shall have been a participant as of the date of such termination, in accordance with the applicable terms and conditions of such plans, programs or arrangements, and an amount equal to such reasonable and necessary business expenses incurred by the Executive in connection with the Executive's employment on behalf of the Company on or prior to the Termination Date but not previously paid to the Executive.     "Cause" shall mean: (i) the Executive's material breach of this Agreement, (ii) conduct by the Executive that is fraudulent or unlawful, (iii) gross negligence of or willful misconduct by the Executive in the performance of his duties, or (iv) repeated failure of the Executive to perform his duties hereunder.     "Change in Control" shall mean the occurrence of any one of the following events:     (a) An acquisition (other than directly from the Company) of any common stock, par value $.01 per share, of the Company ("Common Stock") or other voting securities of the Company by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of either (i) the then outstanding Common Stock or (ii) the combined voting power of the Company's then outstanding voting securities entitled to vote for the election of directors (the "Voting Securities"); provided, however, in determining whether a Change in Control has occurred, Common Stock or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined), or (iv) the UNR Asbestos-Disease Claims Trust;     (b) The individuals who, as of the date of this Agreement are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than 7 -------------------------------------------------------------------------------- the Board (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or     (c) The consummation of:     (i)  A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless the Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger if:     (A) the stockholders of the Company immediately before such Merger own directly or indirectly immediately following the Merger at least fifty percent (50%) of the outstanding common stock and the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation"), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another corporation (a "Parent Corporation"), or (y) the Parent Corporation, if fifty percent (50%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities is Beneficially Owned, directly or indirectly, by a Parent Corporation;     (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Merger, constitute at least a majority of the members of the board of directors of, (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) the Parent Corporation, if fifty percent (50%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities is Beneficially Owned, directly or indirectly, by a Parent Corporation; and     (C) no Person other than (1) the Company or another corporation that is a party to the agreement of Merger, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of fifty percent (50%) or more of the then outstanding Common Stock or Voting Securities, has Beneficial Ownership immediately following the Merger, directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) the Parent Corporation, if fifty percent (50%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities is Beneficially Owned, directly or indirectly, by a Parent Corporation;     (ii) A complete liquidation or dissolution of the Company; or     (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets).     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Company which, by reducing the number of Common Stock or Voting Securities then outstanding, increases the proportional number of 8 -------------------------------------------------------------------------------- shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Common Stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Common Stock or Voting Securities which increases the percentage of the then outstanding Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.     "Disability" shall mean the inability of the Executive to perform his duties, services and responsibilities hereunder by reason of a physical or mental infirmity, as reasonably determined by the Board, for a total of 180 calendar days in any twelve-month period during the Employment Term.     "Good Reason" shall mean after a Change in Control, the occurrence of any of the following events: (i) a material diminution in the Executive's position, duties or responsibilities; (ii) a reduction in the Executive's Base Salary; or (iii) a relocation of the Company's corporate headquarters to a location that is more than 50 miles from the location of the corporate headquarters immediately before the Change in Control.     "Pro Rata Bonus Amount" shall mean an amount equal to the annual bonus paid to the Executive for the year prior to the year in which the Executive's employment is terminated, multiplied by a fraction, the numerator of which is the number of days elapsed from the beginning of the bonus period through and including the Termination Date, and the denominator of which is 365.     IN WITNESS WHEREOF, each of the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Executive has hereunto set his hand, on the day and year first above written.     ROHN INDUSTRIES, INC.           By:   /s/ BRIAN B. PEMBERTON    --------------------------------------------------------------------------------       Name: Brian B. Pemberton Title: President & CEO               /s/ JAMES F. HURLEY    James F. Hurley 9 -------------------------------------------------------------------------------- QUICKLINKS EMPLOYMENT AGREEMENT

INDEMNIFICATION AGREEMENT             AGREEMENT, effective as of ________________, between CARPENTER TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), and __________ ____________(the "Indemnitee").           WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;           WHEREAS, Indemnitee is a director or officer of the Company; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment;           WHEREAS, the Restated Certificate of Incorporation (the "Charter") and By-laws of the Company require the Company to indemnify its directors and officers to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director or officer of the Company in part in reliance on such Charter and By-laws;           WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, and Indemnitee's reliance on the aforesaid Charter and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Charter and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Charter and By-laws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies;           NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:   1. Certain Definitions: (a) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13 (d) and 14 (d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, 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 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) 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 80% 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 complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. (b) Claim: any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (c) Expenses: include attorneys’ fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any claim relating to any Indemnifiable Event. (d) Indemnifiable Event: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (e) Independent Legal Counsel: an attorney or firm of attorneys, selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for the Company or Indemnitee within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (f) Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the company representing 9.5% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by five percentage points (5%) or more over the percentage so owned by such person; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (g) Reviewing Party: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel. (h) Voting Securities: any securities of the Company which vote generally in the election of directors. 2. Basic Indemnification Arrangment: (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable, but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in this Agreement to the contrary, except as provided in Section 5 hereof, prior to a Change in Control, Indemnitee shall not be entitled to indemnification or Expense Advances pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless the Board of Directors has authorized or consented to the initiation of such claim. (b) Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed) . If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors and, if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of Pennsylvania or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the company and Indemnitee. 3. Change in Control. The Company agrees that, if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or Charter or By-law provision now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 4. Establishment of Trust. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund such trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, and defending any Claim relating to an Indemnifiable Event, and any and all judgments, fines, penalties and settlement amounts of any and all Claims relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid, provided that in no event shall more than $150,000 be required to be deposited in any trust created hereunder in excess of amounts deposited in respect of reasonably anticipated Expenses. The amount or amounts to be deposited in the trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which the Independent Legal Counsel referred to above is involved. The terms of the trust shall provide that upon a Change in Control (i) the trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the trustee shall advance, within two business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section ~2(b) of this Agreement) , (iii) the trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee shall be a national banking association or trust company chosen by Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement.   5. Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) and, if requested by Indemnitee, shall (within two business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Charter or By-law provision now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)recovery under any directors' and officers, liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 6. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 7. Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. 8. No Presumptions. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of no contenders, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. 9. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Charter or By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Charter or By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. 10. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 11. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 12. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 13. 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, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 14. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Charter or By-law provision or otherwise) of the amounts otherwise indemnifiable hereunder. 15. Binding Effect Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the company or of any other enterprise at the Company's request. 16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.           IN WITNESS WHEREOF, the parties hereto have executed this Agreement this ___ day of ________, _____.     CARPENTER TECHNOLOGY CORPORATION     By: ______________________________ Name: Title: Chairman, President, and Chief Executive Officer                                                 ________________________________

QuickLinks -- Click here to rapidly navigate through this document CONSOLIDATED. RESTATED AND AMENDED LICENSE AGREEMENT     This Agreement entered into on June 9, 2000 but effective as of the 1st day of January, 1999, by and between North Carolina State University ("UNIVERSITY") and Michael Foods, Inc., a Minnesota corporation ("LICENSEE");     WHEREAS, UNIVERSITY is the owner by assignment of certain Patent Rights (as defined herein) relating to a method for the ultrapasteurization of liquid whole egg products and has the right to grant licenses under said Patent Rights;     WHEREAS, UNIVERSITY is authorized, in its own name, to license such Patent Rights consistent with its purpose as an educational institution, and desires to have the Patent Rights utilized in the public interest, and is willing to grant licenses thereunder; and     WHEREAS, UNIVERSITY and LICENSEE did previously enter into license agreements on April 22, 1988 (amended November 28, 1989; September 12, 1991 and December 18, 1996); November 28, 1989 (amended September 12, 1991 and December 18, 1996); and September 1, 1991 (amended December 18. 1996) (collectively, the "License Agreements"); and     WHEREAS, UNIVERSITY and LICENSEE assume that a product claim will be allowed by the United States Patent and Trademark Office and therefore that a patent will issue to the UNIVERSITY which includes such product claim and recognize that LICENSEE is also licensed to utilize an alternative method for the ultra pasteurization of liquid whole egg products under certain patent rights held by Raztek Corporation licensed to Papetti's Hygrade Egg Products, Inc., a subsidiary of Michael Foods, Inc. (the "Raztek Product"). UNIVERSITY and LICENSEE recognize that the Raztek Product will be a Defined Product (as defined herein) with royalties due hereunder in respect to sales thereof under any such patent issued to UNIVERSITY which includes a product claim.     WHEREAS, LICENSEE has covenanted to UNIVERSITY for good and sufficient consideration to utilize the method for ultra pasteurization of liquid whole egg products set forth in the Patent Rights in respect to the manufacture of extended shelf life liquid whole egg products for purposes of sale by LICENSEE on an exclusive basis for all such egg products except for a maximum of *** pounds of Raztek Product per calendar year in lieu of any other present methods and such covenant is material to this Agreement and an inducement to and a condition of the agreement by the UNIVERSITY to Section 4.2 hereof.     WHEREAS, UNIVERSITY and LICENSEE wish to consolidate, restate and amend the License Agreements.     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE 1—DEFINITIONS     For the purposes of this Agreement, the following words and phrases shall have the following meanings:     1.1. "LICENSEE" shall mean Michael Foods, Inc., a Minnesota corporation, or a related company of Michael Foods, Inc., the voting stock of which is, directly or indirectly, at least fifty percent (50%) owned or controlled by Michael Foods, Inc., or an organization which, directly or indirectly, controls more than fifty percent (50%) of the voting stock of Michael Foods, Inc., or an organization, a majority ownership of which is, directly or indirectly, common to the ownership of Michael Foods, Inc. -------------------------------------------------------------------------------- *** Redacted text. 1 --------------------------------------------------------------------------------     1.2. "Subsidiary" shall mean any corporation, company or other entity fifty percent (50%) or more of whose voting stock is owned or controlled, directly or indirectly, by Michael Foods, Inc.     1.3. "Patent Rights" shall mean (a) United States Patent 4,808,425, issued February 28, 1989, entitled "Method for the Ultrapasteurization of Liquid Whole Egg Products"; (b) United States Patent 4,957,759, issued September 18, 1990, entitled "Ultra-Pasteurization of Liquid Whole Egg Products"; (c) United States Patent 4,994,291 issued February 19, 1991 entitled "Method for Pasteurizing Liquid Whole Egg Products"; (d) United States Patent 5,019,408 issued May 28, 1991, entitled "Method for Pasteurizing Liquid Whole Egg Products"; and (e) United States Patent 4.957,760 issued September 18, 1990 entitled "Ultrapasteurization of Liquid Whole Egg Products by Direct Heat" and any continuations, divisions, reissues, reexaminations and extensions thereof (collectively "Patent Rights Patents"); and all existing and later-filed U.S. or foreign patent applications corresponding to or claiming priority benefit of any of the foregoing, and any continuations, divisions, reissues, reexaminations and extensions thereof including without limitation the currently pending reissue application of United States Patent 5,019,408 which includes the product claim referred to in Section 1.4 (collectively "Patent Rights Patent Applications").     1.4. "Defined Product" shall mean any Licensed Product, or any product produced using any Licensed Process or containing a Licensed Product. UNIVERSITY and LICENSEE assume that a product claim will be allowed by the United States Patent and Trademark Office and therefore that United States Patent 5,019,408 will reissue with a product claim therein. LICENSEE agrees that any manufacture, use, or sale of the Raztek Product will infringe the aforesaid patent as reissued with a product claim contained therein and be a Defined Product hereunder.     1.5. "Licensed Product" shall mean any product which (a) is covered by a valid and unexpired claim contained in a Patent Rights Patent in the country in which such Licensed Product is made, used or sold; or (b) is covered by a claim which is contained in a pending Patent Rights Patent Application in the country in which such Licensed Product is made, used or sold.     1.6. "Licensed Process" shall mean any process which (a) is covered by a valid and unexpired claim contained in a Patent Rights Patent in the country in which such Licensed Process is used or practiced; or (b) is covered by a claim which is contained in a pending Patent Rights Patent Application in the country in which such Licensed Process is used or practiced.     1.7. "Net Sales Proceeds" shall mean LICENSEE's billings (or a sublicensees' billings) for the Defined Product(s) produced hereunder less the sum of the following: (a)Discounts allowed in amounts customary in the trade; (b)Sales, tariff duties and/or use taxes directly imposed and with reference to particular sales; (c)Outbound transportation prepaid or allowed; and (d)Amounts allowed or credited on returns.     No deductions shall be made for commissions paid to individuals whether they be with independent sales agencies or regularly employed by LICENSEE and on its payroll, or for costs of collection. Defined Product(s) shall be considered "sold" and Net Sales Proceeds "earned" when billed out or invoiced. ARTICLE 2—GRANT     2.1. UNIVERSITY hereby grants to LICENSEE the exclusive, worldwide right and license to make, have made, use and sell Defined Products and Licensed Processes until, as to any particular United States or Foreign patent which is or becomes part of the Patent Rights, the expiration of such 2 -------------------------------------------------------------------------------- patent (including any extension of the expiration date by the applicable governmental authority), unless sooner terminated as hereinafter provided.     2.2. LICENSEE shall have the right to sublicense any of the rights, privileges and licenses granted hereunder, with the prior written consent of UNIVERSITY, which consent shall not be unreasonably withheld.     2.3. LICENSEE agrees that any sublicenses granted by it shall provide that the obligations of this Agreement shall be binding upon the sublicensee as if it were a party to this Agreement.     2.4. LICENSEE agrees to inform UNIVERSITY of any and all fully executed sublicense agreements involving the Patent Rights licensed hereunder and, at UNIVERSITY's request, LICENSEE,,N-111 provide copies of such sublicense agreements to UNIVERSITY.     2.5. With the exception of those rights which UNIVERSITY may expressly grant to LICENSEE for the exclusive use of unpublished Know-How in respect to the Patent Rights, the licenses granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any technology not part of the Patent Rights licensed hereunder. ARTICLE 3—BEST EFFORTS; USE OF PATENT RIGHTS     3.1. LICENSEE shall use best efforts to diligently continue commercialization of the Patent Rights licensed hereunder.     3.2. LICENSEE shall exclusively use the Licensed Process covered by the Patent Rights licensed hereunder in respect to the manufacture of all extended shelf life liquid whole egg products manufactured or sold by LICENSEE except for a maximum of *** pounds of Raztek Product per calendar year in lieu of any other present methods for the manufacture of extended shelf life liquid whole egg products. ARTICLE 4—ROYALTIES     4.1 For the rights, privileges and licenses granted hereunder, LICENSEE shall make royalty payments to UNIVERSITY in the manner hereinafter provided for so long as any of the licenses of Paragraph 2.1 is in effect and LICENSEE and its Subsidiaries do not use or practice the apparatus claims within the Patent Rights: (a)A royalty of *** on Net Sales Proceeds earned by LICENSEE and its Subsidiaries from sales of Defined Products covered by a valid and unexpired claim contained in a Patent Rights Patent or a Patent Rights Patent Application. (b)A royalty which shall be payable from each bona fide sublicensed activity which shall be the greater of *** of the Net Sales Proceeds earned by the sublicensee from the sales of Defined Products, *** of LICENSEE revenues derived from such sublicensed activity, but in no event shall the sublicensing royalties due UNIVERSITY exceed *** of the Net Sales Proceeds earned by a sublicensee. (c)The provisions of this Section 4.1 notwithstanding, in the event LICENSEE issues a sublicense in exchange for a fully paid-up sublicensing fee in lieu of a running royalty based on sublicensed sales of Defined Products, UNIVERSITY and LICENSEE, in good faith, shall negotiate a fair and reasonable alternative royalty and the terms of payment.     For the rights, privileges and licenses granted hereunder, LICENSEE shall make royalty payments to UNIVERSITY in the manner hereinafter provided for so long as any of the licenses of Paragraph 2.1 is in effect and LICENSEE and its Subsidiaries do use or practice the apparatus claims within the Patent Rights: -------------------------------------------------------------------------------- *** Redacted text. 3 -------------------------------------------------------------------------------- (a)A royalty of *** on Net Sales Proceeds earned by LICENSEE, and its Subsidiaries from sales of Defined Products covered by a valid and unexpired claim contained in a Patent Rights Patent or a Patent Rights Patent Application. (b)A royalty which shall be payable from each bona fide sublicensed activity which shall be the great of *** of the Net Sales Proceeds earned by the sublicensee from the sales of Defined Products, or *** of LICENSEE revenues derived from such sublicensed activity, but in no event shall the sublicensing royalties due UNIVERSITY exceed *** of the Net Sales Proceeds earned by a sublicensee.     The royalty payable to UNIVERSITY hereunder in respect to a product which is a Defined Product as defined under Section 1.4 solely because it contains a Licensed Product (and which otherwise would not constitute a Defined Product) will be determined on the basis of the Net Sales Proceeds earned in respect to such Defined Product which are attributable to the Licensed Product contained therein as determined on a fair and equitable basis rather than on the basis of the Net Sales Proceeds earned from such Defined Product as a whole. LICENSEE shall identify and account for Net Sales Proceeds earned and royalties payable under this Section 4.1 with respect to any such Defined Products.     4.2 The UNIVERSITY and LICENSEE have agreed to certain royalty limitations set forth in subparagraph (a) and (b) immediately below (the "Royalty Limitations") in respect to sales of Defined Products by LICENSEE under both subparagraphs (a), in Section 4.1 above as follows: (a)Prior to inclusion in the Patent Rights of an issued patent which includes a product claim: (i) royalties shall be paid on sales of Defined Products by LICENSEE as required under Section 4.1 above up to sales of a maximum of *** pounds of Defined Products per calendar year; and (ii) no royalties shall thereafter be payable by LICENSEE under Section 4.1 on sales of Defined Products by LICENSEE in excess of *** pounds in such calendar year. (b)From and after inclusion in the Patent Rights of an issued patent which includes a product claim: (i) royalties shall be paid by LICENSEE as required under Section 4.1 above on sales of up to *** pounds of Defined Products by LICENSEE during the calendar year; (ii) no royalties shall be payable by LICENSEE under Section 4.1 on sales of Defined Products by LICENSEE in excess of *** pounds until the sales of Defined Products by LICENSEE in such calendar year are *** pounds; and (iii) royalties shall thereafter be payable by LICENSEE as required under Section 4.1 above on sales by LICENSEE of Defined Products in excess of sales of *** pounds in such calendar year.     The covenants and agreements by LICENSEE under Sections 1.4, 3.2, and 9.3, are material to this Agreement including a material inducement to and a condition of the agreement by UNIVERSITY to the Royalty Limitations and such Royalty Limitations shall therefore be contingent on LICENSEE compliance therewith. Such Royalty Limitations have been agreed to by UNIVERSITY at the request of LICENSEE due to a market condition involving the present manufacture and sale by the manufacturers identified at Exhibit A of certain extended shelf life liquid whole egg competitive products which infringe the Patent Rights. Accordingly, the Royalty Limitations shall terminate in the event that such manufacturers as identified at Exhibit A withdraw such competitive products from the market in which infringement is occurring or are licensed by UNIVERSITY and/or LICENSEE to engage in the manufacture and/or sale of such infringing products in the market in which the infringement is occurring or otherwise cease to manufacture or sell such infringing products including through acquisition by LICENSEE. -------------------------------------------------------------------------------- *** Redacted text. 4 --------------------------------------------------------------------------------     The Royalty Limitations shall not apply in any manner whatsoever in respect to royalties payable in respect to sales of Defined Products by sublicensees.     The Royalty Limitations shall be calculated on a pro rated basis in respect to any change in the applicability thereof under subparagraph (a) or (b) or the termination thereof during a calendar year.     4.3 The minimum annual royalty payable by LICENSEE shall be *** which shall include royalties attributable to Net Sales Proceeds earned by LICENSEE and its sublicensees. Annual minimum royalties are intended to be a minimum royalty due UNIVERSITY each year without regard to the applicability of any of the Royalty Limitations. LICENSEE shall pay to UNIVERSITY those royalties earned as a result of direct and sublicensed sales of Defined Products to the extent they are in excess of the specified annual minimum royalty.     4.4 No multiple royalties shall be payable because any Defined Product or Licensed Process is covered by more than one patent of the Patent Rights licensed under this Agreement.     4.5 Royalty payments shall be paid in United States Dollars in Raleigh, North Carolina, or at such other place as UNIVERSITY may reasonably designate consistent with the laws and regulations controlling in any foreign country. If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate prevailing at the Chase Manhattan Bank (N.A.) or its successor on the last business day of the calendar quarterly reporting period to which such royalty payments relate. ARTICLE 5—PAYMENT, REPORTS AND RECORDS     5.1. LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to UNIVERSITY hereunder and LICENSEE'S compliance in other respects with this Agreement including the covenant of LICENSEE under Section 3.2 hereof. Said books of account shall be kept at LICENSEE's principal place of business of the appropriate division of LICENSEE to which this Agreement relates. Said books and the supporting data shall be open at all reasonable times for five (5) years following the end of the calendar year to which they pertain, to the inspection of UNIVERSITY or its agents for the purpose of verifying LICENSEE's royalty statement or compliance in other respects with this Agreement.     5.2. LICENSEE, within forty-five (45) days after March 31, June 30, September 30, and December 31 of each year, shall deliver to UNIVERSITY true and accurate reports, giving such particulars of the business conducted by LICENSEE and its sublicensees during the preceding three-month period under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following: (a)All Defined Product(s) manufactured and sold with Raztek Products manufactured and sold stated on a separate basis. (b)Total billings for Defined Product(s) sold. (c)All extended shelf life liquid whole egg products other than Defined Product(s) manufactured and sold and total billings in respect thereto. (d)The basis for and calculation of Royalty Limitations, if applicable. (e)Accounting for all sublicensing revenues. (f)Deductions applicable pursuant to the definition of "Net Sales Proceeds" as provided in Section 1.7. (g)Total royalties due. (h)Names and addresses of all Subsidiaries and sublicensees of LICENSEE. -------------------------------------------------------------------------------- *** Redacted text. 5 -------------------------------------------------------------------------------- (i)Legal fees actually incurred by LICENSEE and royalty set-offs in respect thereto under Article 9 of this Agreement and predecessor sections under the License Agreements on a cumulative and quarterly basis. (j)The details of any judgments or settlements of infringement matters under Article 8 or Article 9 or predecessor provisions under the License Agreements.     5.3. LICENSEE shall pay to UNIVERSITY at the time required for submission of the report for each such calendar quarter the royalties due and payable under Article 4 of this Agreement in respect to sublicenses.     LICENSEE shall also pay to UNIVERSITY at the time required for submission of the report for each such calendar quarter the royalties due and payable under Article 4 of this Agreement in respect to sales of Defined Products by LICENSEE. For purposes of calculating the amount of any Royalty Limitation to which LICENSEE may be entitled under Section 4.2, the average price per pound received by LICENSEE regarding LICENSEE sales of Defined Products during the entire calendar year with respect to which the royalties are payable shall be used. Within forty-five (45) days after December 31 of each calendar year, LICENSEE shall calculate and report to UNIVERSITY the actual amount of any Royalty Limitation to which LICENSEE is entitled for the preceding calendar year and reimburse UNIVERSITY if the Royalty Limitation taken by LICENSEE for the preceding calendar year exceeds the total Royalty Limitation to which LICENSEE is entitled for such calendar year based on such calculation. If the Royalty Limitation taken by LICENSEE for such calendar year is less than the Royalty Limitation to which LICENSEE is entitled for such calendar year based on such calculation, or LICENSEE has otherwise paid royalties in excess of royalties due for such calendar year in respect to sale of Defined Products by LICENSEE, such deficiency shall be carried forward and applied to the royalty payment required from LICENSEE in respect to LICENSEE'S sale of Defined Products for the calendar quarters of the succeeding calendar year.     5.4. On or before March 31 of each year, LICENSEE shall provide to UNIVERSITY, LICENSEE's certified financial statements for the LICENSEE's preceding fiscal year including, at a minimum, a Balance Sheet and Operating Statement. Upon appropriate marking by LICENSEE as "Confidential" and the treatment by LICENSEE of such information as confidential, UNIVERSITY agrees to hold such financial statements received from LICENSEE in confidence and will not release such reports to any third parties unless required under court order or unless LICENSEE's prior written permission is obtained. No such information or other information marked "Confidential" by LICENSEE shall, however, be treated as confidential hereunder if such information: (i) is known to UNIVERSITY at the time of disclosure of such information; (ii) is or becomes generally known to the public or is routinely disclosed to other persons through no breach of this Agreement; (iii) is received from a third party without restriction on disclosure and without, to the actual knowledge of, a breach of a confidential obligation of such third party; or (iv) has or is approved for release to the general public by authorization of LICENSEE.     5.5. The royalty payments set forth in this Agreement, if overdue, shall bear interest until payment at a per-annum rate four percent (4%) above the prime rate in effect at the Chase Manhattan Bank (N.A.) or its successor on the due date. However, in no event shall any penalties hereunder exceed eighteen percent (18%) per-annum (11/2% monthly). LICENSEE shall also pay all reasonable collection costs at any time incurred by UNIVERSITY in obtaining payment of amounts past due, including reasonable attorneys' fees, whether or not any suit was commenced against LICENSEE. The payment of interest as hereinabove provided shall not foreclose UNIVERSITY from exercising any other rights it may have as a consequence of the delinquency of any payment. 6 -------------------------------------------------------------------------------- ARTICLE 6—PATENT PROSECUTION     UNIVERSITY shall apply for, prosecute and maintain, during the term of this Agreement, the United States Patent Rights Patent Applications and Patents, and such foreign Patent Rights Patent Applications and Patents as the LICENSEE may direct. The application filings, prosecution, and maintenance relating to such United States and foreign Patent Rights Patent Applications and Patents shall be the responsibility of UNIVERSITY, provided that LICENSEE shall have reasonable opportunities to advise UNIVERSITY and shall cooperate with UNIVERSITY in such application filings, prosecution and maintenance. LICENSEE shall reimburse UNIVERSITY for all reasonable fees and expenses, including reasonable legal fees, incurred by UNIVERSITY in such application filings, prosecution, maintenance and any other proceedings before the United States Patent and Trademark Office (or equivalent foreign office) in respect to the Patent Rights including the product claim thereunder. LICENSEE shall be entitled to review and comment upon all actions undertaken in the prosecution of all patents and applications for which it bears expenses. ARTICLE 7—TERMINATION     7.1. In the event an order for relief is entered against LICENSEE under the Federal Bankruptcy Code, an order appointing a receiver for substantially all of LICENSEE's assets is entered by a court of competent jurisdiction, or LICENSEE makes an assignment for the benefit of creditors, or a levy of execution is made upon substantially all of the assets of LICENSEE and such levy is not quashed or dismissed within thirty (30) days, this Agreement shall automatically terminate effective the date of such order or assignment or, in the case of such levy, the expiration of such thirty (30) day period; provided, however, that such termination shall not impair or prejudice any right or remedy that UNIVERSITY might have under this Agreement.     Should LICENSEE fail to pay UNIVERSITY royalties or expense reimbursements due and payable hereunder, UNIVERSITY shall have the right to terminate this Agreement on thirty (30) days' notice, unless LICENSEE shall pay UNIVERSITY, within the thirty (30) day period, all such royalties and interest due and payable. Upon the expiration of the thirty (30) day period, if LICENSEE shall not have paid all such royalties and interest or expense reimbursements due and payable, the rights, privileges and licenses granted hereunder shall terminate.     7.3. Upon any material breach or default of this Agreement by LICENSEE, other than those occurrences set out in Section 7.1 or 7.2 hereinabove, which shall always take precedence over any material breach or default referred to in this Section 7.3, UNIVERSITY shall have the right to terminate this Agreement and the rights, privileges and licenses granted hereunder by ninety (90) days' notice to LICENSEE. Such termination shall become effective unless LICENSEE shall have cured any such breach or default prior to the expiration of the ninety (90) day period.     7.4. LICENSEE shall have the right to terminate this Agreement at any time on ninety (90) days' notice to UNIVERSITY, and upon payment of all royalties and expense reimbursements due and payable to UNIVERSITY.     7.5. Termination of this Agreement for any reason shall not be construed to release either party from any obligation that matured prior to the effective date of such termination. LICENSEE and any sublicensee thereof may, however, after the effective date of such termination, sell all Defined Product(s) completed and in inventory, provided that royalties are paid in accordance with the provisions of Article 4.     7.6. Within thirty (30) days of the termination of this Agreement under Section 7.1, 7.2, 7.3, 7.4, or 7.5, LICENSEE shall duly account to UNIVERSITY and transfer to UNIVERSITY all rights which LICENSEE may have in or to all trade names and trademarks used to identify Defined Products and/or Licensed Processes. Provided, however, that this Section 7.6 shall not apply to any trade name or trademark employing the terms "Easy Eggs," "Justin's Farm." "Table Ready" or any adaptation thereof, or any trademark or trade name belonging to LICENSEE. 7 --------------------------------------------------------------------------------     7.7. Upon termination of this Agreement for any reason, each sublicense then in effect of any of the rights, privileges and licenses granted hereunder shall automatically terminate. LICENSEE's rights under all sublicenses shall be deemed assigned to UNIVERSITY upon termination of this Agreement, and LICENSEE agrees to execute any instrument reasonably requested to confirm such assignment. Any sublicensee not in default upon termination of this Agreement for any reason may seek a license from the UNIVERSITY.     7.8. Unless sooner terminated in accordance with the provisions herein, all licenses granted under this Agreement shall automatically terminate with the last to expire of the Patent Rights (including any extension of the expiration date by the applicable governmental authority) as defined under Section 1.3. ARTICLE 8—INFRINGEMENT OF THIRD-PARTY RIGHTS     8.1. In the event that UNIVERSITY or LICENSEE is charged with infringement of a patent by a third party or is made a party in any lawsuit as a result of LICENSEE's or a sublicensee's practice of the Patent Rights under this Agreement, LICENSEE shall: (a)defend or settle any such claim of infringement or lawsuit; (b)assume all costs, expenses, damages, and other obligations for payments incurred as a consequence of such charges of infringement or lawsuit; (c)indemnify and hold UNIVERSITY harmless from any and all damages, losses, liability, and costs resulting from a charge of infringement or lawsuit which shall be brought against UNIVERSITY and attributable to technology added to Defined Product(s) by LICENSEE or a sublicensee or manufacturing processes utilized by LICENSEE or a sublicensee; or (d)if such claim of infringement or lawsuit shall be based on patent claims contained in Patent Rights Patent or Patent Rights Patent Application, LICENSEE may decline to defend such claim of infringement or lawsuit in which case UNIVERSITY may defend, or settle the claim at its own expense, or may terminate this License Agreement upon thirty (30) days notice to mitigate any infringement damages or to comply with the terms of a settlement agreement. LICENSEE's right to withhold royalties and the distribution of proceeds as set forth in Section 9.3 herein shall apply to this Section 8.1.     8.2. UNIVERSITY shall give LICENSEE assistance in the defense of any such infringement charge or lawsuit, as may be reasonably required. ARTICLE 9—INFRINGEMENT OF UNIVERSITY'S PATENT RIGHTS BY THIRD PARTIES     9.1. LICENSEE shall inform UNIVERSITY promptly in writing of any alleged infringement and of any available evidence of infringement by a third party of any patents within the Patent Rights.     9.2. If during the term of this Agreement, LICENSEE becomes aware of any alleged infringement by a third party, LICENSEE in its sole discretion shall have the right, but shall not be obligated, to either: (a)settle the infringement dispute by sublicensing the alleged infringer or by other means; or (b)prosecute at its own expense any infringement of the Patent Rights. In the event LICENSEE prosecutes such infringement, LICENSEE may, for such purposes, request to use the name of UNIVERSITY as party plaintiff, subject to coordination of its legal action with the Attorney General of the State of North Carolina in accordance with applicable statutory requirements. Subject to the approval of the Board of Governors of North Carolina State University, UNIVERSITY may agree to become a party plaintiff. 8 --------------------------------------------------------------------------------     9.3. In the event LICENSEE shall undertake the enforcement and/or defense of the Patent Rights by litigation, including any declaratory judgment action, LICENSEE may (subject to the limitations set forth below) withhold up to *** of all royalty payments payable by LICENSEE in respect to its sales of Defined Products otherwise due UNIVERSITY in any calendar quarter under Articles 4 and 5 of this Agreement. In no event shall LICENSEE'S withholding under Section 9.3 exceed *** of the legal expenses, including reasonable attorneys' fees incurred by LICENSEE in the enforcement and/or defense of the Patent Rights commencing from and after January 1, 1999 which have not been reimbursed or recovered plus *** of the balance of any such legal expenses which were incurred prior to January 1, 1999 in accordance with the License Agreements which have not been reimbursed or recovered.     All royalty payments withheld pursuant to this Section 9.3 shall be applied by LICENSEE to offset any legal expenses, including reasonable attorneys' fees, actually incurred in the enforcement or defense of the Patent Rights including all such expenses incurred prior to the effective date hereof. LICENSEE'S right to withhold royalties shall extend only until *** of LICENSEE'S unreimbursed and unrecovered legal expenses, including reasonable attorneys' fees, incurred in the enforcement or defense of the Patent Rights from and after January 1, 1999 are reimbursed and *** of any such unreimbursed and unrecovered legal fees incurred prior to January 1, 1999 in accordance with the License Agreements are reimbursed. Any and all sums recovered by LICENSEE as a result of the infringement, whether by judgment, settlement or otherwise (including licensing arrangements), shall be applied first in satisfaction of any unrecovered and unreimbursed legal expenses including reasonable attorneys' fees of LICENSEE; second, toward reimbursement of UNIVERSITY'S legal expenses, including reasonable attorneys' fees relating to the enforcement or defense of the Patent Rights, which have not been previously reimbursed or recovered; and third toward reimbursement of UNIVERSITY for any amounts past due or withheld in accordance with this Article 9 or predecessor provisions under the License Agreements. The balance, if any, remaining from any such recovery shall be distributed to LICENSEE; provided, that LICENSEE shall pay to UNIVERSITY *** of such balance within thirty (30) days of receipt thereof. Such payments to the UNIVERSITY or LICENSEE shall be independent for all purposes of the computation of royalties (including in respect to Royalty Limitations if applicable) otherwise payable under Article 4. LICENSEE shall be entitled to settle any such litigation by agreement, consent judgment, voluntary dismissal or otherwise, with the written consent of the UNIVERSITY, which shall not be unreasonably withheld; provided, however, that LICENSEE hereby agrees to advise UNIVERSITY as soon as practicable after it has entered into any settlement discussions so that UNIVERSITY has a reasonable opportunity to provide LICENSEE with its views on any proposed settlement of any such action or proceeding.     9.4. In the event LICENSEE does not undertake action to prevent the infringing activity within three (3) months of having been made aware and notified thereof, UNIVERSITY shall have the right, but shall not be obligated, to prosecute at its own expense any such infringements of the Patent Rights and, in furtherance of such right, LICENSEE may join UNIVERSITY as a party plaintiff in any such suit without expense to LICENSEE. The total cost of any such infringement action commenced or defended solely by UNIVERSITY shall be borne by UNIVERSITY. LICENSEE shall continue royalty payments to UNIVERSITY. Any recovery of damages by UNIVERSITY for any infringement shall be applied first in satisfaction of any unreimbursed expenses and attorneys' fees of UNIVERSITY relating to the suit, and second toward reimbursement of LICENSEE's reasonable expenses, including reasonable attorneys' fees, relating to the suit. The balance remaining from any such recovery shall be distributed to UNIVERSITY.     9.5. In any infringement suit as either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, informations, samples, specimens, and the like. -------------------------------------------------------------------------------- *** Redacted text. 9 --------------------------------------------------------------------------------     9.6. LICENSEE shall have the sole right in accordance with the terms and conditions herein to sublicense any alleged infringer under the Patent Rights for future infringements.     9.7. Any of the foregoing notwithstanding, if, at any time during the term of this Agreement, any of the Patent Rights are held invalid or unenforceable, LICENSEE shall have no further obligation to UNIVERSITY with respect to its future use or sale of any product or process covered solely by such Patent Rights, including the obligation of paying royalties. Nevertheless, LICENSEE shall not have a damage claim or a claim for refund or reimbursement against the UNIVERSITY. ARTICLE 10—PRODUCT LIABILITY     10.1. LICENSEE shall at all times during the term of this Agreement indemnify, defend and hold UNIVERSITY, its trustees, officers, employees and affiliates, harmless against all claims and expenses, including legal expenses and reasonable attorneys' fees, arising out of the death of or injury to any person or persons or out of any damage to property and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from utilization of the Patent Rights or unpublished Know-How in the production, manufacture, sales, use, lease, consumption or advertisement of the Defined Products and/or Licensed Processes by LICENSEE and its sublicensees or arising from any obligations of LICENSEE hereunder, except for any claims or expenses arising out of the negligence or willful misconduct of UNIVERSITY or its officers, agents or employees. The parties acknowledge that the UNIVERSITY's liability under this paragraph shall be subject to the sovereign immunity of the State of North Carolina and the North Carolina Tort Claims Act, to the extent such Act applies.     10.2. LICENSEE shall maintain reasonable levels of product liability insurance. UNIVERSITY shall have the right to require such insurance policies to be made available for the UNIVERSITY's inspection and shall be listed as an additional insured party by the insurer under the pertinent insurance coverage.     10.3. Except as otherwise expressly set forth in Article 12 of this Agreement, UNIVERSITY MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND VALIDITY OF PATENT RIGHTS CLAIMS ISSUED OR PENDING. ARTICLE 11—ASSIGNMENT     This Agreement may not be assigned by LICENSEE except in connection with the sale or other transfer of LICENSEE's entire business or that part of LICENSEE's business to which the license granted hereby relates. LICENSEE shall give UNIVERSITY thirty (30) days' prior notice of such assignment or transfer. Any other assignment of this License Agreement without the prior written consent of UNIVERSITY shall be void. ARTICLE 12—REPRESENTATIONS AND WARRANTIES     UNIVERSITY represents and warrants to LICENSEE that UNIVERSITY either legally or beneficially owns or controls the entire right, title and interest in and to the Patent Rights licensed hereunder; there are no options or rights in any third party to acquire any of the Patent Rights licensed hereunder. Except as set forth at Exhibit B, UNIVERSITY further represents and warrants to LICENSEE that there is, to its knowledge, no action, suit, claim, proceeding or governmental investigation pending or threatened against UNIVERSITY with respect to the Patent Rights licensed hereunder, either at law or in equity, before any court or administrative agency or before any governmental department, commission, board, bureau, agency or instrumentality, whether United States or foreign. 10 --------------------------------------------------------------------------------     LICENSEE represents and warrants that the sales information set forth at Exhibit C and the information provided pursuant to Article S is and will be accurate in all material respects. ARTICLE 13—NON-USE OF NAMES     LICENSEE shall not use the name of North Carolina State University or of any of its employees in conjunction with such employees' positions with UNIVERSITY, or any adaptation thereof, in any advertising, promotional, or sales literature without prior written consent obtained from an authorized officer of UNIVERSITY in each case, except that LICENSEE may state that it is licensed by UNIVERSITY under one or more of the patents and/or applications comprising the Patent Rights. Failure by LICENSEE to comply with this restriction shall be deemed a material breach of this Agreement pursuant to Paragraph 7.3. Such material breach shall be deemed cured if the offending use is terminated within ninety (90) days of LICENSEE's receipt of a written notice from UNIVERSITY. ARTICLE 14—EXPORT CONTROLS     It is understood that UNIVERSITY is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended, and the Export Administration Act of 1979) and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without prior approval of such agency. UNIVERSITY neither represents that a license shall not be required nor that, if required, it shall be issued. ARTICLE 15—PAYMENTS, NOTICES AND OTHER COMMUNICATIONS     Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent by one party to the other by certified, first-class mail. postage prepaid, to the address below or as may otherwise be designated in writing by the receiving party. In the case of UNIVERSITY: Mark Crowell Associate Vice Chancellor Technology Transfer and Industry Research North Carolina State University Box 7003 Raleigh, NC 27695-7003 In the case of LICENSEE: Chief Executive Officer Michael Foods, Inc. 324 Park National Bank Building 5353 Wayzata Boulevard Minneapolis, MN 55416 ARTICLE 16—MISCELLANEOUS PROVISIONS     16.1. This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the State of North Carolina, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted. 11 --------------------------------------------------------------------------------     16.2. The parties hereto acknowledge that this Agreement supersedes all License Agreements and constitutes a merger and together with the recitals and exhibits hereto which are incorporated herein sets forth the entire agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto.     16.3. The provisions of this Agreement are severable, and in the event that any provision of this Agreement shall be determined to be invalid or unenforceable under any controlling body of law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof.     16.4. The parties understand and agree that where any provisions of this Agreement are in violation of any of the laws and/or regulations of the United States Government and/or the State of North Carolina, such provision(s) shall be automatically rendered null and void, and such provisions will be modified to the extent necessary to be enforceable and substituted for the unenforceable or violative provision(s).     16.5. LICENSEE agrees to mark the Defined Product(s) sold in the United States with all applicable United States patent numbers. All Defined Product(s) shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practices of the country of manufacture or sale.     16.6. LICENSEE shall be solely responsible for the payment and discharge of any taxes or duties relating to any transaction of LICENSEE, its employees, contractors, agents, or sublicensees, in connection with the manufacture, use, or sale in any country of the Defined Product(s) or Licensed Processes.     16.7. The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party.     16.8. All terms and conditions of this Agreement regarding business matters including but not limited to royalties or other payments shall be held in confidence by each party to the extent permitted by law unless authorized in writing by the other party subject to the exceptions to confidential information set forth at 5.4.     16.9. This Consolidated, Restated and Amended License Agreement shall be effective as o f January 1, 1999.     16.10. The UNIVERSITY and LICENSEE agree to exercise good faith and best efforts to: keep the other fully informed concerning the status of the Patent Rights and the claims thereunder; and assist in the advancement, prosecution and protection of such Patent Rights and the claims thereunder. Each party will respond in respect to any consent which may be required hereunder within seven (7) business days of receipt of sufficient information from the other party which is reasonably necessary to an informed decision thereon.     16.11. Time shall be of the essence in all things pertaining to the performance of this Agreement. 12 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and duly executed this Agreement effective as of the date first above written. SIGNATURE PAGE FOLLOWS               NORTH CAROLINA STATE UNIVERSITY   MICHAEL FOODS, INC.   By:       -------------------------------------------------------------------------------- Charles Moreland. Vice Chancellor       By:       -------------------------------------------------------------------------------- Jeff Shapiro, Vice President   Dated:       June 9, 2000       Dated:         13 -------------------------------------------------------------------------------- EXHIBIT A IDENTIFICATION OF MANUFACTURERS OF INFRINGING COMPETITIVE PRODUCTS UNDER ARTICLE 4 Cutler Egg Products, Inc. Nulaid Foods, Inc. Rose Acres Farms, Inc. Wilcox Farms, Inc. Willamette Egg Farms, Inc. Sunny Fresh Foods, division of Cargill, Inc. 14 -------------------------------------------------------------------------------- EXHIBIT B DISCLOSURE OF ACTIONS AND PROCEEDINGS REGARDING PATENT RIGHTS UNDER ARTICLE 12 Pending Suit:     Nulaid Foods, Inc., Valley Fresh Foods, Inc., and Nulaid-Nest Best v. Michael Foods, Inc. and North Carolina State University; Michael Foods, Inc. and North Carolina State University v. Nulaid Foods, Inc., Valley Fresh Foods, Inc., and Nulaid-Nest Best, U.S. District Court, Eastern District of California; Case No. CIV-S-93-1314 WBS(PAN) Threatened Suit:     Sunny Fresh Foods, Inc. v. Michael Foods and North Carolina State University, U.S. District Court, District of Minnesota, Fourth Division, Case No. 4-92-635, to be initiated upon issuance of Notice of Allowance by the United States Patent and Trademark Office of a Reissue Patent relating to U.S. Patent No. 5,019,408. Pending Agency Proceedings:     U.S. Patent No. 4,808,425, awaiting formal issuance of a Reexamination Certificate by United States Patent and Trademark Office     U.S. Patent No. 5,019.408, awaiting action by Examiner Weier consistent with decision of United States Patent and Trademark Office Board of Appeals. Pending are protests filed by: 1/5/95 Papetti Protest; 1/18/95 Papetti Rule 1.182 Protest; 1/24/95 Whale; 1/26/95 Sharpe; 1 /27/95 Low Rule 1.182 Protest; 1 /31 /95 Nulaid Protest; 1 /31 /95 Low Protest; 2/9/95 Papetti Supplemental Protest; 2/16/95 Cutler Protest by Oblon; 3/7/95 Papetti Second Supplemental Protest; 4/18/95 Papetti's Revision to Second Supplemental Protest; 7/11/95 Papetti Revised Second Supplemental Protest; 9/5/95 Nulaid Protest; 9/28/95 Papetti Petition 1.182; 10/6/95 Nulaid 1.291 and 1.182 Supplemental Protests; 11/9/95 United Egg Association Protest by Forman; 12/18/95 Nulaid Protest; 1/9/96 Sunny Fresh Protest by Jones; and 12/14/99 Sunny Fresh Protest. 15 -------------------------------------------------------------------------------- EXHIBIT C MICHAEL FOODS, INC. REPRESENTATION OF EASY EGGS© AND TABLE READY™ EGG PRODUCTS SOLD BY QUARTER (IN POUNDS) FOR CALENDAR YEARS 1997  - 1999         Easy Eggs© --------------------------------------------------------------------------------   Table Ready™ --------------------------------------------------------------------------------   Total -------------------------------------------------------------------------------- lst Qtr 1997       50,025,736   10,200,875 * 60,226,611 2nd Qtr 1997       52,155,700   29,064,619   81,220,319 3rd Qtr 1997       54,843,138   28,957,769   83,800,907 4th Qtr 1997       57,388,977   33,077,341   90,466,318         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     1997   214,413,551   101,300,604   315,714,155         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- lst Qtr 1998       50,815,929   30,551,037   81,366,966 2nd Qtr 1998       53,160,509   32,190,988   85,351,497 3rd Qtr 1998       51,440,445   30,392,205   81,832,650 4th Qtr 1998       48,674,374   29,822,311   78,496,685         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     1998   204,091,257   122,956,541   327.047,798         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 1st Qtr 1999       43,594,536   29,117,140   72,711,676 2nd Qtr 1999       46,518,970   30,761,864   77,280,834 3rd Qtr 1999       46,152,760   32,136,786   78,289,546 4th Qtr 1999       46,341,802   34,304,884   80,646,686         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     1999   182,608,068   126,320,674   308,928,742         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   Total All Years               601,112,876       350,577,819       951,690,695         --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- *Papetti's Hygrade Egg Products was acquired on February 26, 1997, therefore the first quarter of 1997 is for the month of March only. 16 -------------------------------------------------------------------------------- QUICKLINKS CONSOLIDATED. RESTATED AND AMENDED LICENSE AGREEMENT ARTICLE 1—DEFINITIONS ARTICLE 2—GRANT ARTICLE 3—BEST EFFORTS; USE OF PATENT RIGHTS ARTICLE 4—ROYALTIES ARTICLE 5—PAYMENT, REPORTS AND RECORDS ARTICLE 6—PATENT PROSECUTION ARTICLE 7—TERMINATION ARTICLE 8—INFRINGEMENT OF THIRD-PARTY RIGHTS ARTICLE 9—INFRINGEMENT OF UNIVERSITY'S PATENT RIGHTS BY THIRD PARTIES ARTICLE 10—PRODUCT LIABILITY ARTICLE 11—ASSIGNMENT ARTICLE 12—REPRESENTATIONS AND WARRANTIES ARTICLE 13—NON-USE OF NAMES ARTICLE 14—EXPORT CONTROLS ARTICLE 15—PAYMENTS, NOTICES AND OTHER COMMUNICATIONS ARTICLE 16—MISCELLANEOUS PROVISIONS EXHIBIT A IDENTIFICATION OF MANUFACTURERS OF INFRINGING COMPETITIVE PRODUCTS UNDER ARTICLE 4 Cutler Egg Products, Inc. Nulaid Foods, Inc. Rose Acres Farms, Inc. Wilcox Farms, Inc. Willamette Egg Farms, Inc. Sunny Fresh Foods, division of Cargill, Inc. EXHIBIT B DISCLOSURE OF ACTIONS AND PROCEEDINGS REGARDING PATENT RIGHTS UNDER ARTICLE 12 EXHIBIT C MICHAEL FOODS, INC. REPRESENTATION OF EASY EGGS© AND TABLE READY™ EGG PRODUCTS SOLD BY QUARTER (IN POUNDS) FOR CALENDAR YEARS 1997 - 1999

EXHIBIT 10.4 NOTE September 15, 2000 Minneapolis, Minnesota $10,000,000     The undersigned, for value received, promises to pay to the order of Harris Trust and Savings Bank (the "Bank") at the principal office of LaSalle Bank National Association (the "Agent") in Chicago, Illinois the aggregate unpaid amount of all Loans made to the undersigned by the Bank pursuant to the Credit Agreement referred to below (as shown on the schedule attached hereto (and any continuation thereof) or in the records of the Bank), such principal amount to be payable on the dates set forth in the Credit Agreement.     The undersigned further promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such Loan is paid in full, payable at the rate(s) and at the time(s) set forth in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America.     This Note evidences indebtedness incurred under, and is subject to the terms and provisions of, the Credit Agreement, dated as of September 15, 2000 (as amended or otherwise modified from time to time, the "Credit Agreement"; terms not otherwise defined herein are used herein as defined in the Credit Agreement), among the undersigned, certain financial institutions (including the Bank) and the Agent, to which Credit Agreement reference is hereby made for a statement of the terms and provisions under which this Note may or must be paid prior to its due date or its due date accelerated.     This Note is made under and governed by the laws of the State of Minnesota applicable to contracts made and to be performed entirely within such State.     Fargo Electronics, Inc.           By:   /s/ GARY R. HOLLAND    -------------------------------------------------------------------------------- Gary R. Holland --------------------------------------------------------------------------------     Title: President and CEO -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

Exhibit 10.3 AMENDMENTS TO THE FIRST MIDWEST BANCORP, INC. 1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED   The First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan is hereby further amended as follows: 1. Section 2.1(h) is amended to read: "Employee" means a regular salaried employee (including officers and directors who are also employees) of the Company or its Subsidiaries, or any branch or division thereof. A regular salaried employee who, with the approval of the Board of Directors or the Committee enters into a Continuing Participant Agreement with the Company or its Subsidiaries effective upon such person ceasing to be a regular salaried employee, shall continue to be an Employee for purposes of the 1989 Omnibus Stock and Incentive Plan ("Plan") and shall not be deemed to incur a termination of employment during the term of such Continuing Participant Agreement. 2. Sections 7.8 and 7.9 are amended to read: 7.8 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of a Participant is terminated by reason of death, Disability, or Retirement, any outstanding Options then exercisable may be exercised at any time prior to the expiration date of the Options or within three (3) years after such date of termination of employment, whichever period is the shorter. For purposes of the preceding sentence, in the event such termination is due to death or Disability, then any outstanding Options shall vest 100% and be deemed exercisable in full as of such termination. However, in the case of Incentive Stock Options, the favorable tax treatment prescribed under Section 422A of the Code shall not be available if such options are not exercised within three (3) months after date of termination, or twelve (12) months in the case of Disability, provided such Disability constitutes total and permanent disability as defined in Section 22(c)(3) of the Code. If an Incentive Stock Option is not exercised within three (3) months of termination due to Retirement, it shall be treated as a Nonstatutory (Nonqualified) Stock Option for the remainder of its allowable exercise period.  7.9 Termination of Employment Other Than Due to Death, Disability, or Retirement. If the employment of the Participant shall terminate for any reason other than death, Disability, Retirement, or involuntarily for Cause, the rights under any than outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or one month after such date of termination of employment, whichever first occurs; provided, however, that in the event such termination of employment occurs after a Change-in-Control (as defined in Section 13.2 of the Plan), the rights under any then outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or three years after such date of termination of employment, whichever first occurs. Where termination of employment is involuntarily for Cause, rights under all Options shall terminate immediately upon termination of employment.   * * * * * The foregoing Amendments to the 1989 Omnibus Stock and Incentive Plan, As Amended, were duly adopted and approved by the Board of Directors of the Company on May 17, 2000 and June 21, 2000, and shall be effective as of June 21, 2000.       /s/ BARBARA E. BRIICK _________________________________________ Barbara E. Briick Secretary of the Company     (Seal)

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10(q) MANAGEMENT AGREEMENT     AGREEMENT made as of this 1st day of September, 1996 by and between Minntech Corporation, a Minnesota corporation, with its principal executive office at Plymouth, Minnesota ("Company") and Robert W. Johnson residing at 5332 Matterhorn Drive, Fridley, Minnesota 55421 (the "Executive").     WHEREAS, Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of Company and its shareholders; and     WHEREAS, the Executive is expected to continue to make a significant contribution to the profitability, growth and financial strength of Company; and     WHEREAS, Company, as a publicly held corporation, recognizes that the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of the Executive in the performance of the Executive's duties to the detriment of Company and its shareholders; and     WHEREAS, the Executive is willing to continue to be an employee of Company upon the understanding that Company will provide income security if the Executive's employment is terminated under certain terms and conditions; and     WHEREAS, it is in the best interests of Company and its shareholders to reinforce and encourage the continued attention and dedication of management personnel, including the Executive, to their assigned duties without distraction and to increase the likelihood of the continued availability to Company of the Executive in the event of a Change in Control.     THEREFORE, in consideration of the foregoing and other respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:     1.  Term of Agreement.  This Agreement shall commence on the date hereof and shall continue in effect until such time as Company notifies the Executive or the Executive notifies Company of termination of this Agreement; provided, however, that in no event may this Agreement be terminated prior to two years from the date hereof, and notice of termination on the second or any subsequent anniversary date hereof must be given by Company in writing mailed to the Executive at his or her last known address within 60 days prior to such anniversary date or by the Executive by notice in writing mailed to Company at the principal executive office of Company within 60 days prior to such anniversary date. If no such notice is given, then the term of this Agreement shall be extended for additional periods of one year. Notwithstanding the preceding sentence, if a Change in Control occurs during the term of this Agreement (including any extension hereof), this Agreement shall continue in effect for a period of 36 months from the date of the occurrence of a Change in Control. Except as provided in Section 2(b) or Section 3(e) of this Agreement, nothing stated herein shall limit the right of the Executive or Company to terminate the employment of the Executive with Company at any time prior to the expiration of the term of this Agreement, with or without Cause (as defined in Section 3(b) of this Agreement) and for any reason whatsoever, subject to the right of the Executive to receive any payment and other benefits that may be due pursuant to the terms and conditions of Section 4 of this Agreement.     2.  Change in Control.  No amounts shall be payable hereunder unless a Change in Control, as set forth below, shall occur during the term of this Agreement.     (a) For purposes of this Agreement, a "Change in Control" of Company shall be deemed to occur if any of the following occur:      (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the "Exchange Act")) acquires or becomes a "beneficial owner" (as defined in Rule 13d-3 or any successor rule under the Exchange Act), directly or indirectly, of securities of Company representing 30% or -------------------------------------------------------------------------------- more of the combined voting power of Company's then outstanding securities entitled to vote generally in the election of directors ("Voting Securities"), provided, however, that the following shall not constitute a Change in Control pursuant to this Section 2(a)(i):     (A) any acquisition or beneficial ownership by Company or a subsidiary of Company;     (B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by Company or one or more of its subsidiaries;     (C) any acquisition or beneficial ownership by any corporation with respect to which, immediately following such acquisition, more than 70% of both the combined voting power of Company's then outstanding Voting Securities and the common stock of Company is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and common stock of Company immediately prior to such acquisition in substantially the same proportions as their ownership of such Voting Securities and common stock, as the case may be, immediately prior to such acquisition;     (ii) A majority of the members of the Board of Directors of Company shall not be Continuing Directors. For purposes of this subsection 2(a)(ii), "Continuing Directors" shall mean: (A) individuals who, on the date hereof, are directors of Company, (B) individuals elected as directors of Company subsequent to the date hereof for whose election proxies shall have been solicited by the Board of Directors of Company or (C) any individual elected or appointed by the Board of Directors of Company to fill vacancies on the Board of Directors of Company caused by death or resignation (but not by removal) or to fill newly-created directorships;     (iii) Approval by the shareholders of Company of a reorganization, merger or consolidation of Company (other than a merger or consolidation with a subsidiary of Company) or a statutory exchange of outstanding Voting Securities of Company, unless immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and common stock of Company immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 70% of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and common stock of Company, as the case may be;     (iv) Approval by the shareholders of Company of (x) a complete liquidation or dissolution of Company or (y) the sale or other disposition of all or substantially all of the assets of Company (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 70% of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of the Voting Securities and common stock of Company immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Voting Securities and common stock of Company, as the case may be; or 2 --------------------------------------------------------------------------------     (v) Company enters into a letter of intent, an agreement in principle or a definitive agreement relating to a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) above that ultimately results in such a Change in Control or a tender or exchange offer or proxy contest is commenced which ultimately results in a Change in Control described in Section 2(a)(i) or 2(a)(ii) hereof. Notwithstanding the above, a Change in Control shall not be deemed to occur with respect to the Executive if (x) the acquisition or beneficial ownership of the 30% or greater interest referred to in Section 2(a)(i) is by the Executive or by a group, acting in concert, that includes the Executive or (y) if a majority of the then combined voting power of the then outstanding voting securities (or voting equity interests) of the surviving corporation or of any corporation (or other entity) acquiring all or substantially all of the assets of Company shall, immediately after a reorganization, merger, consolidation, statutory share exchange or disposition of assets referred to in Section 2(a)(iii) or 2(a)(iv), be beneficially owned, directly or indirectly, by the Executive or by a group, acting in concert, that includes the Executive.     (b) The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Change in Control of Company described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv), occurring after the date hereof, the Executive, if employed by Company immediately prior to such a Change in Control, will not voluntarily terminate employment with Company except for Good Reason for a period of 90 days after the occurrence of such a Change in Control of Company.     (c) For purposes of this Agreement, a "subsidiary" of Company shall mean any entity of which securities or other ownership interests having general 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 Company.     3.  Termination Following Change in Control.  If a Change in Control shall occur during the term of this Agreement, the Executive shall be entitled to the payments and other benefits provided in subsection 4(d) in the event of the termination of the Executive's employment with Company unless the Executive's termination is (A) because of the Executive's death, (B) by Company for Cause or Disability, or (C) by the Executive other than for Good Reason.     (a)  Disability.  If, as a result of incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with Company for six consecutive months, and within 30 days after written Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties, Company may terminate the Executive's employment for "Disability". Any question as to the existence of the Executive's Disability upon which the Executive and Company cannot agree shall be determined by a qualified independent physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by any adult member of the Executive's immediate family), and approved by Company. The determination of such physician made in writing to Company and to the Executive shall be final and conclusive for all purposes of this Agreement.     (b)  Cause.  Termination of the Executive's employment for "Cause" shall mean termination upon the conviction of the Executive by a court of competent jurisdiction for felony criminal conduct.     (c)  Good Reason.  Termination by the Executive for "Good Reason" shall mean termination by the Executive if, without the Executive's express written consent, any of the following shall occur:      (i) the assignment to the Executive of any duties inconsistent with the Executive's status or position with Company, or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; 3 --------------------------------------------------------------------------------     (ii) a reduction by Company in the Executive's annual base salary in effect immediately prior to a Change in Control;     (iii) the relocation of Company's principal executive offices to a location more than fifty miles from Plymouth, Minnesota or Company requiring the Executive to be based anywhere other than Company's principal executive office (or if the Executive is based at a location other than Company's principal executive office immediately prior to the first Change in Control, anywhere other than such location) except for required travel on Company's business to an extent substantially consistent with the Executive's prior business travel obligations;     (iv) the failure by Company to continue to provide the Executive with benefits at least as favorable to those enjoyed by the Executive under any of Company's pension, life insurance, medical, health and accident, disability, deferred compensation, incentive awards, employee stock options, or savings plans in which the Executive was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed at the time of the Change in Control, or the failure by Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of the Change in Control, provided, however, that Company may amend any such plan or programs as long as such amendments do not reduce any benefits to which the Executive would be entitled upon termination;     (v) a termination pursuant to Section 3(d) of this Agreement;     (vi) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6; or    (vii) any purported termination of the Executive's employment which is not made pursuant to a Notice of Termination satisfying the requirements of subsection (e) below; for purposes of this Agreement, no such purported termination shall be effective.     (d)  Voluntary Termination Deemed Good Reason.  Notwithstanding anything herein to the contrary, during the period commencing on the 91st day following a Change in Control under Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) of this Agreement and ending on the 180th day following such a Change in Control, the Executive may voluntarily terminate his or her employment for any reason, and such termination shall be deemed "Good Reason" for all purposes of this Agreement. In the event of such voluntary termination pursuant to this subsection 3(d)), the multiple applied to the Severance Payment (as defined in Section 4(d)), if any, payable to the Executive pursuant to subsection 4(d)(ii) below shall be reduced by 50%.     (e)  Notice of Termination.  Any purported termination of the Executive's employment by Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment.     (f)  Date of Termination.  For purposes of this Agreement, "Date of Termination" shall mean:      (i) if the Executive's employment is terminated for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such 30 day period); and     (ii) if the Executive's employment is terminated pursuant to subsections (b), (c) or (d) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (b) above, shall not be 4 -------------------------------------------------------------------------------- less than 10 days, and, in the case of a termination pursuant to subsection (c) or (d) above, shall not be less than 10 nor more than 30 days, respectively, from the date such Notice of Termination is given).     (g)  Dispute of Termination.  If, within 10 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, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, Company shall continue to pay the Executive full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and, except as provided in Section 4(d)(v), shall not be offset against or reduce any other amounts under this Agreement.     4.  Compensation Upon Termination or During Disability.  Upon termination of the Executive's employment (or, with respect to Section 4(a), during a period of Disability) following a Change in Control, as defined in Section 2(a), of Company or if there shall be a termination by Company of the Executive's employment prior to a Change in Control, or the Executive shall terminate employment with Company for Good Reason prior to a Change in Control (for which purpose the references in Section 3(c) to changes from circumstances existing immediately prior to or at the time of a Change in Control that constitute Good Reason for termination shall instead be deemed to be references to circumstances existing immediately prior to or at the time that the Change in Control is first anticipated), and the Executive reasonably demonstrates that such termination by Company or event constituting Good Reason for termination by the Executive (x) was requested by a third party that had previously taken other steps reasonably calculated to result in a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) and ultimately resulting in such a Change in Control following termination of the Executive's employment or (y) otherwise arose in connection with or in anticipation of a Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) that ultimately occurs following termination of the Executive's employment, the Executive shall be entitled to the following benefits:     (a) Except as provided in Section 4(b), during any period that the Executive fails to perform full-time duties with Company as a result of Disability, Company shall pay the Executive the base salary of the Executive at the rate in effect at the commencement of any such period, until such time as the Executive is determined to be eligible for long term disability benefits in accordance with Company's insurance programs then in effect.     (b) If the Executive's employment shall be terminated by Company for Cause or Disability or by the Executive, following a Change in Control, other than for Good Reason, Company shall pay to the Executive his or her full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and Company shall have no further obligation to the Executive under this Agreement.     (c) If the Executive's employment shall be terminated by Company for Cause or Disability, or is terminated by reason of death, Company shall immediately cause to be commenced payment to the Executive (or the Executive's designated beneficiaries or estate, if no beneficiary is designated) 5 -------------------------------------------------------------------------------- of any and all benefits to which the Executive is entitled, if any, under Company's insurance programs then in effect.     (d) Except for termination of the Executive's employment with Company by reason of death, if the Executive's employment with Company shall be terminated (A) by Company other than for Cause or Disability or (B) by the Executive for Good Reason, then the Executive shall be entitled to the benefits provided below:      (i) Company shall pay the Executive the Executive's full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given.     (ii) In lieu of any further salary payments for periods subsequent to the Date of Termination, Company shall pay as a severance payment (the "Severance Payment") an amount equal to (A) one (1) times (subject to reduction pursuant to Section 3(d) in the event of a termination of employment by the Executive pursuant to Section 3(d)) the average of the annual compensation which was paid to the Executive by Company (or any corporation affiliated with Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code")) and includible in the Executive's gross income for federal income tax purposes for the shorter of the period consisting of (1) the five most recently completed taxable years of the Executive ending before the earlier of the first Change in Control (for which purpose the first Change in Control shall not be deemed to be a Change in Control pursuant to Section 2(a)(v) unless the Executive's termination of employment with Company occurs prior to the first Change in Control pursuant to Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or (2) that portion of such five-year period during which the Executive was employed by Company, less (B) $1.00. Such average shall be determined in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto. The Severance Payment shall be made in full within 60 days after termination of employment. Such Severance Payment shall be reduced by any severance pay that the Executive receives from Company, any subsidiary of Company or any successor thereof under any other policy or agreement of Company in the event of involuntary termination of the Executive's employment.     (iii) For a 36 month period after the Date of Termination, Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving or entitled to receive immediately prior to the Notice of Termination. Benefits otherwise receivable by the Executive pursuant to this paragraph (iii) shall be reduced to the extent comparable benefits are actually received by the Executive from another employer or other third party during such 36 month period, and any such benefits actually received by the Executive shall be reported to Company.     (iv) Company shall also pay to the Executive all legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement).     (v) Notwithstanding any provision to the contrary contained herein except the last sentence of this Section 4(d)(v), if the lump sum cash payment due and the other benefits to which the Executive shall become entitled under this Section 4 hereof, either alone or together with other payments in the nature of compensation to the Executive which are contingent on a change in the ownership or effective control of Company or in the ownership of a substantial portion of the assets of Company or otherwise, would constitute a "parachute payment" as defined in Section 280G of the Code or any successor provision thereto, such lump sum payment and/or such other benefits and payments shall be reduced (but not below zero) to the largest aggregate amount as will result in no portion thereof being subject to the 6 -------------------------------------------------------------------------------- excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or being non-deductible to Company for federal income tax purposes pursuant to Section 280G of the Code (or any successor provision thereto). The Executive in good faith shall determine the amount of any reduction to be made pursuant to this Section 4(d)(v) and shall select from among the foregoing benefits and payments those which shall be reduced. No modification of, or successor provision to, Section 280G or Section 4999 subsequent to the date of this Agreement shall, however, reduce the benefits to which the Executive would be entitled under this Agreement in the absence of this Section 4(d)(v) to a greater extent than they would have been reduced if Section 280G and Section 4999 had not been modified or superseded subsequent to the date of this Agreement, notwithstanding anything to the contrary provided in the first sentence of this Section 4(d)(v).     (e) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise except as specifically provided in this Section 4.     (f)  In addition to all other amounts payable to the Executive under this Section 4, the Executive shall be entitled to receive all benefits payable to the Executive under any other plan or agreement relating to retirement benefits except as specifically provided in this Section 4.     (g) If Company fails to make any payment at the times and in the amounts specified herein, or with respect to any fringe benefits, fails to provide such benefit as specified herein, within 10 days from the date of written notice from the Executive to Company of such failure, Company shall be deemed to have waived any right to enforce any restriction on employment or non-competition provision contained in any agreement between Company and the Executive then in existence which limits the ability of the Executive to accept other employment and, thereafter, the Executive may work or consult for any person or business organization which is engaged in the design, development, assembly, manufacture, marketing or sale of any product which competes with any product of Company, or for any person or business organization which is in competition with Company, without liability to Company for such acts. A waiver of such restrictive covenant or non-competition provision shall not in any way restrict or limit the Executive's right to enforce the provisions of this Agreement, including any legal or equitable action to enforce any and all payments, rights or benefits under this Agreement, it being the intention of this subsection that such waiver shall be in addition to, not in substitution of, any other rights to which the Executive is entitled hereunder. Once waived, any such restrictive covenant or non-competition provision shall not thereafter be enforceable even though the Executive may later receive the payment, right or benefit which was the basis of the waiver of such restrictive covenant or non-competition provision.     5.  Funding of Payments.  In order to assure the performance of Company or its successor of its obligations under this Agreement, Company may deposit in trust an amount equal to the maximum payment that will be due the Executive under the terms hereof. Under a written trust instrument, the Trustee shall be instructed to pay to the Executive (or the Executive's legal representative, as the case may be) the amount to which the Executive shall be entitled under the terms hereof, and the balance, if any, of the trust not so paid or reserved for payment shall be repaid to Company. If Company deposits funds in trust, payment shall be made no later than the occurrence of the first Change in Control described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv). Company shall give notice of such a Change in Control to any such trustee upon any occurrence as defined herein. If and to the extent that the Executive becomes a beneficiary of any such funds deposited in trust, Company shall give prompt notice to the Executive, which shall include a copy of the trust instrument and amendments from time to time. The rights of the Executive under such trust instrument shall be enforceable against Company and any trustees named therein, as though the provisions of said trust were incorporated into this 7 -------------------------------------------------------------------------------- Agreement. If and to the extent there are not amounts in trust sufficient to pay the Executive under this Agreement, Company shall remain liable for any and all payments due to the Executive. In accordance with the terms of such trust, at all times during the term of this Agreement, the Executive shall have no rights, other than as an unsecured general creditor of Company, to any amounts held in trust and all trust assets shall be general assets of Company and subject to the claims of creditors of Company.     6.  Successors; Binding Agreement.       (a) 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 Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. Failure of Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from Company in the same amount and on the same terms as he would be entitled hereunder if he terminated his employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.     (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, successors, heirs, and designated beneficiaries. If the Executive should die while any amount 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 designated beneficiaries, or, if there is no such designated beneficiary, to the Executive's estate.     7.  Notice.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage pre-paid, addressed to the last known residence address of the Executive or in the case of Company, to its principal executive office to the attention of each of the then directors of Company with a copy to its Secretary, 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.     8.  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 parties. No waiver by either party hereto at any time of any breach by the other party to this Agreement 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 to similar time. No legally binding or enforceable agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof that remain in effect 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 Minnesota.     9.  Validity.  The invalidity or unenforceability or 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. MINNTECH CORPORATION   EXECUTIVE:   By       /s/ Louis C. Cosentino       /s/ Robert W. Johnson     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Its President   Robert W. Johnson 8 -------------------------------------------------------------------------------- AMENDMENT TO MANAGEMENT AGREEMENT     This AMENDMENT made as of this 1st day of April, 1997, by and between Minntech Corporation, a Minnesota corporation (the "Company") and Robert W. Johnson, a Minnesota resident (the "Executive"), as an amendment to the Management Agreement dated as of September 1, 1996, between the Company and the Executive.     WHEREAS, the Company and the Executive entered into the Management Agreement for the reasons set forth in the recitals to the Management Agreement; and     WHEREAS, for the reasons set forth in the recitals to the Management Agreement, the Company has determined that it is in the best interests of the Company and its shareholders to provide for increased payments to the Executive upon the termination of the Executive's employment in certain circumstances following a Change in Control of the Company or as otherwise set forth in the lead-in sentence to Section 4 of the Management Agreement.     THEREFORE, in consideration of the foregoing, the parties hereto agree to amend Section 4(d)(ii) of the Management Agreement in its entirety to read as follows:     (ii) In lieu of any further salary payments for periods subsequent to the Date of Termination, Company shall pay as a severance payment (the "Severance Payment") an amount equal to (A) three (3) times (subject to reduction pursuant to Section 3(d) in the event of a termination of employment by the Executive pursuant to Section 3(d)) the average of the annual compensation which was paid to the Executive by Company (or any corporation affiliated with Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code")) and includible in the Executive's gross income for federal income tax purposes for the shorter of the period consisting of (1) the five most recently completed taxable years of the Executive ending before the earlier of the first Change in Control (for which purpose the first Change in Control shall not be deemed to be a Change in Control pursuant to Section 2(a)(v) unless the Executive's termination of employment with Company occurs prior to the first Change in Control pursuant to Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or (2) that portion of such five-year period during which the Executive was employed by Company (for which purpose compensation for a partial year shall be annualized before determining average annual compensation for the period in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto), less (B) $1.00. Such average shall be determined in accordance with temporary or final regulations promulgated under Section 280G(d) of the Code or any successor provision thereto. The Severance Payment shall be made in full within 60 days after termination of employment. Such Severance Payment shall be reduced by any severance pay that the Executive receives from Company, any subsidiary of Company or any successor thereof under any other policy or agreement of Company in the event of involuntary termination of the Executive's employment.     The Management Agreement, subject only to this Amendment and any other amendments entered into in accordance with Section 8 of the Management Agreement, shall remain in full force and effect without modification. All references in the Management Agreement to "this Agreement" shall be deemed to be references to the Management Agreement as amended by this Amendment. All terms used in this Amendment which are not defined in this Amendment shall have the meanings set forth in the Management Agreement.     IN WITNESS WHEREOF, the parties hereto have signed this Amendment as of the date above written. MINNTECH CORPORATION   EXECUTIVE:   By       /s/ Thomas J. McGoldrick       /s/ Robert W. Johnson     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Its President   Robert W. Johnson -------------------------------------------------------------------------------- QUICKLINKS MANAGEMENT AGREEMENT AMENDMENT TO MANAGEMENT AGREEMENT

EXHIBIT 10.40 SHAREHOLDERS AGREEMENT         This Shareholders Agreement (the “Agreement”) made as of July 4, 2000 by and between by SanDisk Corporation, a Delaware corporation (“S”), and The Israel Corporation, an Israeli corporation (“I”). RECITALS         WHEREAS I is a shareholder of T, an Israeli corporation (the “Company”);         WHEREAS S has entered into a Share Purchase Agreement with the Company dated July 4, 2000 (the “Share Purchase Agreement”) pursuant to which S shall purchase, subject to the terms and conditions thereof, 866,551 Shares; and         WHEREAS The parties hereto desire to set forth their agreements with respect to their shareholdings in the Company.         NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, the parties hereto hereby agree as follows:         1.  Definitions         The following terms will have the meaning ascribed to them in this paragraph when used in this Agreement:               (a)  “Shares” - Ordinary Shares, par value NIS 1.00 per share, of the Company (adjusted for any reorganization, recapitalization, share split, share dividend and securities at any time issued by the Company in exchange for such shares or in connection with any distribution, merger, sale of assets, consolidation or other action by the Company). In each case in which this Agreement specifies a number of Shares such number will be subject to the adjustment described herein.               (b)  “Permitted Transferee” - any entity at least the majority of the voting rights in which is held by the transferring shareholder, provided that (i) such entity is or becomes a party to this Agreement and agrees in writing to be bound by all the provisions of this Agreement, and (ii) such transferring shareholder shall not be relieved of its obligations hereunder.               (c)  “Equity Securities” means any securities having voting rights in the election of the Board of Directors of the Company not contingent upon default, or any securities evidencing an ownership interest in the Company, or any securities convertible into or exercisable for any shares of the foregoing, or any agreement or commitment to issue any of the foregoing. For the purpose of this definition and the definitions ascribed to “Offered Shares, “Excess Offered Shares” and “Co-Sale Shares”, the restrictions on the transfer of equity securities of the Company, as set forth in Sections 3, 4 and 5 of this Agreement, shall not apply to an amount of the Company’s share capital in excess of 5.4 million shares, subject to proportionate adjustment upon stock splits, stock dividends, reclassification, recapitalization or any similar change affecting the Compan y’s share capital, provided that in the event that S fails to exercise Additional Purchase Obligation B-1 and the Optional Additional Purchase Obligations accordingly terminate, Sections 4 and 5 shall terminate and the restrictions contained in Section 3 shall apply only to 2.7 million shares. In addition, in the event that for any reason S does not exercise any series of Additional Purchase Obligations by its prescribed exercise date the amount of shares included in this definition (i.e. not in excess of 5.4 million or 2.7 million shares, as the case may be) (“Equity Securities”) shall be decreased by an equivalent amount of shares represented by such non-exercised warrants.               (d)  “Share Purchase Agreement” shall have the meaning ascribed to it in the recitals to this Agreement.               (e)  “Shareholders” means S, I, their Permitted Transferees and other parties who have joined this Agreement in accordance with Sections 6 or 9.10 to this Agreement, and which hold Shares at the date in question. --------------------------------------------------------------------------------               (f)   “Major Holder” means any Shareholder holding at least 5% of the Company’s outstanding Equity Securities and which is a party to this Agreement. For the purpose of this definition the holdings of a Shareholder and all its Permitted Transferees shall be calculated together.               (g)  “Closing” as defined in the Share Purchase Agreement.         2.  Board of Directors               2.1.  Each Shareholder hereby agrees to attend and vote (or cause to be voted) at general meetings of shareholders of the Company all of its Shares (i) to vote for the election of the following persons to the Board of Directors of the Company and for any other resolution which is necessary in order to facilitate such election and (ii) to vote against the election of any other person to the Board of Directors of the Company or against any resolution the effect of which is to prevent or impede such election, other than in accordance with this Agreement:                      2.1.1.  From the Closing and thereafter:                               (a)  1 nominee designated by S, provided that in the event that, from the date on which S exercises the Series A-3 Additional Purchase Obligations and thereafter, S and its Permitted Transferees hold together in the aggregate less than 5% of the outstanding Shares, then S shall not be entitled to designate any nominee, provided further that if subsequently S and its Permitted Transferees become together the holders of 5% of the outstanding Shares then S shall again be entitled to designate a nominee.                             (b)  2 nominees designated by I, provided that, (i) in the event that I and its Permitted Transferees hold together in the aggregate less than 10% of the outstanding shares, then I shall be entitled to designate only one nominee, provided further that if subsequently I and its Permitted Transferees become together the holders of 10% of the outstanding shares then I shall again be entitled to designate two nominees and (ii) in the event that I and its Permitted Transferees hold together in the aggregate less than 5% of the outstanding shares, then I shall not be entitled to designate any nominee, provided further that if subsequently I and its Permitted Transferees become together the holders of less than 5% of the outstanding shares then S shall again be entitled to designate a nominee.                             (c)  2 External Directors (as defined in the Israeli Companies Law - 1999 (the “Companies Law”)) recommended by the Board of Directors of T, assuming the Company is obliged under the Companies Law to nominate External Directors.                             (d)  1 other person who shall be a member of the Company’s management, including either of the Company’s co-CEOs, provided that it is understood that the two co-CEOs may alternate service on the Company’s Board of Directors at intervals to be determined by the Board (excluding the management director). In the event that the two co-CEOs do rotate service on the Board, the parties agree to cause the CEO not serving to have observer status.                             (e)  1 or 2 other person(s) who shall be designated by T’s Wafer Partners (as defined in the Share Purchase Agreement).                             (f)  Such other directors as agreed upon between I and S.                             (g)  A representative of I (who will be one of the nominees under clause (b) above) as Chairman of the Board.                      2.1.2.  Each Shareholder further agrees that in the event that any party that is entitled to nominate a director under this Agreement decides to terminate or replace such director, then the Shareholders shall vote (or cause to be voted) all of his or its Shares to cause the termination of office or the replacement of such director, in accordance with the decision of the Shareholder who nominated such director pursuant to the provisions of this Section 2.1, and cause, if required, a general meeting of shareholders of the Company to be held for such purpose.               2.2.  (a)  S undertakes upon itself, for as long as it is entitled to nominate a director to the Board of Directors, as specified above, not to nominate to the Board of Directors of the Company a director who is an employee or consultant of the Company. --------------------------------------------------------------------------------                      (b)  I undertakes upon itself for as long as it is entitled to nominate a director to the Board of Directors, as specified above, not to nominate to the Board of Directors of the Company a director who is an employee or consultant of the Company.               2.3.  In the event that the number of nominees to the Board of Directors which a party is entitled to nominate is decreased or terminated as per Section 2.1 above, the respective Shareholder who nominated such director agrees to lawfully cause such director to immediately resign from the Board of Directors and in the absence of such resignation within 24 hours of such decrease or termination, all the Shareholders agree to take such action as is necessary to cause a general meeting of shareholders of the Company to be assembled, and to vote all their Shares in order to remove such director from the Board of Directors. In each such case the number of members of the Board of Directors shall decrease accordingly.         3.  Restrictions on Transfer of Equity Securities.               3.1.  From the date of this Agreement and until the end of three years from the Closing (the “Restricted Period”) neither I and any of its Permitted Transferees nor S and any of its Permitted Transferees shall sell, assign, transfer, pledge, hypothecate, or otherwise encumber or dispose of in any way (hereinafter referred to as “Transfer”), all or any part of or any interest in the Equity Securities now or hereafter owned or held by such parties.               3.2.  Notwithstanding Section 3.1 hereof, during the Restricted Period (i) I and its Permitted Transferees may transfer up to an aggregate of 1,200,000 Shares and (ii) S and its Permitted Transferees, to the extent S holds in excess of 2.7 million shares, may transfer up to 1,200,000 shares in excess of its holding of 2.7 million shares, subject to the following restrictions: (a) any Transfer made other than in accordance with clause (b) shall be effected only after compliance with Section 4 hereof; and (b) any Transfer made by sale of Shares in the public markets pursuant to and in accordance with Rule 144 under the Securities Act (a “Public Sale”) shall be effected only after the Shareholder offering to effect the Public Sale shall have given the other Major Holders, at least two business days prior to the proposed Public Sale, written notice setting forth its intention to Tr ansfer, the number of Shares proposed to be Transferred and the manner of disposition; the other Major Holders may, by written notice to the Shareholder proposing to make the Public Sale served on such Shareholder at least 12 hours prior to the Public Sale, exercise a right of first refusal to purchase all or any part of the Shares proposed to be Transferred in the Public Sale at a price per share equal to the average closing price of the Shares in the seven trading days preceding the date of the notice. Any Shares with respect to which the other Major Holders have not exercised such right of first refusal, may be Transferred in accordance with such notice of Public Sale within a period of 45 days after the date of the notice of Public Sale at such price per share as determined by the Shareholder effecting such Public Sale.               3.3.  From the end of the Restricted Period any Transfer by I and any of its Permitted Transferees and by S and any of its Permitted Transferees may only be made pursuant to the provisions of Sections 4 and 5 below.         4.  Rights of First Refusal.               4.1.  Transfer Notice. Subject to the provisions of Section 3, if at any time, any Shareholder proposes to Transfer Equity Securities to one or more third parties pursuant to an understanding with such third parties (a “Disposition”), then such Shareholder (a “Selling Shareholder”) shall give the Company and each of the Major Holders, a written notice of its intention to effect the Disposition (the “Transfer Notice”), which Transfer Notice shall include (i) a description of the Equity Securities to be transferred (“Offered Shares”), (ii) the identity of the prospective transferee(s) and (iii) the consideration and the material terms and conditions upon which the proposed Disposition is to be made. The Transfer Notice shall certify that the Selling Shareholder has received a firm offer from the prospective transferee(s) and in go od faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Disposition. Notwithstanding the foregoing, in the event that any Shareholder proposes to pledge Shares to a banking institution, such pledge shall be permitted only if such Shareholder effects the pledge subject to the provisions of Sections 4 and 5 hereof, furnishes to the other parties hereto a written representation of the Shareholder confirming that, and evidence which is reasonably satisfactory to indicate that, such pledge is subject to Sections 4 and 5 and ensures that no voting rights with respect to the Shares are granted to the banking institution. 3 --------------------------------------------------------------------------------               4.2.  Major Holders’ Option. Each Major Holder shall have an option for a period of thirty (30) days from its receipt of the Transfer Notice to elect to purchase its respective pro rata share of the Offered Shares, and in the event that any other Major Holder does not exercise its right hereunder, its pro rata share of such Offered Shares not purchased by the other Major Holders (the “Excess Offered Shares”), at the same price and subject to the same terms and conditions as described in the Transfer Notice. Each Major Holder may exercise such purchase option and, thereby, purchase all or any portion of its pro rata share of the Offered Shares, and in the event that any Major Holder does not exercise its right hereunder, its pro rata share of the Excess Offered Shares, by notifying the Selling Shareholder and the Company in writing, before expiration of the thirty (30) day period as to the number of Offered Shares and Excess Offered Shares, if any, which it wishes to purchase (the “Purchase Notice”). Failure to respond to the Transfer Notice: (a) within the applicable period will be considered a waiver of the right to exercise the right set forth in this Section 4.2; and (b) within forty-five days after receipt of the Transfer Notice will be considered a waiver of the right of co-sale set forth in Section 5.1, provided that the Transfer Notice clearly references such right of co-sale. Each Major Holder’s pro rata share of the Offered Shares, or of the Excess Offered Shares, as the case may be, shall be a fraction of the Offered Shares, or of the Excess Offered Shares, as the case may be, of which the number of Shares owned by such Major Holder on the date of the Transfer Notice shall be the numerator and the total number of Shares held by all such Major Holders (excluding the Selling Shareholder) on the date of the Transfer Notice shall be the denominator.               4.3.  If Major Holder(s) give the Selling Shareholder(s) Purchase Notice(s) pursuant to Section 4.2 above with respect to all and not part of the Offered Shares, then the Selling Shareholder shall not effect the Disposition to the third party transferee rather to the Major Holder(s) exercising their right of first refusal and then payment for the Offered Shares shall be by check or wire transfer to a bank account to be designated by the Selling Shareholder, against delivery of the Offered Shares to be purchased at a place agreed upon between the parties and at the time of the scheduled closing therefor, which shall be no later than forty five (45) days after the Selling Shareholders’ receipt of the Purchase Notice, unless the Transfer Notice contemplated a later closing with the prospective third party transferee(s) in which case the closing of the purchase by the Major Holding may b e held until such later date.               4.4.  Each Major Holder shall be entitled to apportion Offered Shares to be purchased among its Permitted Transferees, provided that such Purchaser notifies the Selling Shareholder of such allocation.               4.5.  The rights of first refusal set forth in this Section 4 shall extend until the two-year anniversary of the Closing and be automatically renewed for two additional years unless the parties hereto agree, prior to the second anniversary of the Closing, to terminate such rights.         5.  Right of Co-Sale.               5.1.  To the extent the Major Holders do not exercise their right of first refusal in respect of all of the Offered Shares pursuant to Section 4 above, then S and I, each, (a “Co-Sale Holder” for purposes of this Section 5) shall be entitled to notify the Selling Shareholder in writing in the Purchase Notice referred to in Section 4.2 and subject to the terms thereof and shall have the right to participate in the Disposition on the same terms and conditions as specified in the Transfer Notice. Such selling Co-Sale Holder’s notice to the Selling Shareholder shall indicate the number of shares of Equity Securities the Co-Sale Holder wishes to sell under its right to participate.               5.2.  Each Co-Sale Holder may sell all or any part of that number of Offered Shares equal to the product obtained by multiplying (i) the aggregate number of Offered Shares by (ii) a fraction, the numerator of which is the number of Shares owned by the Co-Sale Holder on the date of the Transfer Notice and the denominator of which is the total number of Shares owned by all of the Co-Sale Holders and the Selling Shareholder on the date of the Transfer Notice (the “Co-Sale Shares”).               5.3.  Each Co-Sale Holder shall effect its participation in the sale by promptly delivering to the Selling Shareholder for Transfer to the prospective purchaser one or more transfer deeds, properly executed for Transfer, which represent the number of Offered Shares which such Co-Sale Holder elects to sell. The transfer deeds that the Co-Sale Holder delivers to the Selling Shareholder as provided above shall be transferred to the prospective purchaser in consummation of the sale of the Offered Shares pursuant to the terms and conditions specified in the Transfer Notice, and the Selling Shareholder shall concurrently therewith remit to such Co-Sale Holder that portion of the net sale proceeds to which such Selling Holder is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchas e 4 -------------------------------------------------------------------------------- shares or other securities from a Co-Sale Holder exercising its rights of co-sale hereunder, the Selling Shareholder shall not sell to such prospective purchaser or purchasers any Offered Shares unless and until, simultaneously with such sale, the Selling Shareholder shall purchase such shares or other securities from such Selling Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.               5.4.  Non-Exercise of Rights. To the extent that the Major Holders have not exercised in full their rights to purchase all the Offered Shares within the time periods specified in Section 4.2, the Selling Shareholder shall have a period of ninety (90) days from the expiration of the 45 day period set forth in Section 4.2 (the “Ninety Day Period”) to sell the Offered Shares and the Co-Sale Shares, if any, upon terms and conditions (including the purchase price) no more favorable than those specified in the Transfer Notice to the third-party transferee(s) identified in the Transfer Notice. The third-party transferee(s) shall, as a condition to such transfer, become a party to Section 2 of this Agreement and become subject to all the provisions included therein unless waived by Major Holders, holding in the aggregate 75% of the aggregate number of shares of the Company he ld at such time by all Major Holders. In the event that the Selling Shareholder and the third-party transferee remain desirous of consummating the sale or disposition of the Offered Shares and the Co-Sale Shares, if any, yet due to a delay resulting from failure to obtain third party approvals, the sale or disposition of the Offered Shares and the Co-Sale Shares, if any, cannot be consummated within the Ninety Day Period, the Ninety Day Period shall be extended by a further period of up to ninety (90) days (the “Second Ninety Day Period”). Notwithstanding the aforesaid in the previous sentence, in the event that the Selling Shareholder does not consummate the sale or disposition of the Offered Shares and the Co-Sale Shares, if any, within the Ninety Day Period or the Second Ninety Day Period, as the case may be, the Major Holders’ first refusal rights and the Co-Sale Holders’ co-sale rights shall continue to be applicable to any subsequent disposition of the Offered Shares by such Sellin g Shareholder until such right lapses in accordance with the terms of this Agreement.               5.5.  Sale of Shares Under Rule 144. Notwithstanding the provisions of Sections 4 and 5, in the event of a Public Sale effected after the expiration of the Restricted Period, the Selling Shareholder shall be permitted to effect the Public Sale subject to and in accordance with Rule 144 (including, without limitation, the volume limitations included therein), and such Public Sale shall not be subject to the rights of first refusal and co-sale set forth in Sections 4 and 5.               5.6.  Limitations to Rights of Refusal and Co-Sale. Notwithstanding the provisions of Sections 3, 4 and 5 of this Agreement, any Shareholder may sell or otherwise assign, with or without consideration, Equity Securities to any Permitted Transferee, provided, however, that any Permitted Transferee shall, prior to receiving any such Equity Securities and as a condition to the effectiveness of any such sale or assignation, become a party to this Agreement and undertake to return such Equity Securities to its transferor in the event that the Permitted Transferee ceases to be a Permitted Transferee in relation to its transferor.         6.  [Omitted]         7.  Purchase of Additional Shares.               I and S shall coordinate the purchase of additional Shares in excess of the Shares owned by such Shareholder as of the date of execution of this Agreement.         8.  Term and Termination               This Agreement shall be in effect from the date hereof and until the earlier of (i) twelve (12) years from the Closing; or (ii) the termination of the Share Purchase Agreement. In the event S shall not exercise Additional Purchase Obligation B-1, Sections 4, 5 and 7 shall terminate. In addition, if Additional Purchase Obligation B-1 shall have been exercised, this Agreement shall thereafter not have any further force and effect to any Shareholder from the date that, and as long as, such Shareholder holds less than 10% of the Company’s outstanding share capital.         9.  General Provisions               9.1.  Expenses. Each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement, including all fees and expenses of agents, representatives, counsel, and accountants. 5 --------------------------------------------------------------------------------               9.2.  Public Announcements. Any public announcement or similar publicity with respect to this Agreement will be issued, if at all, by mutual agreement by S and I and any other parties hereto, subject to limitations contained in the Share Purchase Agreement.               9.3.  Confidentiality. The parties to this agreement will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors to maintain in confidence, this Agreement and any written information furnished by another party in connection with this Agreement, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of this Agreement, or (c) the furnishing or use of such information is required by any U.S., Israeli or other federal, state, local or administrative order, law, ordinance, or regulation or by the applicable rules of any stock exchange.               9.4.  Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):  S: Attention: President and CEO Facsimile No.: (408) 542-0600  with a copy to: SanDisk Corporation Attention: Vice President and General Counsel Facsimile No.: (408) 548-0385  I: Attention: Udi Hillman Facsimile No.: 972-3-695-3631               9.5.  Jurisdiction; Service of Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties solely in the courts of the State of California, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.               9.6.  Further Assurances. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.               9.7.  Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.               9.8.  Entire Agreement. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. 6 --------------------------------------------------------------------------------               9.9.  Modification. This Agreement may not be amended except by a written agreement executed only by S (or its Permitted Transferees in case S do not hold Share of the Company) and I (or its Permitted Transferees in case I do not hold Share of the Company). In the event that any person is added to this Agreement as a party as contemplated by Section 5.7 of the SPA, then the parties hereto will cooperate to amend this Agreement to provide similar voting support by the parties hereto for any director seat agreed by the Company to be allocated to such additional party.               9.10.  Assignments, Successors, and no Third-Party Rights. Neither party may assign any of its rights under this Agreement, except for such assignments made to Permitted Transferees along with the transfer of Shares to such Permitted Transferees, without the prior consent of the other parties. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties.                      Nothing expressed or referred to in this Agreement will be construed to give any person or entity other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. Subject to the above, this Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.               9.11.  Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.               9.12.  Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.               9.13.  Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.               9.14.  Governing Law. Subject to such provisions of the Israeli Companies Law which are applicable to this Agreement and which may not be stipulated, this Agreement will be governed by the laws of the State of California without regard to conflicts of law principles.               9.15.  Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.         IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.      S:   By:   /s/ Eli Harari      --------------------------------------------------------------------------------      President      I:   By:   /s/ Yossi Rosen & Udi Hillman      --------------------------------------------------------------------------------      7 --------------------------------------------------------------------------------

>VOTING AGREEMENT This Voting Agreement (this "Agreement") is entered into as of this 19th day of October, 2000 by and among DQE Enterprises, Inc., a Pennsylvania corporation ("Enterprises"), Barbara Conrad, an individual resident of the State of California ("Conrad," and, together with Enterprises, the "Sellers") and Timothy G. Atkinson (the "Shareholder"). WITNESSETH: WHEREAS, the Sellers, HomeAccess MicroWeb, Inc., a California corporation formerly known as Primary Knowledge, Inc. ("HomeAccess"), Quentra Networks, Inc., a Delaware corporation formerly known as Quentra Network Systems, Inc. ("Quentra"), Jerry Conrad and Barbara Conrad have entered into that certain Amended and Restated Agreement and Plan of Merger dated October 5, 2000 (the "Merger Agreement") pursuant to which the businesses of Quentra and HomeAccess will be combined pursuant to a transaction in which a wholly owned subsidiary of Quentra will be merged with and into HomeAccess, whereupon HomeAccess will become a wholly owned subsidiary of Quentra and the Sellers will become shareholders of Quentra (the "Merger"); and WHEREAS, the Merger Agreement provides that the Shareholder shall execute and deliver this Agreement as of the date hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties to this Agreement hereby agree as follows: 1. Voting of Shares. (a) In any and all elections of directors of Quentra (whether at a meeting or by written consent in lieu of a meeting), the Shareholder shall vote or cause to be voted all Shares (as defined in Section 2 below) owned by him or it, or over which he or it has voting control (shared or exclusive), and otherwise use his or its respective best efforts, so as to fix the number of directors of Quentra at seven and to elect (i) (A) so long as Enterprises and/or its Affiliates (as defined in the Merger Agreement) collectively beneficially owns (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended)("Beneficially Owns") a number of shares of the capital stock of Quentra entitled to vote in the election of directors ("Quentra Voting Stock") equal to or greater than fifty percent (50%) of the number of shares of Quentra Voting Stock issued to Enterprises at the Effective Time (as defined in the Merger Agreement) of the Merger (in each case subject to appropriate adjustment in the event of a -1- stock split, stock dividend or other similar event), two members designated by Enterprises, and (B) so long as Enterprises and/or its Affiliates collectively Beneficially Owns a number of shares of Quentra Voting Stock equal to or greater than twenty five percent (25%) but less than fifty percent (50%) of the number of shares of Quentra Voting Stock issued to Enterprises at the Effective Time of the Merger (in each case subject to appropriate adjustment in the event of a stock split, stock dividend or other similar event), one member designated by Enterprises, and (ii) so long as Conrad (together with Marine Aircraft, a Nevada corporation ("Marine")) Beneficially Owns a number of shares of Quentra Voting Stock equal to or greater than thirty three percent (33%) of the number of shares of Quentra Voting Stock issued to Conrad at the Effective Time of the Merger (in each case subject to appropriate adjustment in the event of a stock split, stock dividend or other similar event), one member designated by Conrad. The Shareholder shall not vote to remove any director designated pursuant to this Section l(a). (b) The Sellers shall give written notice to Quentra and to the other parties to this Agreement, no later than 10 days prior to the intended mailing of a notice to stockholders for a meeting at which directors are to be elected (provided that Quentra provides the Sellers with at least 20 days' prior written notice of such mailing), of the persons designated by the Sellers pursuant to Section l(a) as nominees for election as directors. If the Sellers shall fail to give notice as provided above, it shall be deemed that the designees of the Sellers then serving as directors shall be their designees for reelection. 2. Shares. "Shares" shall mean and include any and all shares of the capital stock of Quentra, by whatever name called, that carry voting rights (including voting rights that arise by reason of a default) and shall include any shares now owned or subsequently acquired by the Shareholder, however acquired, including without limitation shares received on account of stock splits and stock dividends. 3. Termination. This Agreement shall terminate automatically on the date on which both (i) Enterprises and/or any of its Affiliates collectively ceases to Beneficially Own a number of shares of Quentra Voting Stock at least equal to twenty-five percent (25%) of the number of shares of Quentra Voting Stock issued to Enterprises at the Effective Time of the Merger (subject to appropriate adjustment in the event of a stock split, stock dividend or other similar event) and (ii) Conrad (together with Marine) ceases to Beneficially Own a number of shares of Quentra Voting Stock at least equal to thirty three percent (33%) of the number of shares of Quentra Voting Stock issued to Conrad at the Effective Time of the Merger (subject to appropriate adjustment in the event of a stock split, stock dividend or other similar event). 4. No Revocation. The voting agreement contained herein is coupled with an interest and may not be revoked, except by written consent of the Sellers. 5. Restrictive Legend. All certificates representing Shares owned or hereafter acquired by the Shareholder or any transferee of the Shareholder bound by this Agreement shall have affixed thereto a legend substantially in the following form: "The shares of stock represented by this certificate are subject to certain voting agreements as set forth in a Voting Agreement by and among the registered owner of this certificate, the Company and certain other stockholders of the Company, a copy of which is available for inspection at the offices of the Company." -2- 6. Assignment; Transferees of Shares. (a) Either Seller may transfer this Agreement and its rights hereunder to any transferee of all of the Quentra Voting Stock Beneficially Owned by such Seller at the time of such transfer if Quentra has approved such transferee in accordance with Section 6.2(a) of the Merger Agreement. (b) Any Associate (as defined in the Merger Agreement) of the Shareholder to whom the Shareholder transfers Shares, whether voluntarily or by operation of law, shall be bound by the voting obligations imposed upon the transferor under this Agreement, and shall be entitled to the rights granted to the transferor under this Agreement, to the same extent as if such transferee were the Shareholder hereunder. As a condition precedent to the effectiveness of any transfer of Shares to an Associate of the Shareholder, such Associate shall be obligated to execute and deliver to the Sellers its agreement to be bound by the provisions hereof to the same extent as if such transferee were the original Shareholder. Any purported transfer of Shares without such agreement shall be null and void ab initio. 7. General. (a) Severability. The provisions of this Agreement are severable, so that the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other term or provision of this Agreement, which shall remain in full force and effect. (b) Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Seller shall be entitled to specific performance of the agreements and obligations of the Shareholder hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction. (c) Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. (d) Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be (i) delivered by hand, (ii) mailed by first class certified or registered mail, return receipt requested, postage prepaid, (iii) sent by reputable overnight express courier service or (iv) transmitted by telecopy with a hard copy mailed pursuant to clause (ii) or (iii) above, as follows: If to Enterprises, at One Northshore Center, Suite 100, 12 Federal Street, Pittsburgh, PA 15212, or at such other address or addresses as may have been furnished in writing by Enterprises, with a copy to Kirkpatrick + Lockhart LLP, Henry W. Oliver Building, 535 Smithfield Street, Pittsburgh, PA 15222, Facsimile Number (412) 355-6501, Attention: David J. Lehman, Esq. -3- If to Conrad, at 9500 Toledo Way, Irvine, California 92618, with a copy to Cassady + Klein, 908 Kenfield Avenue, Los Angeles, CA 90049, Facsimile Number (310) 471-3006, Attention: Raymond M. Klein, Esq. If to the Shareholder, at his or its address as set forth below his or its signature to this Agreement or at such other address as may have been furnished in writing by the Shareholder. Notices provided in accordance with this Section 7(d) shall be deemed delivered upon personal delivery or (i) in the case of notices provided within the continental United States, 48 hours after deposit in the mail or noon on the first business day next following deposit with a reputable overnight express courier service, (ii) in the case of notices provided outside the continental United States, ten days after deposit in the mail or noon on the second business day next following deposit with a reputable overnight express courier service, or (iii) in the case of notices provided by telecopy, upon completion of transmission to the addressee's telecopier. (e) Complete Agreement; Amendments. This Agreement constitutes the full and complete agreement of the parties hereto with respect to the subject matter hereof. No amendment, modification or termination of any provision of this Agreement shall be valid unless in writing and signed by the parties hereto. (f) Pronouns. Whenever the content may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute one Agreement binding on all the parties hereto. (h) Captions. Captions of sections have been added only for convenience and shall not be deemed to be a part of this Agreement. -4- IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year first above written. DQE ENTERPRISES, INC. By: /s/ Neal G. Taylor --------------------------- Name: Neal G. Taylor Title: Senior Vice President /s/ Barbara Conrad ------------------------------- Barbara Conrad Shareholder /s/ James R. McCullough ------------------------------- Name: James R. McCullough /s/ Daniel W. Latham ------------------------------- Name: Daniel W. Latham /s/ John M. Eger ------------------------------- Name: John M. Eger /s/ Timothy G. Atkinson ------------------------------- Name: Timothy G. Atkinson /s/ Cheryl Johnson ------------------------------- Name: Cheryl Johnson Address: 1640 S. Sepulveda Blvd., Suite 222 Los Angeles, CA 90025 /s/ Kevin O. Kelley ------------------------------- Name: KRJ, LLC Kevin O. Kelley, Managing Member Address: 777 Summer Street Stamford, CT 06901 -5-

EXHIBIT 10.3 EMPLOYMENT AGREEMENT   THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between CONTINENTAL AIRLINES, INC., a Delaware corporation ("Company"), and LAWRENCE W. KELLNER ("Executive"), and is dated and effective as of July 25, 2000 (the "Effective Date"). W I T N E S S E T H: WHEREAS, Company and Executive are parties to that certain Amended and Restated Employment Agreement dated as of September 16, 1999 (the "Existing Agreement"), which expires on November 21, 2000; and WHEREAS , the Human Resources Committee of the Board of Directors of Company ("HR Committee") has deemed it advisable and in the best interests of Company and its stockholders to assure management continuity for Company and, consistent therewith, has authorized the execution, delivery and performance by Company of this Agreement; WHEREAS, in connection therewith, the parties desire to enter into this Agreement to replace and supersede the Existing Agreement in its entirety, effective as of the Effective Date; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows:   ARTICLE 1: EMPLOYMENT AND DUTIES 1.1 Employment; Effective Date. Company agrees to employ Executive and Executive agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement, subject to the terms and conditions of this Agreement. 1.2 Positions. From and after the Effective Date, Company shall employ Executive in the positions of Executive Vice President and Chief Financial Officer of Company, or in such other positions as the parties mutually may agree. 1.3 Duties and Services. Executive agrees to serve in the positions referred to in paragraph 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the Bylaws of Company in effect on the Effective Date, as well as such additional duties and services appropriate to such offices which the parties mutually may agree upon from time to time.   ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT 2.1 Term. Unless sooner terminated pursuant to other provisions hereof, Company agrees to employ Executive for a five-year period beginning on the Effective Date. Said term of employment shall be extended automatically for an additional successive five-year period as of the fifth anniversary of the Effective Date and as of the last day of each successive five-year period of time thereafter that this Agreement is in effect; provided, however, that if, prior to the date which is six months before the last day of any such five-year term of employment, either party shall give written notice to the other that no such automatic extension shall occur, then Executive's employment shall terminate on the last day of the five-year term of employment during which such notice is given. 2.2 Company's Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Company, acting pursuant to an express resolution of the Board of Directors of Company (the "Board of Directors"), shall have the right to terminate Executive's employment under this Agreement at any time for any of the following reasons: (i) upon Executive's death; (ii) upon Executive's becoming incapacitated for a period of at least 180 days by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the material duties and services required of him hereunder on a full-time basis during such period; (iii) if, in carrying out his duties hereunder, Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct resulting in material economic harm to Company; (iv) upon the conviction of Executive for a felony or any crime involving moral turpitude; or (v) for any other reason whatsoever, in the sole discretion of the Board of Directors. 2.3 Executive's Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Executive shall have the right to terminate his employment under this Agreement at any time for any of the following reasons: (i) the assignment to Executive by the Board of Directors or other officers or representatives of Company of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 as such duties are constituted as of the Effective Date, or the failure to elect or reelect Executive to any of the positions described in paragraph 1.2 or the removal of him from any such positions; (ii) a material diminution in the nature or scope of Executive's authority, responsibilities, or titles from those applicable to him as of the Effective Date, including a change in the reporting structure so that Executive reports to someone other than the Chief Executive Officer of Company; (iii) the occurrence of acts or conduct on the part of Company, its Board of Directors, or its officers, representatives or stockholders which prevent Executive from, or substantively hinder Executive in, performing his duties or responsibilities pursuant to this Agreement; (iv) Company requiring Executive to be permanently based anywhere outside a major urban center in Texas; (v) the taking of any action by Company that would materially adversely affect the corporate amenities enjoyed by Executive on the Effective Date; (vi) a material breach by Company of any provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice of such breach by Executive to Company, it being agreed that any reduction in Executive's then current annual base salary, or any reduction in Executive's annual cash bonus opportunity as a percentage of such base salary from that percentage in effect on the Effective Date (i.e., 0% to 125% of base salary) or any material change in the frequency of payment thereof or the performance factors on which such bonus is based, shall constitute a material breach by Company of this Agreement; or (vii) for any other reason whatsoever, in the sole discretion of Executive. 2.4 Notice of Termination. If Company or Executive desires to terminate Executive's employment hereunder at any time prior to expiration of the term of employment as provided in paragraph 2.1, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Executive's employment hereunder and stating the effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder.   ARTICLE 3: COMPENSATION AND BENEFITS 3.1 Base Salary. During the period of this Agreement, Executive shall receive a minimum annual base salary equal to the greater of (i) $693,500.00 or (ii) such amount as the parties mutually may agree upon from time to time. Executive's annual base salary shall be paid in equal installments in accordance with Company's standard policy regarding payment of compensation to executives but no less frequently than semimonthly. 3.2 Bonus Programs and Restricted Stock Grant. (a) Cash Bonus Programs. Executive shall participate in each cash bonus program maintained by Company on and after the Effective Date (including, without limitation, any such program maintained for the year during which the Effective Date occurs) at a level which is not less than the maximum participation level made available to any Company executive (determined without regard to period of service or other criteria that might otherwise be necessary to entitle Executive to such level of participation); provided that Company shall at all times maintain Executive's annual cash bonus opportunity as a percentage of his base salary in an amount which is at least as great as that in effect on the Effective Date (i.e., 0% to 125% of base salary) and shall not change in any material respect the payment frequency thereof or the performance factors on which such bonus is based. (b) Restricted Stock Grant. On the Effective Date, Company shall make a restricted stock award to Executive of 30,000 shares of Class B common stock of Company under Company's Incentive Plan 2000, which restricted stock award shall vest as to 1/3 of the shares on the first anniversary of the Effective Date, 1/3 of the shares on the second anniversary of the Effective Date, and 1/3 of the shares on the third anniversary of the Effective Date, or otherwise in accordance with the terms of the Incentive Plan 2000 (including any grant document thereunder) and the terms of this Agreement. 3.3 Life Insurance. During the period of this Agreement, Company shall maintain one or more policies of life insurance on the life of Executive providing an aggregate death benefit in an amount not less than the Termination Payment (as such term is defined in paragraph 4.7, and based on a Severance Period of thirty-six months). Executive shall have the right to designate the beneficiary or beneficiaries of the death benefit payable pursuant to such policy or policies up to an aggregate death benefit in an amount equal to the Termination Payment (based on a Severance Period of thirty-six months), and may transfer ownership of such policy or policies (and any rights of Executive under this paragraph 3.3) to any life insurance trust, family trust or other trust. To the extent that Company's purchase of, or payment of premiums with respect to, such policy or policies results in compensation income to Executive, Company shall pay to Executive an additional payment (the "Policy Payment") in an amount such that after payment by Executive of all taxes imposed on Executive with respect to the Policy Payment, Executive retains an amount of the Policy Payment equal to the taxes imposed upon Executive with respect to such purchase or the payment of such premiums. If for any reason Company fails to maintain the full amount of life insurance coverage required pursuant to the preceding provisions of this paragraph 3.3, Company shall, in the event of the death of Executive while employed by Company, pay Executive's designated beneficiary or beneficiaries an amount equal to the sum of (1) the difference between the Termination Payment (based on a Severance Period of thirty-six months) and any death benefit payable to Executive's designated beneficiary or beneficiaries under the policy or policies maintained by Company and (2) such additional amount as shall be required to hold Executive's estate, heirs, and such beneficiary or beneficiaries harmless from any additional tax liability resulting from the failure by Company to maintain the full amount of such required coverage. 3.4 Vacation and Sick Leave. During each year of his employment, Executive shall be entitled to vacation and sick leave benefits equal to the maximum available to any Company executive, determined without regard to the period of service that might otherwise be necessary to entitle Executive to such vacation or sick leave under standard Company policy. 3.5 Supplemental Executive Retirement Plan. (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 26 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional two years of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) if the Termination Payment becomes payable to Executive under this Agreement or if Executive's employment is terminated for a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional years of service as is equal to (X) 18 years minus (Y) three times the number of full calendar years which have occurred during the period beginning January 1, 2000 and ending on the earlier of (i) the date that the Termination Payment under this Agreement first becomes payable to Executive or (ii) December 31, 2004. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $693,500.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan. (ii) Offset for CARP Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments. (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit"). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to commence to receive Executive's benefit under the Plan as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit, (2) each payment under an Early Retirement Benefit shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each payment under an Early Retirement Benefit that is made prior to the Retirement Date shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive. If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive, at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election, Executive will be deemed to have elected a joint and survivor annuity. (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death. Payment of such survivor annuity shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit, and each payment of such survivor annuity shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company. (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan. 3.6 Additional Disability Benefit. If Executive shall begin to receive long-term disability insurance benefits pursuant to a plan maintained by Company and if such benefits cease prior to Executive's attainment of age 65 and while Executive remains disabled, then Company shall immediately pay Executive upon the cessation of such benefits a lump-sum, cash payment in an amount equal to the Termination Payment (based on a Severance Period of thirty-six months). If Executive receives payment of a Termination Payment pursuant to the provisions of Article 4, then the provisions of this paragraph 3.6 shall terminate. If Executive shall be disabled at the time his employment with Company terminates and if Executive shall not be entitled to the payment of a Termination Payment pursuant to the provisions of Article 4 upon such termination, then Executive's right to receive the payment upon the occurrence of the circumstances described in this paragraph 3.6 shall be deemed to have accrued as of the date of such termination and shall survive the termination of this Agreement. 3.7 Other Perquisites. During his employment hereunder, Executive shall be afforded the following benefits as incidences of his employment: (i) Automobile - Company will provide an automobile (including replacements therefor) of Executive's choice for Executive's use on the same terms as its current practices relating to the choice and use of automobiles by its Chief Executive Officer. If the automobile is leased, Company agrees to take such actions as may be necessary to permit Executive, at his option, to acquire title to any automobile subject to such a lease at the completion of the lease term by Executive paying the residual payment then owing under the lease. If Executive's employment terminates (other than as a result of the reasons encompassed by paragraphs 2.2 (iii) or (iv)), then Company (1) if the automobile is leased, will continue to make all payments under the lease and permit Executive (or Executive's estate, as applicable) to use the automobile during the remainder of such lease and will, at the conclusion of the lease, cause the title to the automobile to be transferred to Executive (or Executive's estate) without cost to Executive (or Executive's estate), or (2) if the automobile is owned by Company, transfer title to the automobile to Executive (or Executive's estate, as applicable), without cost to Executive (or Executive's estate). (ii) Business and Entertainment Expenses - Subject to Company's standard policies and procedures with respect to expense reimbursement as applied to its executive employees generally, Company shall reimburse Executive for, or pay on behalf of Executive, reasonable and appropriate expenses incurred by Executive for business related purposes, including dues and fees to industry and professional organizations, costs of entertainment and business development, and costs reasonably incurred as a result of Executive's spouse accompanying Executive on business travel. Company shall also pay on behalf of Executive the expenses of one athletic club selected by Executive. (iii) Parking - Company shall provide at no expense to Executive a reserved parking place convenient to Executive's headquarters office and a reserved parking place at George Bush Intercontinental Airport in Houston, Texas consistent with past practice. (iv) Other Company Benefits - Executive and, to the extent applicable, Executive's family, dependents and beneficiaries, shall be allowed to participate in all benefits, plans and programs, including improvements or modifications of the same, which are now, or may hereafter be, available to similarly-situated Company employees. Such benefits, plans and programs may include, without limitation, profit sharing plan, thrift plan, annual physical examinations, health insurance or health care plan, life insurance, disability insurance, pension plan, pass privileges on Continental Airlines, Flight Benefits and the like. Company shall not, however, by reason of this paragraph be obligated to institute, maintain, or refrain from changing, amending or discontinuing, any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally; provided, however, that Company shall not change, amend or discontinue Executive's Flight Benefits without his prior written consent. ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION 4.1 By Expiration. If Executive's employment hereunder shall terminate upon expiration of the term provided in paragraph 2.1 hereof, then all compensation and all benefits to Executive hereunder shall terminate contemporaneously with termination of his employment, except that (A) the benefits described in paragraph 3.5 shall continue to be payable, Executive shall be provided Flight Benefits (as such term is defined in paragraph 4.7) for the remainder of Executive's lifetime, Executive and his eligible dependents shall be provided Continuation Coverage (as such term is defined in paragraph 4.7) for the remainder of Executive's lifetime, and Company shall perform its obligations with respect to the automobile then used by Executive as provided in subparagraph 3.7(i) and (B) if such termination shall result from Company's delivery of the written notice described in paragraph 2.1, then Company shall (i) cause all options and shares of restricted stock awarded to Executive to vest immediately upon such termination and, with respect to options, be exercisable in full for 30 days after such termination, (ii) cause all Awards made to Executive under Company's Officer Retention and Incentive Award Program ("Retention Program") to vest immediately upon such termination, (iii) cause Company to pay to Executive, at the same time as other Payment Amounts with respect to Awards are paid to other participants under Company's Long Term Incentive Performance Award Program ("LTIP"), all Payment Amounts with respect to Awards made to Executive under the LTIP having a Performance Period that has not been completed as of the date of Executive's termination, as if Executive had remained employed by Company in his current position through the end of each such Performance Period (calculated using the Base Amount of Executive in effect on the day immediately preceding such termination), less any amounts paid to Executive under the LTIP upon the occurrence of a Qualifying Event with respect to Executive in connection with a Change in Control (such capitalized terms to have the meanings ascribed thereto in the LTIP), (iv) pay Executive on or before the effective date of such termination a lump-sum, cash payment in an amount equal to the Termination Payment, (v) provide Executive with Outplacement, Office and Related Services (as such term is defined in paragraph 4.7 and for the time periods described therein), and (vi) pay any amounts owed but unpaid to Executive under any plan, policy or program of Company as of the date of termination at the time provided by, and in accordance with the terms of, such plan, policy or program. 4.2 By Company. If Executive's employment hereunder shall be terminated by Company prior to expiration of the term provided in paragraph 2.1 hereof then, upon such termination, regardless of the reason therefor, all compensation and all benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment, except that the benefits described in paragraph 3.5 shall continue to be payable, Executive shall be provided Flight Benefits for the remainder of Executive's lifetime, Executive and his eligible dependents shall be provided Continuation Coverage for the remainder of Executive's lifetime, and: (i) if such termination shall be for any reason other than those encompassed by paragraphs 2.2(i), (ii), (iii) or (iv), then Company shall provide Executive with the payments and benefits described in clauses (i) through (vi) of paragraph 4.1, and Company shall perform its obligations with respect to the automobile then used by Executive as provided in subparagraph 3.7(i); and (ii) if such termination shall be for a reason encompassed by paragraphs 2.2(i) or (ii), then Company shall (1) cause all options and shares of restricted stock awarded to Executive to vest immediately upon such termination and, with respect to options, be exercisable in full for 30 days (or such longer period as provided for under the circumstances in applicable option awards) after such termination, (2) cause all Awards made to Executive under the Retention Program to vest immediately upon such termination, (3) cause Company to pay to Executive (or Executive's estate), at the same time as other Payment Amounts with respect to Awards are paid to other participants under the LTIP, all Payment Amounts with respect to Awards made to Executive under the LTIP having a Performance Period that has not been completed as of the date of Executive's termination, as if Executive had remained employed by Company in his current position through the end of each such Performance Period (calculated using the Base Amount of Executive in effect on the day immediately preceding such termination), less any amounts paid to Executive under the LTIP upon the occurrence of Executive's death or Disability after a Change in Control (such capitalized terms to have the meanings ascribed thereto in the LTIP), (4) provide Executive (or his designated beneficiary or beneficiaries) with the benefits contemplated under paragraph 3.3 or paragraph 3.6, as applicable, and (5) perform its obligations with respect to the automobile then used by Executive as provided in subparagraph 3.7(i). 4.3 By Executive. If Executive's employment hereunder shall be terminated by Executive prior to expiration of the term provided in paragraph 2.1 hereof then, upon such termination, regardless of the reason therefor, all compensation and benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment, except that the benefits described in paragraph 3.5 shall continue to be payable, Executive shall be provided Flight Benefits for the remainder of Executive's lifetime, Executive and his eligible dependents shall be provided Continuation Coverage for the remainder of Executive's lifetime, Company shall perform its obligations with respect to the automobile then used by Executive as provided in subparagraph 3.7(i) and, if such termination shall be pursuant to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi), then Company shall provide Executive with the payments and benefits described in clauses (i) through (vi) of paragraph 4.1. 4.4 Certain Additional Payments by Company. Notwithstanding anything to the contrary in this Agreement, if any payment, distribution or provision of a benefit by Company to or for the benefit of Executive, whether paid or payable, distributed or distributable or provided or to be provided pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to an excise or other special additional tax that would not have been imposed absent such Payment (including, without limitation, any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended), or any interest or penalties with respect to such excise or other additional tax (such excise or other additional tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any income taxes and Excise Taxes imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment (taking into account any similar gross-up payments to Executive under any stock incentive or other benefit plan or program of Company) equal to the Excise Tax imposed upon the Payments. Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify Company in writing of any claim by the Internal Revenue Service which, if successful, would require Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by Company and Executive) within ten business days after the receipt of such claim. Company shall notify Executive in writing at least ten business days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If Company decides to contest such claim, Executive shall cooperate fully with Company in such action; provided, however, Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive 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 Company's action. If, as a result of Company's action with respect to a claim, Executive receives a refund of any amount paid by Company with respect to such claim, Executive shall promptly pay such refund to Company. If Company fails to timely notify Executive whether it will contest such claim or Company determines not to contest such claim, then Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive. 4.5 Payment Obligations Absolute. Company's obligation to pay Executive the amounts and to make the arrangements provided in this Article 4 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 Company (including its subsidiaries and affiliates) may have against him or anyone else. All amounts payable by Company shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Article 4, and, except as provided in paragraph 4.7 with respect to Continuation Coverage, the obtaining of any such other employment (or the engagement in any endeavor as an independent contractor, sole proprietor, partner, or joint venturer) shall in no event effect any reduction of Company's obligations to make (or cause to be made) the payments and arrangements required to be made under this Article 4. 4.6 Liquidated Damages. In light of the difficulties in estimating the damages upon termination of this Agreement, Company and Executive hereby agree that the payments and benefits, if any, to be received by Executive pursuant to this Article 4 shall be received by Executive as liquidated damages. Payment of the Termination Payment pursuant to paragraphs 4.1, 4.2 or 4.3 shall be in lieu of any severance benefit Executive may be entitled to under any severance plan or policy maintained by Company. 4.7 Certain Definitions and Additional Terms. As used herein, the following capitalized terms shall have the meanings assigned below: "Annualized Compensation" shall mean an amount equal to the sum of (1) Executive's annual base salary pursuant to paragraph 3.1 in effect immediately prior to Executive's termination of employment hereunder and (2) an amount equal to 125% of the amount described in the foregoing clause (1); "Change in Control" shall have the meaning assigned to such term in Company's Incentive Plan 2000 in effect on May 23, 2000; (iii) "Continuation Coverage" shall mean the continued coverage of Executive and his eligible dependents under Company's welfare benefit plans available to executives of Company who have not terminated employment (or the provision of equivalent benefits), including, without limitation, medical, health, dental, life insurance, disability, vision care, accidental death and dismemberment, and prescription drug, at no greater cost to Executive than that applicable to a similarly situated Company executive who has not terminated employment; provided, however, that the coverage to Executive (or the receipt of equivalent benefits) shall be provided under one or more insurance policies so that reimbursement or payment of benefits to Executive thereunder shall not result in taxable income to Executive, and provided further that the coverage to Executive under a particular welfare benefit plan (or the receipt of equivalent benefits) shall be suspended during any period that Executive receives comparable benefits from a subsequent employer, and shall be reinstated upon Executive ceasing to so receive comparable benefits and notifying Company thereof; (iv) "Flight Benefits" shall mean flight benefits on each airline operated by the Company or any of its affiliates or any successor or successors thereto (the "CO system"), consisting of the highest priority space available flight passes for Executive and Executive's eligible family members (as such eligibility is in effect on May 18, 1999), a Universal Air Travel Plan (UATP) card (or, in the event of discontinuance of the UATP program, a similar charge card permitting the purchase of air travel through direct billing to the Company or any successor or successors thereto (a "Similar Card")) in Executive's name for charging on an annual basis up to the applicable Annual Travel Limit (as hereinafter defined) with respect to such year in value (valued identically to the calculation of imputed income resulting from such flight benefits described below) of flights (in any fare class) on the CO system for Executive, Executive's spouse, Executive's family and significant others as determined by Executive, Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in Executive's and Executive's spouse's names for use on the CO system, a membership for Executive and Executive's spouse in the Company's President's Club (or any successor program maintained in the CO system) and payment by the Company to Executive of an annual amount (not to exceed in any year the Annual Gross Up Limit (as hereinafter defined) with respect to such year) sufficient to pay, on an after tax basis (i.e., after the payment by Executive of all taxes on such amount), the U.S. federal, state and local income taxes on imputed income resulting from such flights (such imputed income to be calculated during the term of such Flight Benefits at the lowest published or unpublished fare (i.e., 21 day advance purchase coach fare, lowest negotiated consolidator net fare, or other lowest available fare) for the applicable itinerary (or similar flights on or around the date of such flight), regardless of the actual fare class booked or flown, or as otherwise required by law) or resulting from any other flight benefits extended to Executive as a result of Executive's service as an executive of the Company; "Outplacement, Office and Related Services" shall mean (1) outplacement services, at Company's cost and for a period of twelve months beginning on the date of Executive's termination of employment, to be rendered by an agency selected by Executive and approved by the Board of Directors or HR Committee (with such approval not to be unreasonably withheld), (2) appropriate and suitable office space at the Company's headquarters (although not on its executive office floor) or at a comparable location in downtown Houston for use by Executive, together with appropriate and suitable secretarial assistance, at Company's cost and for a period of three years beginning on the date of Executive's termination of employment, (3) a reserved parking place convenient to the office so provided and a reserved parking place at George Bush Intercontinental Airport in Houston, Texas consistent with past practice, at Company's cost and for as long as Executive retains a residence in Houston, Texas, and (4) other incidental perquisites (such as free or discount air travel, car rental, phone or similar service cards) currently enjoyed by Executive as a result of his position, to the extent then available for use by Executive, for a period of three years beginning on the date of Executive's termination of employment or a shorter period if such perquisites become unavailable to the Company for use by Executive; (vi) "Severance Period" shall mean: (1) in the case of a termination of Executive's employment with Company that occurs within two years after the date upon which a Change in Control occurs, a period commencing on the date of such termination and continuing for thirty-six months; or (2) in the case of a termination of Executive's employment with Company that occurs prior to a Change in Control or after the date which is two years after a Change in Control occurs, a period commencing on the date of such termination and continuing for twenty-four months; and (vii) "Termination Payment" shall mean an amount equal to Executive's Annualized Compensation multiplied by a fraction, the numerator of which is the number of months in the Severance Period and the denominator of which is twelve. As used for purposes of Flight Benefits, with respect to any year, the term "Annual Travel Limit" shall mean an amount (initially $50,000), which amount shall be adjusted (i) annually (beginning with the year 2000) by multiplying such amount by a fraction, the numerator of which shall be the Company's average fare per revenue passenger for its jet operations (excluding regional jets) with respect to the applicable year as reported in its Annual Report on Form 10-K (or, if not so reported, as determined by the Company's independent auditors) (the "Average Fare") for such year, and the denominator of which shall be the Average Fare for the prior year, (ii) annually to add thereto any portion of such amount unused since the year 1999, and (iii) after adjustments described in clauses (i) and (ii) above, automatically upon any change in the valuation methodology for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of May 18, 1999), so as to preserve the benefit of $50,000 annually (adjusted in accordance with clauses (i) and (ii) above) of flights relative to the valuations resulting from the valuation methodology used by the Company as of May 18, 1999 (e.g., if a change in the valuation methodology results, on average, in such flights being valued 15% higher than the valuation that would result using the valuation methodology used by the Company as of May 18, 1999, then the Annual Travel Limit would be increased by 15% to $57,500, assuming no other adjustments pursuant to clauses (i) and (ii) above). In determining any adjustment pursuant to clause (iii) above, the Company shall be entitled to rely on a good faith calculation performed by its independent auditors based on a statistically significant random sampling of flight valuations compared with the applicable prior valuations of identical flights, which calculation (and the basis for any adjustments pursuant to clauses (i) or (ii) above) will be provided to Executive upon request. The Company will promptly notify Executive in writing of any adjustments to the Annual Travel Limit described in this paragraph. As used for purposes of Flight Benefits, with respect to any year, the term "Annual Gross Up Limit" shall mean an amount (initially $10,000), which amount shall be adjusted (i) annually (beginning with the year 2000) by multiplying such amount by a fraction, the numerator of which shall be the Average Fare for such year, and the denominator of which shall be the Average Fare for the prior year, (ii) annually to add thereto any portion of such amount unused since the year 1999, and (iii) after adjustments described in clauses (i) and (ii) above, automatically upon any change in the valuation methodology for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of May 18, 1999), so as to preserve the benefit of $10,000 annually (adjusted in accordance with clauses (i) and (ii) above) of tax gross up relative to the valuations resulting from the valuation methodology used by the Company as of May 18, 1999 (e.g., if a change in the valuation methodology results, on average, in flights being valued 15% higher than the valuation that would result using the valuation methodology used by the Company as of May 18, 1999, then the Annual Gross Up Limit would be increased by 15% to $11,500, assuming no other adjustments pursuant to clauses (i) and (ii) above). In determining any adjustment pursuant to clause (iii) above, the Company shall be entitled to rely on a good faith calculation performed by its independent auditors based on a statistically significant random sampling of flight valuations compared with the applicable prior valuations of identical flights, which calculation (and the basis for any adjustments pursuant to clauses (i) or (ii) above) will be provided to Executive upon request. The Company will promptly notify Executive in writing of any adjustments to the Annual Gross Up Limit described in this paragraph. As used for purposes of Flight Benefits, a year may consist of twelve consecutive months other than a calendar year, it being the Company's practice as of May 18, 1999 for purposes of Flight Benefits for a year to commence on December 1 and end on the following November 30 (for example, the twelve-month period from December 1, 1998 to November 30, 1999 is considered the year 1999 for purposes of Flight Benefits); provided that all calculations for purposes of clause (i) in the prior two paragraphs shall be with respect to fiscal years of the Company. As used for purposes of Flight Benefits, the term "affiliates" of the Company means any entity controlled by, controlling, or under common control with the Company, it being understood that control of an entity shall require the direct or indirect ownership of a majority of the outstanding capital stock of such entity. No tickets issued on the CO system in connection with the Flight Benefits may be purchased other than directly from the Company or its successor or successors (i.e., no travel agent or other fee or commission based distributor may be used), nor may any such tickets be sold or transferred by Executive or any other person, nor may any such tickets be used by any person other than the person in whose name the ticket is issued. Executive agrees that, after receipt of an invoice or other accounting statement therefor, he will promptly (and in any event within 45 days after receipt of such invoice or other accounting statement) reimburse the Company for all charges on his UATP card (or Similar Card) which are not for flights on the CO system and which are not otherwise reimbursable to Executive under the provisions of paragraph 3.7(ii) hereof, or which are for tickets in excess of the applicable Annual Travel Limit. Executive agrees that the credit availability under Executive's UATP card (or Similar Card) may be suspended if Executive does not timely reimburse the Company as described in the foregoing sentence or if Executive exceeds the applicable Annual Travel Limit with respect to a year; provided, that, immediately upon the Company's receipt of Executive's reimbursement in full (or, in the case of exceeding the applicable Annual Travel Limit, beginning the next following year and after such reimbursement), the credit availability under Executive's UATP card (or Similar Card) will be restored. The sole cost to Executive of flights on the CO system pursuant to use of Executive's Flight Benefits will be the imputed income with respect to flights on the CO system charged on Executive's UATP card (or Similar Card), calculated throughout the term of Executive's Flight Benefits at the lowest published or unpublished fare (i.e., 21 day advance purchase coach fare, lowest negotiated consolidator net fare or other lowest available fare) for the applicable itinerary (or similar flights on or around the date of such flight), regardless of the actual fare class booked or flown, or as otherwise required by law, and reported to Executive as required by applicable law. With respect to any period for which the Company is obligated to provide the tax gross up described above, Executive will provide to the Company, upon request, a calculation or other evidence of Executive's marginal tax rate sufficient to permit the Company to calculate accurately the amount to be paid to Executive. Executive will be issued a UATP card (or Similar Card), Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in Executive's and Executive spouse's names, a membership card in the Company's Presidents Club (or any successor program maintained in the CO system) for Executive and Executive's spouse, and an appropriate flight pass identification card, each valid at all times during the term of Executive's Flight Benefits. ARTICLE 5: MISCELLANEOUS 5.1 Interest and Indemnification. If any payment to Executive provided for in this Agreement is not made by Company when due, Company shall pay to Executive interest on the amount payable from the date that such payment should have been made until such payment is made, which interest shall be calculated at 3% plus the prime or base rate of interest announced by Chase Bank of Texas N.A. (or any successor thereto) at its principal office in Houston, Texas (but not in excess of the highest lawful rate), and such interest rate shall change when and as any such change in such prime or base rate shall be announced by such bank. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or Company to enforce or interpret any provision contained herein, Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the rate set forth in the preceding sentence. 5.2 Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company to : Continental Airlines, Inc. 1600 Smith, Dept. HQSEO Houston, Texas 77002 Attention: General Counsel If to Executive to : Lawrence W. Kellner 10915 Pifer Way Houston, Texas 77024 or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 5.3 Applicable Law. This contract is entered into under, and shall be governed for all purposes by, the laws of the State of Texas. 5.4 No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 5.5 Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 5.6 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 Agreement. 5.7 Withholding of Taxes and Other Employee Deductions. Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company's employees generally. 5.8 Headings. The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. 5.9 Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely. 5.10 Successors. This Agreement shall be binding upon and inure to the benefit of Company and any successor of the Company, including without limitation any person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Except as provided in the preceding sentence or in paragraph 3.3 (regarding assignment of life insurance benefits), this Agreement, and the rights and obligations of the parties hereunder, are personal and neither this Agreement, nor any right, benefit or obligation of either party hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party. 5.11 Term. This Agreement has a term co-extensive with the term of employment as set forth in paragraph 2.1. Termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination. 5.12 Entire Agreement. Except as provided in (i) the benefits, plans, and programs referenced in paragraph 3.7(iv) and any awards under the Company's stock incentive plans or programs, LTIP, Retention Program, Executive Bonus Performance Award Program or similar plans or programs, and (ii) separate agreements governing Executive's flight benefits relating to other airlines, this Agreement, as of the Effective Date, will constitute the entire agreement of the parties with regard to the subject matter hereof, and will contain all the covenants, promises, representations, warranties and agreements between the parties with respect to employment of Executive by Company. Effective as of the Effective Date, the Existing Agreement is hereby terminated and without any further force or effect. Any modification of this Agreement shall be effective only if it is in writing and signed by the party to be charged. Deemed Resignations . Any termination of Executive's employment shall constitute an automatic resignation of Executive as an officer of Company and each affiliate of Company, and an automatic resignation of Executive from the Board of Directors (if applicable) and from the board of directors of any affiliate of Company and from the board of directors or similar governing body of any corporation, limited liability company or other entity in which Company or any affiliate holds an equity interest and with respect to which board or similar governing body Executive serves as Company's or such affiliate's designee or other representative. 5.14 Certain Change in Control Matters. Executive agrees that any recapitalization, conversion, reclassification or similar transaction involving Class A common stock of Company owned by Northwest Airlines Corporation or its affiliates, or any acquisition by Company of Class A common stock owned by Northwest Airlines Corporation or its affiliates (whether or not involving other outstanding shares of Class A common stock), which results in a person who is an Institutional Investor (as defined in that certain Rights Agreement dated November 20, 1998, as amended by First Amendment to Rights Agreement dated as of February 8, 2000, between Company and Harris Trust and Savings Bank, as in effect on the date hereof) as of the date hereof and as of the date of any such recapitalization, conversion, reclassification, acquisition or similar transaction being or becoming the beneficial owner of securities of Company sufficient to otherwise trigger a Change in Control pursuant to clause (aa) of Section 12 (c) of Company's Incentive Plan 2000, as in effect on the date hereof, shall not constitute a Change in Control for purposes of this Agreement, or for purposes of Company's stock incentive plans or programs, Long Term Incentive Performance Award Program, Officer Retention and Incentive Award Program, Executive Bonus Performance Award Program or similar plans or programs.               *******   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.   CONTINENTAL AIRLINES, INC.     By: Name: Title: "EXECUTIVE"     LAWRENCE W. KELLNER     APPROVED:   _______________________________ Thomas J. Barrack, Jr. Chair, Human Resources Committee

LICENSE AGREEMENT THIS LICENSE AGREEMENT (this "Agreement") is made and entered into as of October 19, 2000, by and between HomeAccess MicroWeb. Inc., ("HOMEACCESS"), a California corporation having a place of business at 905 Toledo Way, Irvine, California 92618, and HA Technology, Inc., a Delaware corporation having a place of business at 905 Toledo Way, Irvine, California 92618 ("HA"). WHEREAS, HOMEACCESS has developed a system that allows the user to access the Internet using a screen phone, and has developed unique proprietary technology and know-how, including software, which is incorporated into the design, manufacturing, marketing, operation and support of such technology, and has developed methods and procedures and know-how for the operation of such technology and owns certain trademarks, service marks and domain names relating to the system; and WHEREAS, HA desires to acquire a license for such intellectual property including such technology, know-how, software, trademarks, service marks, methods and procedures relating to such system. NOW, THEREFORE, HOMEACCESS and HA have reached certain agreements with respect to the licensing of such intellectual property of HOMEACCESS upon the terms and conditions more particularly described herein; and, inasmuch as the parties desire to set forth their agreements and understandings in writing, in consideration of the promises, covenants and matters hereinafter set forth, intending to be legally bound hereby, the parties mutually covenant, contract and agree, each with the other, as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.01 "Effective Date" means that day and year first above written. 1.02 "HOMEACCESS Intellectual Property" means the (a) Technical Information, (b) Improvements, (c) trademarks and service marks, trademark or service mark applications and registrations and goodwill related thereto, listed on Schedule 1 attached hereto (collectively "the Marks"), and (d) copyrights, mask works, software and documentation (in object code form), designs, specifications. or other proprietary rights of HOMEACCESS relating to the Products. 1.03 "Improvement" means any and all improvements, upgrades, updates, enhancements, additions, successor versions, maintenance releases, bug fixes, corrections, developments, variations, derivative works and innovations (whether or not patented or patentable) relating to the HOMEACCESS Intellectual Property. 1.04 "Licensed Product" shall mean a Product which incorporates substantial HOMEACCESS Intellectual Property and/or a Product that would violate HOMEACCESS's rights in the HOMEACCESS Intellectual Property if made, used, sold, offered for sale or imported by an unlicensed third party. -1- 1.05 "Product" means the technology and business model, including without limitation software, relating to a system for accessing the Internet using a screen phone, and telephone and wireless communication services enabling access to commercial services including financial and banking services, purchasing of various goods and services, bill presentation and payment, electronic mail, paging, health care, commercial advertisements, and community-based public service notices. 1.06 "Technical Information" means information which: (a) is in the possession of HOMEACCESS as of the Effective Date of this Agreement; (b) is freely licensable by HOMEACCESS and may be freely disclosed to HA by HOMEACCESS without any obligation to another party; and (c) is reasonably useful and necessary in the commercial, use, maintenance, sale, and production of Products, including the following information, as applicable: know-how; show-how; design drawings; assembly drawings; bills of material; product specifications; application, maintenance and operation information; quality control specifications; electrical diagrams; plot plan; equipment specifications; instrument specifications; general specifications; description of laboratory equipment and procedures; test data; and preliminary operating manuals. 1.07 "Territory" means the world, except for the states of Washington, Nevada, Oregon and Pennsylvania in the United States of America, and such other territories as the parties may agree to in writing. ARTICLE 2. LICENSE 2.01 License to HOMEACCESS Intellectual Property. HOMEACCESS hereby grants to HA an exclusive, non-transferable, non-assignable and fully paid license to make, use, sell and offer for sale the HOMEACCESS Intellectual Property in the Territory during the Term (the "License"). The License shall also include an exclusive, non-transferable, non-assignable and fully paid right to sublicense the HOMEACCESS Intellectual Property in the Territory during the Term; provided that during the first eighteen (18) months of the Term, such sublicense right shall be limited to those circumstances in which, in the absence of such sublicense, a third-party purchaser of the Licensed Product could not use the Licensed Product for its intended use without violating the proprietary rights of HOMEACCESS with respect to the HOMEACCESS Intellectual Property (unless the consent to a broader sublicense is obtained from HOMEACCESS which consent shall not be reasonably withheld. Such consent shall not be deemed to be unreasonably withheld, if HOMEACCESS reasonably believes such sublicense would adversely affect the value of HA as a result of such sublicense). HOMEACCESS reserves the right to make, use, sell, offer for sale, and sublicense the HOMEACCESS Intellectual Property outside of the Territory. Prior to executing any sublicense agreement with a third party, HA shall forward to HOMEACCESS the following information: (i) the name and address of the prospective sublicensee; (ii) the name, address and telephone number of a contact person or authorized representative of the prospective sublicensee; (iii) the HOMEACCESS Intellectual Property to be licensed; (iv) the number of licensed users; and (v) the location and manner in which the HOMEACCESS Intellectual Property will be used. If a HOMEACCESS Bankruptcy Event (as hereinafter defined) occurs, the Territory shall be automatically redefined as the entire world and, in such event, the parties agree to execute any and all documents necessary or appropriate to evidence such expansion. "HOMEACCESS Bankruptcy Event" means (i) a receiver is appointed for HOMEACCESS or its property and HOMEACCESS is liquidated or dissolved, (ii) HOMEACCESS makes an assignment for the benefit of its creditors, or (iii) any proceeding is commenced by, for or against HOMEACCESS under any bankruptcy, insolvency or debtor's relief law for the purpose of seeking a reorganization of HOMEACCESS' debts, and such proceeding is not dismissed within ninety (90) calendar days of its commencement. -2- 2.02 Consideration. In consideration for the License of the HOMEACCESS Intellectual Property, HA shall pay HOMEACCESS the sum of two hundred fifty thousand dollars ($250,000) in readily available funds upon the execution of this Agreement. 2.03 Ownership. HA understands and acknowledges that the HOMEACCESS Intellectual Property is licensed and not sold and that HOMEACCESS shall retain all right, title and interest (including all copyrights, patents, service marks, trademarks, trade secret rights, domain names and any other intellectual property rights, including the goodwill associated with such rights) in the HOMEACCESS Intellectual Property. Nothing contained in this Agreement, except the License, shall be deemed to convey to HA any right or interest in the HOMEACCESS Intellectual Property. ARTICLE 3. QUALITY CONTROL OF MARKS 3.01 Proper Use. HA agrees that all use of the Marks shall only occur in connection with the Licensed Products and shall be in strict compliance with the terms of this Agreement. HA may use the Marks only in connection with the promotion of the Licensed Products. HA undertakes and agrees not to use the Marks in any manner whatsoever which, directly or indirectly, would derogate or detract from the Licensed Products repute and to use the Marks in conformance with HOMEACCESS' trademark guidelines ("Trademark Guidelines"), which Trademark Guidelines will be provided by and may be revised by HOMEACCESS from time to time. HA agrees not to use any other trademark or service mark in combination with the Marks. HA has no right to sublicense, transfer or assign the use of the Marks or use the marks for any other purposes other than the purpose described herein. HA may not use the Mark in connection with, or for the benefit of, any third party's products or services. HA will not remove, alter or destroy any Mark, copyright markings or notices placed upon or contained within the HOMEACCESS Intellectual Property. 3.02 Quality Standards. HA agrees to maintain a level of quality of the Licensed Products and services related thereto and in connection with the Marks wherein such level of quality shall be to the satisfaction of HOMEACCESS. HA further agrees to maintain a level of quality in connection with its use of the Marks. 3.03 Monitoring By Licensor. HA acknowledges that HOMEACCESS does have the right to periodically monitor HA's use of the Marks in conjunction with the Licensed Products. Upon request by HOMEACCESS, HA shall provide HOMEACCESS with representative samples of each such use prior to the time the Marks are published on the Internet or in press materials or marketing or advertising materials. If HOMEACCESS determines that HA is using the Marks improperly, and/or in connection with the Licensed Products which do not meet the standards set forth in Sections 3.01 and 3.02, HOMEACCESS shall notify HA, and HA shall remedy the improper use within two (2) business days following receipt of such notice from HOMEACCESS. Use of the Marks on goods or services other than the Licensed Products in a manner inconsistent with the Trademark Guidelines, or in connection with an infringement of HOMEACCESS' or a third party's rights, including but not limited to rights under trademark, patent, trade secret or copyright laws constitute a material breach of this Agreement. If such material breach has not been cured within two (2) business days following receipt of notice from HOMEACCESS, this Agreement shall be terminated. 3.04 Legend and Disclaimer. HA shall include with any online publication or publication in print of the Marks a legend indicating that the Marks are those of HOMEACCESS, used under license, and a disclaimer that HA and not HOMEACCESS has produced the Licensed Products related thereto and is responsible for the content thereof. -3- ARTICLE 4. IMPROVEMENTS 4.01 Improvements. HOMEACCESS shall own all Improvements to the HOMEACCESS Intellectual Property whether developed or created by HOMEACCESS, HA or jointly by the parties. HOMEACCESS may at its expense file patent applications or copyright applications anywhere in the world on any such Improvements, and title to any such patent application and copyright application shall be and remain exclusively in HOMEACCESS. HA shall cooperate fully with HOMEACCESS, but at HOMEACCESS's expense, in the preparation and prosecution of any such patent application and copyright application and in the maintenance and enforcement of any patent or copyright registration that may issue therefrom. Each party shall disclose promptly to the other party any of its Improvements to the HOMEACCESS Intellectual Property, and such Improvements shall automatically be included within the definition of HOMEACCESS Intellectual Property. 4.02 Infringement. HA shall give prompt notice to HOMEACCESS of any infringement or suspected infringement or misappropriation of HOMEACCESS Intellectual Property. HOMEACCESS shall be obligated to take appropriate legal action, in accordance with good commercial judgement, to cease such infringement or suspected infringement or misappropriation of HOMEACCESS Intellectual Property, and HA shall at its expense render reasonable assistance to HOMEACCESS in connection therewith. HOMEACCESS shall bear all other expenses and shall be entitled to all recoveries and/or settlements resulting from any such action. ARTICLE 5. DISCLAIMER OF WARRANTIES AND INDEMNIFICATION 5.01 Limited HOMEACCESS Intellectual Property Warranty. EXCEPT AS OTHERWISE PROVIDED HEREIN, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, HOMEACCESS AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE HOMEACCESS INTELLECTUAL PROPERTY OR THE LICENSED PRODUCT. 5.02 HOMEACCESS's Indemnification. (a) HOMEACCESS shall indemnify and hold HA harmless from and against any and all liabilities, obligations, damages, losses, claims, encumbrances, costs and expenses, including attorney's fees and costs (collectively "Losses") to which HA may become subject as a result of any (i) claim, demand, action or proceeding by any third party to the extent such Losses arise directly or indirectly out of the breach of this Agreement by HOMEACCESS or (ii) claim, action, suit or proceeding claiming infringement of any patents, copyrights, trademarks or trade secret rights involved in the Licensed Product, provided such claim, action, suit or proceeding is not the result of any modification or addition by HA to the HOMEACCESS Intellectual Property. (b) If there is an adjudication that the use by HA of the HOMEACCESS Intellectual Property is an infringement or misappropriation, or if the use of such HOMEACCESS Intellectual Property is enjoined, in addition to its indemnification obligation, HOMEACCESS shall, at its expense, use commercially reasonable efforts to either: (i) procure for HA the past and future rights granted to HA hereunder with respect to the allegedly infringing portion of the HOMEACCESS Intellectual Property; or (ii) replace or modify the allegedly infringing portion to make such portion non-infringing, provided that the replacement or modified portion provides substantially the same functionality as the replaced or original portion; and upon failure to complete (i) or (ii), HOMEACCESS shall, at its expense, reimburse -4- HA for the total amount of its license fee paid hereunder, after giving effect to the length of time that HA has had use of the HOMEACCESS Intellectual Property. (c) THIS SECTION 5.02 STATES HOMEACCESS'S ENTIRE OBLIGATION AND LIABILITY TO HA WITH RESPECT TO ANY CLAIM REGARDING ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. Section 5.03 HA's Indemnity. (a) HA shall defend HOMEACCESS against any Losses to which HOMEACCESS may become subject as a result of any claim, demand, action or proceeding by any third party to the extent such Losses arise directly or indirectly out of (i) the breach of this Agreement by HA or (ii) that any modification or addition to the HOMEACCESS Intellectual Property made by or for HA infringes a published intellectual property right of a third party. (b) THIS SECTION 5.03 STATES HA'S ENTIRE OBLIGATION AND LIABILITY TO HOMEACCESS WITH RESPECT TO ANY CLAIM REGARDING ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. 5.04 Limitation on Liability. IN NO EVENT SHALL EITHER PARTY OR THEIR RESPECTIVE DIRECTORS, OFFICERS, PARENT COMPANY, AND AFFILIATES, LICENSORS, AND SUPPLIERS, BE LIABLE FOR ANY LOST DATA OR CONTENT, LOST PROFITS, BUSINESS INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE HOMEACCESS INTELLECTUAL PROPERTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY ASSERTED FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. ARTICLE 6. TERM AND TERMINATION 6.01 Term. Unless terminated in accordance with this Article 6, the term of this Agreement shall be for perpetuity from the Effective Date hereof. 6.02 Termination. (a) HOMEACCESS may terminate this Agreement immediately (i) in accordance with Section 3.03, (ii) if HA breaches a material term of this Agreement and fails to cure such breach within thirty (30) days after receiving written notice of such breach (unless such breach can not reasonably be cured in such thirty (30) day period, in which event such cure period shall be extended so long as HA is using commercially reasonable efforts to cure such default, but in no event greater than ninety (90) days), and (iii) if HA fails to pay any amount due hereunder and such non-payment remains uncured for five (5) business days following written notice to HA of non-payment; and (b) either party may terminate this Agreement immediately in the event (i) a receiver is appointed for the other party or its property or such other party is liquidated or dissolved, (ii) the other party makes an assignment for the benefit of its creditors or (iii) any proceeding is commenced by, for or against the other party under any bankruptcy, insolvency or debtor's relief law for the -5- purpose of seeking a reorganization of such party's debts, and such proceeding is not dismissed within ninety (90) calendar days of its commencement. 6.03 Effect of Termination. Upon the termination of this Agreement for any reason: (a) each party shall retain its rights against the other party in respect of any past breach, in addition to any other rights, powers or remedies provided at law or in equity, (b) the License shall terminate and no longer be of any force or effect, and (c) within (30) days after the date of termination, HA shall immediately cease the use, sale, offer for sale and manufacture of the Licensed Products and shall destroy all HOMEACCESS Intellectual Property. 6.04 Bankruptcy. In the event that HOMEACCESS as a debtor in possession, or a trustee in bankruptcy under the U.S. Bankruptcy Code, rejects this Agreement or HA's right to continue the License under this Agreement, HA may elect to retain its license rights under this Agreement by paying all applicable fees, and otherwise acting in accordance with Section 365(n) of the U.S. Bankruptcy Code. Thereafter, neither HOMEACCESS as debtor in possession, nor a trustee in bankruptcy, shall interfere with the rights of HA to use the HOMEACCESS Intellectual Property in accordance with the terms of this Agreement. 6.05 Survival. The following provisions shall survive the termination of this Agreement for any reason: Sections 2.03, 4.01, 4.02, 8.06 and Articles 5 and 7. ARTICLE 7. PROTECTION OF TECHNICAL INFORMATION 7.01 Confidential Information. "Confidential Information" means any and all technical and nontechnical information, including but not limited to patent, copyright, trade secret, and proprietary information, techniques, and software programs related to the current, future and proposed products and services of a party, as well as any trade information, process, technique, algorithm, computer program (source and object codes), design, drawing formula, test data, financial data and budgetary information, income or sales data or projections, purchasing, customer lists, business development plans and forecasts, sales and merchandising, marketing plans, concepts, records and files, and information that a party discloses or that is otherwise made available to the other party, in writing or electronic form, pursuant to this Agreement. 7.02 Protection of Confidential Information. Each party retains sole and exclusive ownership to its own Confidential Information. Neither party will disclose, publish, communicate or divulge any of the other party's Confidential Information to any third party or use such Confidential Information for any purpose except to accomplish the intent of this Agreement, except either as allowed in this Agreement or with the other party's prior written consent. Each party receiving Confidential Information under this Agreement will protect such Confidential Information with the same degree of care it uses to protect its own Confidential Information of a similar nature, but never less than a reasonable degree of care. Each party agrees that the other party's Confidential Information will be disclosed or made available only to those of its employees who need to know such information and are aware of the confidentiality obligations hereunder or to independent contractors who are obliged to treat the Confidential Information in a manner consistent with all the obligations under this Agreement or as otherwise necessary to exercise the rights set forth in this Agreement. 7.03 Exceptions. A party has no obligation to maintain the confidentiality of, or refrain from using, Confidential Information of the other party that (a) the receiving party knew prior to receiving from the disclosing party as evidenced by written records maintained in the ordinary course of business; (b) the receiving party independently develops or has developed by individuals who do not have access to the other party's Confidential Information; (c) has become publicly available other than as a result of any default or wrongful or negligent act or omission by the receiving party; (d) the receiving party has rightfully received -6- from a third party under no obligation of confidentiality prohibiting such disclosure; or (e) the disclosing party has approved for release by written authorization. In the event that a party is required to disclose Confidential Information pursuant to applicable law or judicial or administrative government proceedings, then, prior to the required disclosure, the receiving party shall give notice to the disclosing party so that the disclosing party may take reasonable steps to oppose or limit the required disclosure and that the receiving party does not disclose any more information than necessary to comport with the law or order. 7.04 Injunctive Relief. Each party acknowledges and agrees that (a) the restrictions and obligations contained in this Article 7 are reasonable and necessary to protect the other party's legitimate interests; (b) in the event of a violation of these restrictions or a breach of these obligations, remedies at law shall be inadequate and such violation or breach may cause irreparable damages to the other party within a short period of time; and (c) the non-disclosing party shall be entitled to injunctive relief, without posting bond or other security, against each and every such violation or breach, provided the party charged is given lawful notice of the proceeding and an opportunity to appear therein. ARTICLE 8. GENERAL 8.01 Independent Contractor. The relationship created by this Agreement is one of independent contractors, and not partners, franchisees or joint venturers. No employees, consultants, contractors or agents of one party are employees, consultants, contractors or agents of the other party, nor do they have any authority to bind the other party by contract or otherwise to any obligation, except as expressly set forth herein. Neither party will represent to the contrary, either expressly, implicitly or otherwise. 8.02 Miscellaneous. This Agreement and the Schedules attached hereto and made a part hereof, constitute the complete and exclusive agreement between HOMEACCESS and HA and supersede all prior oral or written understandings or agreements not specifically incorporated herein. This Agreement may not be modified except in a writing duly signed by an authorized officer of HOMEACCESS and HA. If any provision of this Agreement is held to be unenforceable for any reason, such provision shall be reformed only to the extent necessary to make it enforceable, and such decision shall not affect the enforceability of such provision under other circumstances, or of the remaining provisions hereof under all circumstances. Headings shall not be considered in interpreting this Agreement. 8.03 Binding Effect. All covenants, representations, warranties and other stipulations in this Agreement, given by or on behalf of any of the parties hereto, shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. Notwithstanding Section 2.01 hereof, the license rights set forth in Section 2.01 shall be assignable commencing after the first eighteen (18) months of the Term. 8.04 Cumulative Powers. No remedy herein conferred upon a party to this Agreement is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter existing at law, or in equity or by statute or otherwise. 8.05 Notices. Any notice, request, instruction, or other document to be given must be in writing and delivered personally or sent by certified mail or by United States Express Mail, postage or fees prepaid, or by FedEx to any such party at its address set forth on the first page of this Agreement. Notice so given shall be deemed given and received (i) if by registered mail on the third (3rd) day after mailing; (ii) by personal delivery on the date of personal delivery; and (iii) if by overnight courier, on the next business day following the day such notice is delivered to the courier service. -7- 8.06 Waiver. Failure or delay on the part of either party to exercise any right, remedy, power, privilege or option hereunder which is not subject to an express time limitation with respect to exercise shall not operate or be construed to operate as a waiver thereof. A waiver, to be effective, must be in writing and be signed by the party making the waiver. No written waiver of any term or condition of this Agreement shall operate or be construed to operate as a waiver of any other term or condition, nor shall any written waiver of any breach or default operate or be construed to operate as a waiver of any other breach or default or of the same type of breach or default on a subsequent occasion or operate or be construed to operate as a continuing waiver. 8.07 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written. HOMEACCESS By: /s/ Mark DiCamillo --------------------------- Name: Mark DiCamillo Title: Vice President HA By: /s/ Jerry Conrad --------------------------- Name: Jerry Conrad Title: President -8- SCHEDULE 1 HOMEACCESS MARKS ---------------- Mark Serial No. Registration Number ---- ---------- ------------------- Home Access 75-019,859 2,074,636

EXHIBIT 10.6 Supplemental Agreement No. 18 to Purchase Agreement No. 1951 between The Boeing Company and Continental Airlines, Inc. Relating to Boeing Model 737 Aircraft     THIS SUPPLEMENTAL AGREEMENT, entered into as of September 11, 2000, by and between THE BOEING COMPANY, a Delaware corporation with its principal office in Seattle, Washington, (Boeing) and Continental Airlines, Inc., a Delaware Corporation with its principal office in Houston, Texas (Buyer); WHEREAS, the parties hereto entered into Purchase Agreement No. 1951 dated July 23, 1996 (the Agreement), as amended and supplemented, relating to Boeing Model 737-500, 737-600, 737-700, 737-800, and 737-900 aircraft (the Aircraft); and WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Buyer have mutually agreed that the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] and WHEREAS, Boeing and Buyer have mutually agreed to amend the Agreement to incorporate the effect of these and certain other changes; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties agree to amend the Agreement as follows: 1. Table of Contents and Articles: 1.1 Remove and replace, in its entirety, the "Table of Contents", with the Table of Contents attached hereto, to reflect the changes made by this Supplemental Agreement No. 18. 1.2 Remove and replace, in its entirely, page T-3 of Table 1 entitled "Aircraft Deliveries and Descriptions" that relates to Model 737-800 Aircraft with new page T-3 attached hereto for the Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 2. Letter Agreements: 2.1 Remove and replace, in its entirety, Letter Agreement 1951-3R10, "Option Aircraft - Model 737-824 Aircraft" with Letter Agreement 1951-3R11; "Option Aircraft - Model 737-824 Aircraft", attached thereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].     The Agreement will be deemed to be supplemented to the extent herein provided as of the date hereof and as so supplemented will continue in full force and effect.   EXECUTED IN DUPLICATE as of the day and year first written above.   THE BOEING COMPANY Continental Airlines, Inc.       By: /s/ Henry H. Hart   By: /s/ Gerald Laderman   Its: Attorney-In-Fact   Its: Senior Vice President-Finance TABLE OF CONTENTS Page SA Number Number ARTICLES 1. Subject Matter of Sale 1-1 SA 5 2. Delivery, Title and Risk of Loss 2-1 3. Price of Aircraft 3-1 SA 5 4. Taxes 4-1 5. Payment 5-1 6. Excusable Delay 6-1 7. Changes to the Detail Specification 7-1 SA 5 8. Federal Aviation Requirements and Certificates and Export License 8-1 SA 5 9. Representatives, Inspection, Flights and Test Data 9-1 10. Assignment, Resale or Lease 10-1 11. Termination for Certain Events 11-1 12. Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance 12-1 13. Buyer Furnished Equipment and Spare Parts 13-1 14. Contractual Notices and Requests 14-1 SA 17 15. Miscellaneous 15-1   TABLE OF CONTENTS Page SA Number Number TABLES 1. Aircraft Deliveries and Descriptions - 737-500 T-1 SA 3 Aircraft Deliveries and Descriptions - 737-700 T-2 SA 13 Aircraft Deliveries and Descriptions - 737-800 T-3 SA 18 Aircraft Deliveries and Descriptions - 737-600 T-4 SA 4 Aircraft Deliveries and Descriptions - 737-900 T-5 SA 5   EXHIBITS A-1 Aircraft Configuration - Model 737-724 SA 2 A-2 Aircraft Configuration - Model 737-824 SA 2 A-3 Aircraft Configuration - Model 737-624 SA 1 A-4 Aircraft Configuration - Model 737-524 SA 3 A-5 Aircraft Configuration - Model 737-924 SA 5 B Product Assurance Document SA 1 C Customer Support Document - Code Two - Major Model Differences SA 1 C1 Customer Support Document - Code Three - Minor Model Differences SA 1 D Aircraft Price Adjustments - New Generation Aircraft (1995 Base Price) SA 1 D1 Airframe and Engine Price Adjustments - Current Generation Aircraft SA 1 D2 Aircraft Price Adjustments - New Generation Aircraft (1997 Base Price) SA 5 E Buyer Furnished Equipment Provisions Document SA 5 F Defined Terms Document SA 5   TABLE OF CONTENTS SA Number LETTER AGREEMENTS 1951-1 Not Used 1951-2R3 Seller Purchased Equipment SA 5 1951-3R11 Option Aircraft-Model 737-824 Aircraft SA 18 1951-4R1 Waiver of Aircraft Demonstration SA 1 1951-5R2 Promotional Support - New Generation SA 5 Aircraft 1951-6 Configuration Matters 1951-7R1 Spares Initial Provisioning SA 1 1951-8R2 Escalation Sharing - New Generation Aircraft SA 4 1951-9R8 Option Aircraft-Model 737-724 Aircraft SA 17 1951-11R1 Escalation Sharing-Current Generation Aircraft SA 4 1951-12R1 Option Aircraft - Model 737-924 Aircraft SA 17 1951-13 Configuration Matters - Model 737-924 SA 5 TABLE OF CONTENTS   SA Number RESTRICTED LETTER AGREEMENTS 6-1162-MMF-295 Performance Guarantees - Model 737-724 Aircraft 6-1162-MMF-296 Performance Guarantees - Model 737-824 Aircraft 6-1162-MMF-308R3 Disclosure of Confidential SA 5 Information 6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED SA 1 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED SA 5 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-312R1 Special Purchase Agreement Provisions SA 1 6-1162-MMF-319 Special Provisions Relating to the Rescheduled Aircraft 6-1162-MMF-378R1 Performance Guarantees - Model 737-524 Aircraft SA 3 6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED SA 2 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-GOC-131R2 Special Matters SA 5 6-1162-DMH-365 Performance Guarantees - Model 737-924 Aircraft SA 5 6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED SA 8 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-680 Delivery Delay Resolution Program SA 9 6-1162-DMH-1020 [CONFIDENTIAL MATERIAL OMITTED SA 14 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1035 [CONFIDENTIAL MATERIAL OMITTED SA 15 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1054 [CONFIDENTIAL MATERIAL OMITTED SA 16 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   TABLE OF CONTENTS   SUPPLEMENTAL AGREEMENTS DATED AS OF: Supplemental Agreement No. 1 October 10,1996 Supplemental Agreement No. 2 March 5, 1997 Supplemental Agreement No. 3 July 17, 1997 Supplemental Agreement No. 4 October 10,1997 Supplemental Agreement No. 5 May 21,1998 Supplemental Agreement No. 6 July 30,1998 Supplemental Agreement No. 7 November12,1998 Supplemental Agreement No. 8 December 7,1998 Supplemental Agreement No. 9 February 18,1999 Supplemental Agreement No. 10 March 19,1999 Supplemental Agreement No. 11 May 14,1999 Supplemental Agreement No. 12 July 2,1999 Supplemental Agreement No. 13 October 13,1999 Supplemental Agreement No. 14 December 13,1999 Supplemental Agreement No. 15 January 13,2000 Supplemental Agreement No. 16 March 17,2000 Supplemental Agreement No. 17 May 16, 2000 Supplemental Agreement No. 18 September11,2000 Table 1 to Purchase Agreement 1951 Aircraft Deliveries and Descriptions Model 737-800 Aircraft CFM56-7B26 Engines Detail Specification No. D6-38808-43 Exhibit A-2   [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 1951-3R11 September 11, 2000   Continental Airlines, Inc. 1600 Smith Street Houston, Texas 77002   Subject: Letter Agreement No. 1951-3R11 to Purchase Agreement No. 1951 - Option Aircraft - Model 737-824 Aircraft   Ladies and Gentlemen: This Letter Agreement amends Purchase Agreement No. 1951 dated July 23, 1996(the Agreement) between The Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer) relating to Model 737-824 aircraft (the Aircraft). This Letter Agreement supersedes and replaces in its entirety Letter Agreement 1951-3R10 dated May 16, 2000. All terms used and not defined herein shall have the same meaning as in the Agreement. In consideration of Buyer's purchase of the Aircraft, Boeing hereby agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model 737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms and conditions set forth in the Agreement, except as otherwise described in Attachment A hereto, and subject to the terms and conditions set forth below. 1. Delivery. The Option Aircraft will be delivered to Buyer during or before the months set forth in the following schedule: Month and Year Number of of Delivery   Option Aircraft [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]     3. Option Aircraft Deposit. In consideration of Boeing's grant to Buyer of options to purchase the Option Aircraft as set forth herein, Buyer has paid a deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option Aircraft (the Option Deposit) prior to the date of this Letter Agreement. In the event Buyer exercises an option herein for an Option Aircraft, the amount of the Option Deposit for such Option Aircraft will be credited against the first advance payment due for such Option Aircraft pursuant to the advance payment schedule set forth in Article 5 of the Agreement. In the event that Buyer does not exercise its option to purchase a particular Option Aircraft pursuant to the terms and conditions set forth herein, Boeing shall be entitled to retain the Option Deposit for such Option Aircraft. 4. Option Exercise. To exercise its option to purchase the Option Aircraft, Buyer shall give written notice thereof to Boeing on or before the first business day of the month in each Option Exercise Date shown below: Option Aircraft Option Exercise Date [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 5. Contract Terms. Within thirty (30) days after Buyer exercises an option to purchase Option Aircraft pursuant to paragraph 4 above, Boeing and Buyer will use their best reasonable efforts to enter into a supplemental agreement amending the Agreement to add the applicable Option Aircraft to the Agreement as a firm Aircraft (the Option Aircraft Supplemental Agreement). In the event the parties have not entered into such an Option Aircraft Supplemental Agreement within the time period contemplated herein, either party shall have the right, exercisable by written or telegraphic notice given to the other within ten (10) days after such period, to cancel the purchase of such Option Aircraft. 6. Cancellation of Option to Purchase. Either Boeing or Buyer may cancel the option to purchase an Option Aircraft if any of the following events are not accomplished by the respective dates contemplated in this Letter Agreement, or in the Agreement, as the case may be: (i) purchase of the Aircraft under the Agreement for any reason not attributable to the canceling party; (ii) payment by Buyer of the Option Deposit with respect to such Option Aircraft pursuant to paragraph 3 herein; or (iii) exercise of the option to purchase such Option Aircraft pursuant to the terms hereof. Any cancellation of an option to purchase by Boeing which is based on the termination of the purchase of an Aircraft under the Agreement shall be on a one-for-one basis, for each Aircraft so terminated. Cancellation of an option to purchase provided by this letter agreement shall be caused by either party giving written notice to the other within ten (10) days after the respective date in question. Upon receipt of such notice, all rights and obligations of the parties with respect to an Option Aircraft for which the option to purchase has been cancelled shall thereupon terminate. Boeing shall promptly refund to Buyer, without interest, any payments received from Buyer with respect to the affected Option Aircraft. Boeing shall be entitled to retain the Option Deposit unless cancellation is attributable to Boeing's fault, in which case the Option Deposit shall also be returned to Buyer without interest. 7. Applicability. Except as otherwise specifically provided, limited or excluded herein, all Option Aircraft that are added to the Agreement by an Option Aircraft Supplemental Agreement as firm Aircraft shall benefit from all the applicable terms, conditions and provisions of the Agreement.   If the foregoing accurately reflects your understanding of the matters treated herein, please so indicate by signature below. Very truly yours, THE BOEING COMPANY     By   /s/ Henry H. Hart      Its     Attorney In Fact      ACCEPTED AND AGREED TO this Date: September 11, 2000 CONTINENTAL AIRLINES, INC.,     By   /s/ Gerald Laderman    Its   Senior Vice President - Finance            Attachment Model 737-824 Aircraft 1. Option Aircraft Description and Changes. 1.1 Aircraft Description. The Option Aircraft are described by Boeing Detail Specification D6-38808-43, Revision B, dated April 30,2000, as amended and revised pursuant to the Agreement. 1.2 Changes. The Option Aircraft Detail Specification shall be revised to include: (1) Changes applicable to the basic Model 737-800 aircraft which are developed by Boeing between the date of the Detail Specification and the signing of an Option Aircraft Supplemental Agreement. (2) Changes mutually agreed upon. (3) Changes required to obtain a Standard Certificate of Airworthiness. 1.3 Effect of Changes. Changes to the Detail Specification pursuant to the provisions of the clauses above shall include the effects of such changes upon Option Aircraft weight, balance, design and performance. 2. Price Description. 2.1 Price Adjustments. 2.1.1 Base Price Adjustments. The base aircraft price (pursuant to Article 3 of the Agreement) of the Option Aircraft will be adjusted to Boeing's and the engine manufacturer's then-current prices as of the date of execution of the Option Aircraft Supplemental Agreement. 2.1.2 Special Features. The price for special features incorporated in the Option Aircraft Detail Specification will be adjusted to Boeing's then-current prices for such features as of the date of execution of the Option Aircraft Supplemental Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   2.1.3 Escalation Adjustments. The base airframe and special features price will be escalated according to the applicable airframe and engine manufacturer escalation provisions contained in Exhibit D of the Agreement. Buyer agrees that the engine escalation provisions will be adjusted if they are changed by the engine manufacturer prior to signing the Option Aircraft Supplemental Agreement. In such case, the then-current engine escalation provisions in effect at the time of execution of the Option Aircraft Supplemental Agreement will be incorporated into such agreement. 2.1.4 Price Adjustments for Changes. Boeing may adjust the basic price and the advance payment base prices for any changes mutually agreed upon by Buyer and Boeing subsequent to the date that Buyer and Boeing enter into the Option Aircraft Supplemental Agreement. 2.1.5 BFE to SPE. An estimate of the total price for items of Buyer Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE) pursuant to the Detail Specification is included in the Option Aircraft price build-up. The purchase price of the Option Aircraft will be adjusted by the price charged to Boeing for such items plus 10% of such price. 3. Advance Payments. 3.1 Buyer shall pay to Boeing advance payments for the Option Aircraft pursuant to the schedule for payment of advance payments provided in the Purchase Agreement.  

Exhibit 10-38 (As Amended and Restated Effective September 6, 2000) ENERGY EAST CORPORATION DIRECTOR SHARE PLAN I.  Plan Objective The objective of the Director Share Plan (the "Plan") is to attract and retain current and future Directors of Energy East Corporation (the "Company") by providing such Directors with benefits, in addition to current cash compensation, that enhance the linkage between director and shareholder interests. II.  Definitions Wherever used in the Plan, unless the context clearly indicates otherwise, the following words and phrases shall have the meanings set forth below: A.  "Account" shall mean the account to be established by the Committee to which Phantom Shares and Dividend Phantom Shares will be credited for each Participant. B.  "Board" shall mean the Board of Directors of Energy East Corporation. C.  "Director" shall mean a member of the Board on September 6, 2000. D.  "Dividend Phantom Shares" shall mean the "phantom" (not corporate) shares that accrue in accordance with Article V hereof during each Plan Year. E.  "Participant" shall mean a non-employee Director who has satisfied the eligibility and participation requirements of Article IV hereof. F.  "Phantom Shares" shall mean the "phantom" (not corporate) shares that are granted to Participants in the Plan pursuant to Article VI hereof. G.  "Plan" shall mean the Energy East Corporation Director Share Plan as embodied herein and as amended from time to time. H.  "Plan Year" shall mean the calendar year. III. Administration The Plan shall be administered by a committee to be known as the Director Share Plan Committee (the "Committee"), the members of which shall be appointed by the Board or the Chief Executive Officer of the Company. No member of the Committee while serving as such shall be eligible for participation in the Plan. Decisions and determinations by the Committee shall be final and binding upon all parties. The Committee shall have the authority to interpret the Plan, to establish and revise rules and regulations relating to the Plan, and to make any other determinations that it believes necessary or advisable for the administration of the Plan. IV. Eligibility and Participation All Directors who are non-employee Directors on September 6, 2000 or thereafter are eligible to participate in the Plan. Each eligible Director who first becomes a non-employee Director on or after the effective date of the Plan automatically becomes a Participant upon becoming a non-employee Director. V.  Phantom Shares and Dividend Phantom Shares All Phantom Shares granted to a Participant shall be credited to a Phantom Share Account which shall be maintained for the Participant. On each common stock dividend payment date of the Company, Dividend Phantom Shares, including fractional Dividend Phantom Shares computed to four decimal places, shall be credited to each Participant's Phantom Share Account. The number of Dividend Phantom Shares to be credited shall be calculated by first determining the amount of the dividends that would be paid by the Company upon all Phantom Shares and Dividend Phantom Shares held for the Participant as if such shares actually were issued and outstanding common stock of the Company. The amount of dividends so determined shall then be divided by the price per share paid by the Company's dividend reinvestment plan for common stock that was purchased by said Plan with respect to the common stock dividend payment date for which the Dividend Phantom Shares are being credited. The quotient of said division is the number of Dividend Phantom Shares which shall be credited to a Participant's Phantom Share Account. An award of Phantom Shares or Dividend Phantom Shares under the Plan shall not entitle the recipient to any actual dividend or voting rights or any other rights of a shareholder with respect to such Phantom Shares or Dividend Phantom Shares. VI. Plan Grants Commencing October 1, 2000 and on each January 1, April 1, July 1 and October 1 thereafter, 400 Phantom Shares will be granted to each Director who is a Plan Participant as of that date. VII. Form and Timing of Payments A.  Form -  Upon a Participant's ceasing to serve as a Director of the Company ("Service Termination Date"), all Phantom Shares and Dividend Phantom Shares in the Participant's Phantom Share Account on the Service Termination Date shall be settled in cash. Payments shall be calculated by multiplying the number of Phantom Shares and Dividend Phantom Shares in a Participant's Phantom Share Account on the Service Termination Date by the average of the Company's Common Stock closing prices for the five trading days immediately preceding the Service Termination Date. B.  Timing -  Cash payments shall be made by the tenth day of the calendar month next following the Service Termination Date. The Committee or the Board may adopt procedures allowing Participants to defer the cash payments they will be entitled to receive under the Plan. VIII. Dilution and Other Adjustments In the event of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change, if the Committee shall determine, in its sole discretion, that such change equitably requires an adjustment in the number of Phantom Shares then held in each Participant's Phantom Share Account or which may be awarded to any Participant, or an adjustment in the number of Dividend Phantom Shares then held in each Participant's Phantom Share Account or which may be awarded to any Participant, such adjustments shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan. IX. Amendments and Termination The Board may at any time suspend, terminate, modify or amend the Plan. Neither the suspension or termination of the Plan nor any modification or amendment thereto shall diminish the previously accrued rights of any Director who, at the date of such suspension, termination, modification or amendment, is a Participant in the Plan. X.  Miscellaneous Provisions A.  In the case of a Participant's death, payments with respect to Phantom Shares and Dividend Phantom Shares shall be made to his or her designated beneficiary, or in the absence of such designation, by will or the laws of descent and distribution. B.  Except as set forth in A. above, a Participant's rights and benefits under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, attachment, execution or levy of any kind, either voluntary or involuntary, including any such liability which arises from the Participant's bankruptcy or for the support of a spouse or former spouse or for any other relative of the Participant prior to payments actually being received by the person eligible to benefit under the Plan. Any attempt at such prohibited anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, attachment, execution or levy, shall be void and unenforceable except as otherwise provided by law. C.  No Participant shall have any claim or right to be granted an award under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving a Participant any right to be retained in the service of the Company. D.  The Company shall have the right to deduct from the cash payments made pursuant to Article VII any taxes required by law to be withheld with respect to such cash payments. E.  The Plan shall inure to the benefit of, and be binding upon, the Company, and its successors and assigns, including any company into or with which the Company may be merged or consolidated, and shall inure to the benefit of, and be binding upon, the Director or Participant and his or her heirs, executors, administrators, and, if applicable, his or her committee, conservator or other person serving in a similar capacity. XI. Effective Date The Plan shall be effective as of January 1, 1997. XII.  Funding There shall be no funding of any amounts to be paid pursuant to this Plan; provided, however, that the Company, in its discretion, may establish a trust to pay such amounts, which trust shall be subject to the claims of the Company's creditors in the event of the Company's bankruptcy or insolvency; and provided, further, that the Company shall remain responsible for the payment of any such amounts which are not so paid by any such trust.   INITIAL BENEFICIARY FORM        I hereby designate                                            as beneficiary under the Director Share Plan of Energy East Corporation.                                                       Director                                Date              CHANGE OF BENEFICIARY FORM      I hereby designate                                            as beneficiary under the Director Share Plan of Energy East Corporation superseding all beneficiary designations previously made by me.                                                       Director                                Date                Receipt Acknowledged:                                               Director Share Plan      Committee Member                                Date             

Exhibit 10.67   AMENDMENT NO. 1 TO CREDIT AGREEMENT      THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”), dated as of August 9, 2000, is entered into by and among: > >         (1)     ADOBE SYSTEMS INCORPORATED, a Delaware corporation > > (“Borrower”); > > > >         (2)     The financial institutions from time to time listed in > > Schedule I to the Credit Agreement described below (such financial > > institutions to be referred to herein collectively as “Lenders”); and > > > >         (3)     ABN AMRO BANK N.V., as agent for Lenders (in such capacity, > > “Administrative Agent”). RECITALS                     A.     Borrower, Lenders and Administrative Agent are parties to a Credit Agreement dated as of August 11, 1999 (the “Credit Agreement”) providing for a multi-year revolving credit facility and a 364-day revolving credit facility convertible into term loans.                     B.     The 364-day revolving credit facility provided under the Credit Agreement has expired and Borrower has requested Lenders and Administrative Agent to amend the Credit Agreement to expand the definition of “Permitted Indebtedness” to include a new revolving credit facility convertible into term loans being provided to Borrower by separate agreement.                     C.     Lenders and Administrative Agent are willing so to amend the Credit Agreement upon the terms and subject to the conditions set forth below.                     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, Lenders and Administrative Agent hereby agree as follows:                     1.     Definitions; Interpretation. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit Agreement shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 1 --------------------------------------------------------------------------------                     2.     Amendment to Credit Agreement. Subject to the satisfaction of the conditions set forth in Paragraph 4 below, clause (x) of Subparagraph 5.02(a) of the Credit Agreement is relettered clause (xi) and a new clause (x) is added to Subparagraph 5.02(a) as follows: > >         “(x)     Indebtedness of Borrower under a credit agreement, dated as > > of August 9, 2000, among Borrower, the financial institutions from time to > > time parties thereto as lenders, and ABN AMRO as administrative agent for > > such lenders, providing for a revolving credit facility convertible into > > term loans in a maximum aggregate principal amount not to exceed > > $100,000,000, and any initial or successive refinancings of such > > Indebtedness provided that (A) the principal amount of any such refinancing > > does not exceed $100,000,000 and (B) the material terms and provisions of > > such refinancing (including maturity, prepayment and default provisions) are > > no less favorable to Lenders than the Indebtedness being refinanced; and”                     3.     Representations and Warranties. Borrower hereby represents and warrants to Administrative Agent and Lenders that the following are true and correct on the date of this Amendment and, after giving effect to the amendment set forth in Paragraph 2 above, the following will be true and correct on the Effective Date (as defined below): > >         (a)     The representations and warranties of Borrower set forth in > > Paragraph 4.01 of the Credit Agreement and in the other Credit Documents are > > true and correct in all material respects as if made on such date (except > > for representations and warranties expressly made as of a specified date, > > which are true and correct as of such date); and > > > >         (b)     No Default has occurred and is continuing. (Without limiting the scope of the term “Credit Documents,” Borrower expressly acknowledges in making the representations and warranties set forth in this Paragraph 3 that, on and after the Effective Date hereof, such term includes this Amendment.)                     4.     Effective Date. The amendment effected by Paragraph 2 above shall become effective on August 9, 2000 (the “Effective Date”), subject to receipt by Administrative Agent on or prior to the Effective Date of the following, each in form and substance satisfactory to Administrative and its respective counsel: > >         (a)     This Amendment duly executed by Borrower, Required Lenders > > and Administrative Agent; and > > > >         (b)     Such other evidence as Administrative Agent may reasonably > > request to establish the accuracy and completeness of the representations > > and warranties and compliance with the terms and conditions contained in > > this Amendment and the other Credit Documents.                     5.     Effect of this Amendment. On and after the Effective Date, each reference in the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit 2 -------------------------------------------------------------------------------- Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and affirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of Lenders or Administrative Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document.                     6.     Miscellaneous. > >         (a)     Counterparts. This Amendment may be executed in any number > > of identical counterparts, any set of which signed by all the parties hereto > > shall be deemed to constitute a complete, executed original for all > > purposes. > > > >         (b)     Headings. Headings in this Amendment are for convenience of > > reference only and are not part of the substance hereof. > > > >         (c)     Governing Law. This Amendment shall be governed by and > > construed in accordance with the laws of the State of California without > > reference to conflicts of law rules. [The first signature page follows.] 3 --------------------------------------------------------------------------------      IN WITNESS WHEREOF, Borrower, Administrative Agent and Lenders have caused this Amendment to be executed as of the day and year first above written. BORROWER: ADOBE SYSTEMS INCORPORATED             By: /s/ MURRAY J. DEMO --------------------------------------------------------------------------------     Name: Murray J. Demo -------------------------------------------------------------------------------- Title: Sr. Vice President, CFO --------------------------------------------------------------------------------       By: /s/ JOHN E. WARNOCK -------------------------------------------------------------------------------- Name: John E. Warnock -------------------------------------------------------------------------------- Title: Chairman, CEO --------------------------------------------------------------------------------        ADMINISTRATIVE AGENT: ABN AMRO BANK N.V.           By:  /s/ JAMIE DILLON --------------------------------------------------------------------------------   Name: Jamie Dillon -------------------------------------------------------------------------------- Title: Senior Vice President --------------------------------------------------------------------------------   By: /s/ NIA MILLER -------------------------------------------------------------------------------- Name: Nia Miller -------------------------------------------------------------------------------- Title: Vice President --------------------------------------------------------------------------------      LENDERS: ABN AMRO BANK N.V.     By:  /s/ JAMIE DILLON -------------------------------------------------------------------------------- Name: Jamie Dillon -------------------------------------------------------------------------------- Title: Senior Vice President --------------------------------------------------------------------------------   By: /s/ NIA MILLER -------------------------------------------------------------------------------- Name: Nia Miller -------------------------------------------------------------------------------- Title: Vice President --------------------------------------------------------------------------------   S-1 -------------------------------------------------------------------------------- BANK OF AMERICA, N.A.     By: /s/ JOUNI KORHONEN -------------------------------------------------------------------------------- Name: Jouni Korhonen -------------------------------------------------------------------------------- Title: Managing Director --------------------------------------------------------------------------------     BANK HAPOALIM B.M.   By: /s/ LEWROY HACKETT -------------------------------------------------------------------------------- Name: Lewroy Hackett -------------------------------------------------------------------------------- Title: Vice President --------------------------------------------------------------------------------     BANK OF MONTREAL     By: /s/ KANU MODI -------------------------------------------------------------------------------- Name: Kanu Modi -------------------------------------------------------------------------------- Title: Director --------------------------------------------------------------------------------     BANK ONE, N.A.     By: /s/ STEPHANIE A. MACK -------------------------------------------------------------------------------- Name: Stephanie A. Mack -------------------------------------------------------------------------------- Title: Commercial Banking Officer --------------------------------------------------------------------------------      BNP PARIBAS     By: /s/ C. BETTLES                                                  /s/ TJALLING TERPSTRA -------------------------------------------------------------------------------- Name: C. Bettles                                           Tjalling Terpstra -------------------------------------------------------------------------------- Title: Sr. Vice President                             Vice President --------------------------------------------------------------------------------   S-2 -------------------------------------------------------------------------------- FIRST UNION NATIONAL BANK     By: /s/ JORGE A. GONZALEZ -------------------------------------------------------------------------------- Name: Jorge A. Gonzalez -------------------------------------------------------------------------------- Title: Senior Vice President --------------------------------------------------------------------------------     FLEET NATIONAL BANK     By: /s/ WILLIAM S. ROWE -------------------------------------------------------------------------------- Name: Williams S. Rowe -------------------------------------------------------------------------------- Title: Assistant Vice President --------------------------------------------------------------------------------     THE INDUSTRIAL BANK OF JAPAN, LIMITED       By: /s/ YOSHIHIKO SUGITA -------------------------------------------------------------------------------- Name: Yoshihiko Sugita -------------------------------------------------------------------------------- Title: Senior Vice President & Deputy General Manager   --------------------------------------------------------------------------------   KEYBANK NATIONAL ASSOCIATION       By: /s/ JIM PUTNAM -------------------------------------------------------------------------------- Name: Jim Putnam -------------------------------------------------------------------------------- Title: Vice President / Sr. Portfolio Manager --------------------------------------------------------------------------------     MELLON BANK, N.A.       By: /s/ LAWRENCE C. IVEY -------------------------------------------------------------------------------- Name: Lawrence C. Ivey -------------------------------------------------------------------------------- Title: Vice President -------------------------------------------------------------------------------- S-3 --------------------------------------------------------------------------------   THE NORTHERN TRUST COMPANY     By: /s/ ASHISH S. BHAGWAT -------------------------------------------------------------------------------- Name: Ashish S. Bhagwat -------------------------------------------------------------------------------- Title: Senior Vice President --------------------------------------------------------------------------------     THE ROYAL BANK OF SCOTLAND PLC     By: /s/ KAREN L. STEFANCIO -------------------------------------------------------------------------------- Name: Karen L. Stefancio -------------------------------------------------------------------------------- Title: Vice President --------------------------------------------------------------------------------     THE SUMITOMO BANK, LIMITED     By: /s/ AZAR SHAKERI -------------------------------------------------------------------------------- Name: Azar Shakeri -------------------------------------------------------------------------------- Title: Vice President and Manager --------------------------------------------------------------------------------     UBS AG Stamford Branch     By: /s/ ROBERT H. RILEY III -------------------------------------------------------------------------------- Name: Robert H. Riley III -------------------------------------------------------------------------------- Title: Executive Director --------------------------------------------------------------------------------   By: /s/ WILFRED SAINT -------------------------------------------------------------------------------- Name: Wilfred Saint -------------------------------------------------------------------------------- Title: Associate Director Loan Portfolio Support, US -------------------------------------------------------------------------------- S-4 --------------------------------------------------------------------------------

Exhibit 10.1     First Union National Bank       [LOGO]           Jill W. Akre Senior Vice President (215) 786-4135 May 15, 2000 VIA FACSIMILE (410-266-8400) Condor Technology Solutions, Inc. Annapolis Office Plaza 170 Jennifer Road, Suite 325 Annapolis, Maryland 21401 Attention: Mike Robbins, Chief Financial Officer     Re:  Credit Agreement (as herein defined). Dear Mike:     This First Amendment to Fifth Amendment Agreement (the "First Amendment to Fifth Amendment") is dated as of May 15, 2000 (the "First Amendment to Fifth Amendment Closing Date") and is made and entered into by and among First Union National Bank, as Collateral Agent, Administrative Agent and Issuing Lender (in all such capacities, the "Agent"), First Union Commercial Corporation, as Lender, Fleet National Bank, as Lender, Citizens Bank of Massachusetts, successor in interest to State Street Bank and Trust Company, as Lender and Mellon Bank, N.A., as Lender (all of the foregoing, individually, a "Lender," and collectively, the "Lenders" or the "Lender Group," as the case may be) and Condor Technology Solutions, Inc., Computer Hardware Maintenance Company, Inc., Decision Support Technology, Inc., Federal Computer Corporation, Global Core Strategies Acquisition, Inc., Interactive Software Systems Incorporated, Inventure Group, Inc., LINC Systems Corporation, Louden Associates, Inc., Management Support Technology Corp., MIS Technologies, Inc., Powercrew, Inc., Titan Technologies Group L.L.C., U.S. Communications, Inc., Corporate Access, Inc. and Condor System Solutions, Inc., as Borrowers (collectively, the "Borrowers"). BACKGROUND     A.  The Borrowers and the Lenders are parties, inter alia: (i) a Credit Agreement dated as of April 16, 1999 (as amended from time to time prior to the date hereof, the "Existing Credit Agreement," and as amended hereby and from time to time hereafter, the "Credit Agreement"); and (ii) that certain Forbearance Letter Agreement dated as of July 23, 1999, as amended by: (i) the First Amendment to Forbearance Letter Agreement dated as of July 30, 1999; (ii) the Second Amendment to Forbearance Letter Agreement dated as of August 13, 1999, as amended; (iii) the Third Amendment to Forbearance Letter Agreement and Amendment Agreement dated as of August 27, 1999; (iv) the Fourth Amendment to Forbearance Letter Agreement and Amendment Agreement dated as of November 15, 1999, as amended; (v) the Fifth Amendment Agreement dated as of March 1, 2000, as amended by this First Amendment to Fifth Amendment (as amended, the "Forbearance Letter Agreement").     B.  As used herein, the term "Loan Documents" shall mean this First Amendment to Fifth Amendment, the other Forbearance Documents (hereinafter defined), the Existing Loan Documents, -------------------------------------------------------------------------------- and all other documents now or hereafter entered into by and among the Lenders, the Borrowers and/or any of them and/or any guarantors, mortgagors or pledgors to evidence and/or secure the Facilities and/or any of the other Obligations (hereinafter defined). All capitalized terms contained herein which are not otherwise defined shall have the definitions set forth in the Credit Agreement or the Forbearance Letter Agreement.     C.  A Forbearance Event of Default (the "Existing Forbearance Event of Default") occurred and is continuing under the Credit Agreement and the Loan Documents as a result of the Borrowers' failure to comply with Section 3.3 of the Fifth Amendment requiring that the Borrowers sell the Arlington Assets and pay to the Lender Group the proceeds from the sale of the Arlington Assets. The failure of the Borrowers to comply with Section 3.3 of the Fifth Amendment, which constitutes an immediate Forbearance Event of Default under the Credit Agreement, has caused a Forbearance Termination Event under the Credit Agreement.     D.  The Borrowers have requested that the Lender Group enter into this First Amendment to Fifth Amendment to agree to forbear from exercising the rights of the Lender Group as a result of the Forbearance Termination Event and the other Existing Events and to amend the Credit Agreement and the other Loan Documents, as necessary, to address the Existing Forbearance Event of Default. Subject to the terms and conditions set forth herein, the Lender Group has agreed to this request. AGREEMENT     NOW THEREFORE, incorporating the Background herein, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Lender Group and the Borrowers agree as follows: ARTICLE I.—ACKNOWLEDGMENTS     1.1  Acknowledgment of Existing Events; Existing Loan Documents; Waiver of Defenses. The Borrowers acknowledge that: (a) the Existing Events (as defined in the Third Amendment, as such definition was supplemented in the Fourth Amendment and including, in addition, the failure of the Borrowers to comply with Section 3.3 of the Fifth Amendment) currently exist; (b) the Existing Events are material in nature; and (c) the Existing Loan Documents and the Forbearance Documents are valid and enforceable against the Borrowers in every respect and all of the terms and conditions thereof are binding upon the Borrowers. The Borrowers further acknowledge and agree that, as a result of the Existing Events, the Lender Group is entitled immediately, and without further notice or declaration to the Borrowers or any other Person, to accelerate the Obligations and to exercise the Lender Group's rights and remedies under the Loan Documents or otherwise. To the extent that any of the Loan Documents require notification by the Lender Group to the Borrowers of the existence of a default and an opportunity for the Borrowers to cure such a default, such notice and period for cure have been properly given by the Lender Group or are hereby waived by the Borrowers. To the extent that the Borrowers have any defenses, setoffs, claims, or counterclaims to repayment of the Obligations or against the Lender Group, such defenses, setoffs, claims, or counterclaims are hereby waived.     1.2  Acknowledgment of Current Outstanding Obligations. As of May 4, 2000, the Borrowers are indebted to the Lender Group in an aggregate amount equal to the principal sum (including the face amount of outstanding letters of credit) of $49,688,298.14 apportioned as follows: Revolving Credit Facility (including Letters of Credit)   $ 24,938,298.14     Term Loan Facility   $ 24,750,000.00     2 -------------------------------------------------------------------------------- plus accrued but unpaid interest, plus the costs and expenses associated with the Facilities incurred by any Lender and/or the Lender Group, including, without limitation, reasonable attorneys' fees incurred by any Lender and/or the Lender Group in the negotiation and preparation of the Loan Documents, this First Amendment to Fifth Amendment and the documents related hereto (the foregoing amounts are hereafter collectively referred to as the "Current Outstanding Obligations"), all without offset, counterclaims or defenses of any kind. Except as expressly set forth herein, nothing contained herein shall alter, amend, modify or extinguish the obligation of the Borrowers to repay the Obligations, and neither this First Amendment to Fifth Amendment nor any of the other Forbearance Documents constitutes a novation of any of the Existing Loan Documents.     1.3  Acknowledgment of Liens and Priority. Except for Permitted Liens, pursuant to the Existing Loan Documents, to the best of Borrowers' knowledge, the Lender Group holds first priority, perfected security interests in and liens upon the Borrowers' assets, wherever located, including assets now owned or hereafter acquired, and as more specifically described in the Existing Loan Documents. Such security interests and liens secure all of the Obligations now or hereafter incurred, including, without limitation, the Current Outstanding Obligations and all other amounts now or hereafter owed by the Borrowers to the Lender Group under the Existing Loan Documents. For purposes of this First Amendment to Fifth Amendment, the word "Obligations" shall mean any and all obligations and liabilities of the Borrowers to the Lender Group, of every kind and description, direct and indirect, absolute and contingent, sole, joint, several, or joint and several, primary or secondary, due or to become due, now existing or hereafter arising, regardless of how they arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument and includes obligations to perform acts and refrain from taking actions as well as obligations to pay money, and also includes the Current Outstanding Obligations.     1.4  Reaffirmation of Security Interests; Cross-Collateralization. All of the assets of the Borrowers pledged, assigned, conveyed, mortgaged, hypothecated or transferred to the Lender Group pursuant to the Loan Documents including, without limitation, all goods, accounts, chattel paper, contracts, deposit accounts, documents, equipment, general intangibles, instruments, intellectual property, inventory, investment property, all other property not otherwise described above, all books and records pertaining to the foregoing and, to the extent not otherwise included, all proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing (collectively, the "Collateral") constitute collateral security for all of the Obligations. The Borrowers hereby grant to the Lender Group and reaffirm their prior conveyance to the Lender Group of a continuing security interest in and lien on the Collateral as well as a security interest in and lien on any and all funds and/or monies of the Borrowers contained in accounts located at the Lender Group or at any of the Lender Group's subsidiaries or affiliates. ARTICLE II.—AMENDMENTS TO FORBEARANCE DOCUMENTS AND LOAN DOCUMENTS     2.1  The following new definitions are hereby added to Section 1.1 of the Existing Credit Agreement in appropriate alphabetical order: "First Amendment to Fifth Amendment' shall mean that certain First Amendment to Fifth Amendment dated as of May 15, 2000. by and among the Borrowers and the Lender Group." 3 --------------------------------------------------------------------------------     2.2  The following definitions, as set forth in Section 1.1 of the Existing Credit Agreement, are hereby amended and restated in their entirety to read as follows: "Forbearance Letter Agreement" shall mean that certain Forbearance Letter Agreement dated as of July 23, 1999, by and among the Borrowers and the Lender Group, as amended by the First Amendment to Forbearance Letter Agreement dated as of July 30, 1999, by and among the Borrowers and the Lenders party thereto, and the Second Amendment to Forbearance Letter Agreement dated as of August 13, 1999, as amended by the First Amendment to Second Amendment to Forbearance Letter Agreement dated as of August 20, 1999, by and among the Borrowers and the Lenders party thereto, the Third Amendment to Forbearance Letter Agreement and Amendment Agreement dated as of August 27, 1999, by and among the Borrowers and the Lenders party thereto, the Fourth Amendment to Forbearance Letter Agreement and Amendment Agreement dated as of November 15, 1999, as amended by the First Amendment to Fourth Amendment to Forbearance Letter Agreement dated as of February 15, 2000, the Fifth Amendment Agreement dated as of March 1, 2000, as amended by the First Amendment to Fifth Amendment.     2.3  The definition of "Loan Documents" as set forth in Section 1.1 of the Existing Credit Agreement is hereby amended to include, in addition to all other documents referenced therein, this First Amendment to Fifth Amendment and each of the other Forbearance Documents.     2.4  Section 10.9 of the Existing Credit Agreement is amended and restated in its entirety to read as follows: "10.9 Additional Permanent Reductions of Revolving Credit Loans And Repayment of Term Loans. (a)  In addition to all other payments required herein, the Borrowers shall pay to the Lenders, to permanently reduce the Revolving Credit Loans and the Term Loans on a pro rata basis, $8,000,000 on or before August 1, 2000. Any proceeds from a sale of ISSI, if such sale is approved by the Lenders, shall be applied to the $8,000,000 payment, and in any event all proceeds from the sale of ISSI shall be paid to the Lenders to permanently reduce the Revolving Credit Loans and the Term Loans on a pro rata basis. The Lenders shall not unreasonably withhold their consent to a sale of ISSI, provided that such sale generates not less than $8,000,000 to be paid to the Lenders. Notwithstanding the foregoing, the Borrowers agree that they will not request permission of the Lenders to sell ISSI if: (i) the sale will generate gross proceeds of less than $8,000,000; (ii) the Lenders will receive less than $8,000,000 from such sale; or (iii) a Forbearance Event of Default has occurred. The Borrowers acknowledge and agree that, regardless of the status of the sale of ISSI, the Borrowers will make the $8,000,000 payment to the Lenders in accordance with this Section 10.9(a). (b)  In addition to all other payments required herein, the Borrowers shall pay to the Lenders, to permanently reduce the Revolving Credit Loans and the Term Loans on a pro rata basis, $50,000 on the first day of June, July and August, 2000 and $125,000 on the first day of each month thereafter, commencing September 1, 2000."     2.5  Sections 10.10 through 10.12 of the Existing Credit Agreement are amended and restated in their entirety to read as follows: "Section 10.10 New Advances. 4 -------------------------------------------------------------------------------- The Borrowers will not make any new requests for advances under the Revolving Credit Facility during the Forbearance Period and will not request or require the issuance of any new Letters of Credit during the Forbearance Period except for renewals of existing Letters of Credit in amounts which separately do not exceed the separate amount of each individual Letter of Credit. Section 10.11 Minimum Quarterly EBITDA As of the end of the calendar quarters below specified the Borrowers shall maintain EBITDA equal to or greater than the respective amounts set forth below: Calendar Quarter --------------------------------------------------------------------------------   Minimum EBITDA -------------------------------------------------------------------------------- April 1, 2000—June 30, 2000   $ 1,247,000 July 1, 2000—September 30, 2000   $ 1,512,000 October 1, 2000—December 31, 2000   $ 2,203,000 Solely for purposes of calculating EBITDA in accordance with this covenant, professional fees and costs incurred by the Borrowers (including fees of DLJ, Carl Marks and all other transaction fees (including the transaction fees and costs incurred in connection with the transaction contemplated under section 10.9 hereof)) and professional fees and costs incurred by the Lenders and paid by the Borrowers shall be added back to EBITDA. Section 10.12 Debt to Annualized EBITDA As of the end of the calendar quarter below specified, the Borrowers shall maintain a ratio of Debt to Annualized EBITDA equal to or greater than the respective amounts set forth below: Date --------------------------------------------------------------------------------   Debt to Annualized EBITDA -------------------------------------------------------------------------------- June 30, 2000   8.7:1.0 September 30, 2000   4.9:1.0 December 31, 2000   3.3:1.0 Annualized EBITDA shall equal the Borrowers' EBITDA for the three months ending on the applicable testing date, multiplied by four. Solely for purposes of calculating EBITDA in accordance with this covenant, professional fees and costs incurred by the Borrowers (including the fees of DLJ, Carl Marks and all other transaction fees (including the transaction fees and costs incurred in connection with the transaction contemplated under section 10.9 hereof)) and professional fees and costs incurred by the Lenders and paid by the Borrowers shall be added back to EBITDA."     2.6  Section 10.13 of the Existing Credit Agreement is amended and restated in its entirety to read as follows: "SECTION 10.13 Reserved for Future Use."     2.7  Section 12.1(o) of the Existing Credit Agreement is hereby amended and restated in its entirety to read as follows: "(o) Default in Performance Under Forbearance Documents. Notwithstanding any provision in this Agreement to the contrary, the Borrowers, or any other obligor, or any one or more of them shall fail to perform or observe any covenant, term, agreement or condition of the Third Amendment, the Fourth Amendment, the Fifth Amendment, as amended by the First Amendment to Fifth Amendment, or any other Forbearance Document." 5 --------------------------------------------------------------------------------     2.8  Section 3.3 of the Fifth Amendment is hereby amended and restated in its entirety to read as follows: "3.3 Reserved for Future Use." ARTICLE III.—ADDITIONAL COVENANTS OF BORROWERS     The Borrowers jointly and severally, covenant and agree that from the date hereof and until the satisfaction of the Obligations, unless the Lender Group shall otherwise consent in writing:     3.1  Existing Covenants. Unless otherwise provided herein, the Borrowers shall comply with each of their respective covenants set forth in the Loan Documents.     3.2  $10,000,000 Payment. In addition to all other payments required under the Loan Documents, the Borrower will make a payment to the Lenders of $10 million (the "$10,000,000 Payment") on December 31, 2000. ARTICLE IV.—FORBEARANCE BY THE LENDER GROUP     Subject to the terms and conditions of this First Amendment to Fifth Amendment, and without waiving the Existing Events and the right to exercise rights and remedies, the Lender Group agrees to forbear from enforcing its remedies under the Loan Documents or applicable law as a result of the Existing Events until the earlier to occur of either one of the following (as the case may be, the "Forbearance Termination Date"): (i) February 28, 2001; or (ii) the occurrence of an Event of Default (other than the Existing Events) under the Credit Agreement. In connection with the foregoing, the Lender Group agrees to extend the expiry date of the Deutsche Letter of Credit to December 31, 2000. ARTICLE V.—CONDITIONS PRECEDENT     This First Amendment to Fifth Amendment is binding upon due execution thereof by all parties thereto and the delivery of all documents required to be delivered at closing. Any future deliveries required under this First Amendment to Fifth Amendment, the Credit Agreement or any other Loan Document which are not made when due shall constitute an event of default under the applicable document.     5.1 Documents and other Items to be Delivered to the Lender Group. The Borrowers shall deliver or cause to be delivered to the Lender Group, in form and substance satisfactory to the Lender Group and its counsel, on the date hereof, the following (together with all Forbearance Documents executed in connection with the Third Amendment and the Fourth Amendment, the "Forbearance Documents"): 1.this First Amendment to Fifth Amendment duly executed by the Borrowers; 2.Reaffirmation of Collateral Agreement; 3.opinion of Condor's In-house Counsel as to non-contravention, required consents, approvals, and the due authorization, and due execution and validity of the Forbearance Documents; 4.Certifications of Secretary executed by the Secretaries of the Borrowers, certifying the incumbency and signature of the officers of such Borrowers executing this First Amendment to Fifth Amendment and all other documents to be delivered by them pursuant hereto, together with evidence of the incumbency of such Secretary; 5.payment of each Lender's and the Lender Group's reasonable legal fees, costs and expenses; 6 -------------------------------------------------------------------------------- 6.all fees due to the Lenders as of the date hereof shall have been irrevocably paid in full to the Lenders on the date(s) such fees were due; 7.such other documents as may be reasonably required by the Lender Group.     5.2 Payment of Lender Group's Legal Fees. On or before the date hereof, the Borrowers shall pay to the Lender Group the amount of the Lender Group's legal fees, expenses and costs including, without limitation, any stamp or documentary tax or other similar taxes and any filing, recording or lien search fees, incurred through the date hereof in connection with the Existing Events, the Loan Documents, this First Amendment to Fifth Amendment, and all documents executed and negotiations undertaken in connection with any of the foregoing. Each Borrower hereby agrees, and to the extent provided in the Loan Documents, reaffirms its joint and several obligation under the Loan Documents, to reimburse each of the Lenders for the following incurred in connection with the Credit Facility: (a) legal fees and expenses, and (b) fees and expenses of any appraisers or other professionals retained by counsel to the Lenders. The Borrowers shall pay to the Lender Group the legal fees and expenses incurred from and after the date hereof and fees and expenses of appraisers and other professionals retained by counsel to Lenders after the date hereof. The foregoing fees and expenses will be reimbursed upon submission by Agent. All Obligations provided for in this Section shall survive any termination of this First Amendment to Fifth Amendment.     5.3 Payment of Fees and Costs. On or before the date hereof, or upon two (2) Business Days written notice by any Lender to the extent that such Lender is unable to provide to the Borrowers on or before the date hereof a statement of fees and costs, the Borrowers shall pay to each Lender and to the Lender Group the amount of each Lender's and the Lender Group's fees and costs including reasonable legal fees, expenses and costs incurred by such Lender or the Lender Group in connection with this First Amendment to Fifth Amendment and the other Loan Documents, if any. All Obligations provided for in this Section 5.3 shall survive any termination of this First Amendment to Fifth Amendment.     5.4 Execution of Other Documents. At the Lender Group's request, within two Business Days of submission thereof by the Lender Group, the Borrowers, or any of them, shall execute and deliver to the Lender Group such other documents and instruments, as the Lender Group, in its sole discretion, deems necessary or convenient to carry out the terms of this First Amendment to Fifth Amendment and the other Loan Documents.     5.5 [INTENTIONALLY OMITTED] ARTICLE VI.—REPRESENTATIONS AND WARRANTIES     To induce the Lender Group to enter into this First Amendment to Fifth Amendment and as partial consideration for the terms and conditions contained herein, the Borrowers represent and warrant to the Lender Group, that all representations and warranties made by the Borrower to the Lender Group in the Fifth Amendment are true and correct as of the date hereof, as if such representations and warranties were made by the Borrowers on the date hereof. ARTICLE VII.—MISCELLANEOUS     7.1 Continuing Effect. Except as amended hereby, all of the Loan Documents including, but not limited to, the Forbearance Letter Agreement as the same has been amended from time to time, shall remain in full force and effect and bind and inure to the benefit of the parties thereto and are hereby ratified and confirmed. 7 --------------------------------------------------------------------------------     7.2 Notices. Any notice given pursuant to this First Amendment to Fifth Amendment or pursuant to any document comprising or relating to this First Amendment to Fifth Amendment shall be given in accordance with the Credit Agreement.     7.3 Indemnification.     If, after receipt of any payment of all or any part of the Obligations, the Lender Group is compelled to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this First Amendment to Fifth Amendment and the other Loan Documents shall continue in full force and effect, and the Borrowers shall be jointly and severally liable for, and shall indemnify, defend and hold harmless the Lender Group with respect to the full amount so surrendered. The provisions of this section shall survive the termination of this First Amendment to Fifth Amendment and the other Loan Documents and shall be and remain effective notwithstanding the payment of the Obligations, the cancellation of the Notes, the release of any lien, security interest or other encumbrance securing the Obligations or any other action which the Lender Group may have taken in reliance upon its receipt of such payment. Any cancellation of the Notes, release of any such encumbrance or other such action shall be deemed to have been conditioned upon any payment of the Obligations having become final and irrevocable.     7.4 Costs, Expenses and Attorneys' Fees. The Borrowers agree to pay all reasonable out-of-pocket costs and expenses incurred by the Lender Group, including, without limitation, all reasonable fees and out-of-pocket expenses of counsel for the Lender Group, any stamp or documentary tax or other similar taxes and any filing, recording or lien search fees. All Obligations provided for in this Section shall survive any termination of this First Amendment to Fifth Amendment.     7.5 Release. THE BORROWERS, ON BEHALF OF THEMSELVES, AND ALL PERSONS AND ENTITIES CLAIMING BY, THROUGH, OR UNDER ANY ONE OR MORE OF THEM, HEREBY JOINTLY AND SEVERALLY RELEASE, WAIVE AND FOREVER DISCHARGE EACH LENDER, AND EACH LENDER'S OFFICERS, DIRECTORS, ATTORNEYS, AGENTS, AFFILIATES, AND SUCCESSORS AND ASSIGNS, OF, FROM, AND WITH RESPECT TO ANY AND ALL MANNER OF ACTION AND ACTIONS, CAUSE AND CAUSES OF ACTIONS, SUITS, DISPUTES, CLAIMS, COUNTERCLAIMS AND/OR LIABILITIES, CROSS CLAIMS, DEFENSES, AND ANY CLAIMS FOR AVOIDANCE OR OTHER REMEDIES AVAILABLE TO A DEBTOR, ITS ESTATE OR ANY TRUSTEE OR REPRESENTATIVES THEREOF, WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, PAST OR PRESENT, ASSERTED OR UNASSERTED, CONTINGENT OR LIQUIDATED, WHETHER OR NOT WELL FOUNDED IN FACT OR LAW, WHETHER IN CONTRACT, IN TORT OR OTHERWISE, AT LAW OR IN EQUITY, BASED UPON, RELATING TO OR ARISING OUT OF ANY AND ALL TRANSACTIONS, RELATIONSHIPS OR DEALINGS WITH OR LOANS MADE TO THE BORROWERS PURSUANT TO THE LOAN DOCUMENTS WHICH THE BORROWERS HAD OR NOW HAVE, CLAIM TO HAVE HAD, NOW CLAIM TO HAVE OR HEREAFTER CAN, SHALL OR MAY CLAIM TO HAVE AGAINST ANY LENDER, FOR OR BY REASON OF ANY CAUSE, MATTER, OR THING WHATSOEVER ARISING FROM THE BEGINNING OF THE WORLD THROUGH THE DATE HEREOF.     7.6  Survival of Representations and Warranties. All representations and warranties of the Borrowers contained in this First Amendment to Fifth Amendment and in all other documents and instruments executed in connection herewith or otherwise relating to this First Amendment to Fifth Amendment shall survive the execution of this First Amendment to Fifth Amendment and are material and have been or will be relied upon by the Lender Group, notwithstanding any investigation made by any person, entity or organization on the Lender Group's behalf. No implied representations or warranties 8 -------------------------------------------------------------------------------- are created or arise as a result of this First Amendment to Fifth Amendment or the documents comprising or relating to this First Amendment to Fifth Amendment.     7.7 Headings. The headings and underscoring of articles, sections and clauses have been included herein for convenience only and shall not be considered in interpreting this First Amendment to Fifth Amendment.     7.8 Governing Law. This First Amendment to Fifth Amendment and all documents and instruments executed in connection herewith or otherwise relating to this First Amendment to Fifth Amendment shall be construed in accordance with and governed by the internal laws of the State of New York without reference to conflict of laws principles.     7.9 Integration. The Existing Credit Agreement, as amended by this First Amendment to Fifth Amendment, and all documents and instruments executed in connection therewith, including, without limitation, the Loan Documents, constitute the sole agreement of the parties with respect to the subject matter hereof and thereof and supersede all oral negotiations and prior writings with respect to the subject matter hereof and thereof.     7.10 Amendment and Waiver. No amendment of this First Amendment to Fifth Amendment, and no waiver, discharge or termination of any one or more of the provisions thereof, shall be effective unless set forth in writing and signed by all of the parties hereto.     7.11 Successors and Assigns. This First Amendment to Fifth Amendment and the other Loan Documents: (i) shall be binding upon the Lender Group, the Borrowers, and upon their respective heirs, nominees, successors and assigns, and (ii) shall inure to the benefit of the Lender Group and the Borrowers; provided, however, that neither the Borrowers nor any of them may assign any rights hereunder or any interest herein without obtaining the prior written consent of the Lender Group, and any such assignment or attempted assignment shall be void and of no effect with respect to the Lender Group.     7.12 Severability of Provisions. Any provision of this First Amendment to Fifth Amendment that is held to be inoperative, unenforceable, void or invalid in any jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable, void or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction, and to this end the provisions of this First Amendment to Fifth Amendment are declared to be severable.     7.13 Conflicting Provisions. To the extent that any of the terms in this First Amendment to Fifth Amendment contradict any of the terms contained in any of the other Loan Documents including, but not limited to, the Credit Agreement, the terms of this First Amendment to Fifth Amendment shall control.     7.14 Joint and Several Liability. The obligations and liabilities of the Borrowers hereunder and under the other Loan Documents are joint and several.     7.15 Counterparts; Effectiveness. This First Amendment to Fifth Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same First Amendment to Fifth Amendment. This First Amendment to Fifth Amendment shall be deemed to have been executed and delivered when the Lender Group has received counterparts hereof executed by all parties listed on the signature pages hereto. 9 --------------------------------------------------------------------------------     Please indicate your agreement to the foregoing by executing this First Amendment to Fifth Amendment in the appropriate signature block below.   Sincerely,       FIRST UNION NATIONAL BANK       /s/ JILL W. AKRE    -------------------------------------------------------------------------------- Jill W. Akre Senior Vice President 10 -------------------------------------------------------------------------------- ACKNOWLEDGED AND AGREED THIS 19 DAY OF MAY, 2000 CONDOR TECHNOLOGY SOLUTIONS, INC., COMPUTER HARDWARE MAINTENANCE COMPANY, INC., DECISION SUPPORT TECHNOLOGY, INC., FEDERAL COMPUTER CORPORATION, GLOBAL CORE STRATEGIES ACQUISITION, INC., INTERACTIVE SOFTWARE SYSTEMS INCORPORATED, INVENTURE GROUP, INC., LINC SYSTEMS CORPORATION, LOUDEN ASSOCIATES, INC., MANAGEMENT SUPPORT TECHNOLOGY CORP., MIS TECHNOLOGIES, INC., POWERCREW, INC., TITAN TECHNOLOGIES GROUP L.L.C., U.S. COMMUNICATIONS, INC. CORPORATE ACCESS, INC., as Borrowers   By:   /s/ W. M. ROBBINS    -------------------------------------------------------------------------------- Name: W. M. Robbins Title: VP and CFO         CONDOR SYSTEM SOLUTIONS, INC., as Borrower     By:     /s/ W. M. ROBBINS    -------------------------------------------------------------------------------- Name: W. M. Robbins Title: VP and CFO           FIRST UNION NATIONAL BANK, as Collateral Agent, Administrative Agent and Issuing Lender     By:     /s/ JILL W. AKRE    -------------------------------------------------------------------------------- Jill W. Akre Senior Vice President                                           11 --------------------------------------------------------------------------------     CITIZENS BANK OF MASSACHUSETTS, SUCCESSOR IN INTEREST TO STATE STREET BANK AND TRUST COMPANY, as Lender     By:     /s/ DAVID E. BROWN    -------------------------------------------------------------------------------- David Brown Vice President           FLEET NATIONAL BANK, as Lender     By:     /s/ DANIEL D. BUTLER    -------------------------------------------------------------------------------- Daniel D. Butler Vice President           MELLON BANK, N.A., as Lender     By:     /s/ GREEN DIM    -------------------------------------------------------------------------------- Green Dim First Vice President           FIRST UNION COMMERCIAL CORPORATION, as Lender     By:     /s/ JILL W. AKRE    -------------------------------------------------------------------------------- Jill W. Akre Senior Vice President       12 --------------------------------------------------------------------------------

EXHIBIT 10.1   PURCHASE AND SALE AGREEMENT               This Purchase and Sale Agreement is made and entered into on this the 30th day of August, 2000, between Gladstone Energy, Inc., a Delaware corporation, ("Seller"), and G. R. Partners, Inc., a Texas corporation, ("Buyer"). The purpose of this Agreement is to set out the terms and condition by which Buyer will acquire 1.0% working interest, being 8.16327% of Seller's interest, in those certain properties known as the Right Hand Creek Field located in Allen and Beauregard Parishes, Louisiana, (the "Properties") such properties being further described on Exhibit "A."               1. Sale and Purchase of the Properties. Subject to the terms and conditions herein set forth, Seller agrees to sell, assign, convey and deliver to Buyer and Buyer agrees to purchase and acquire from Seller at the Closing (as hereinafter defined), but effective as of August 1, 2000, (the "Effective Date"), 8.16327% of Seller's 12.25% right, title and interest, it being the intent to convey 1.0% working interest to Buyer. The net revenues being acquired are set out on Exhibit "B" attached hereto and made a part hereof.                  2. Prior Agreement. The acquisition of the Properties are subject in full to that certain Purchase and Sale Agreement dated the 24th day of May, 1999, by and between EXCO Resources, Inc., as Seller, and Humphrey Oil Interests, L.P., as buyer (the "EXCO Agreement"), which shall be attached hereto as Exhibit "C" and made a part hereof.                3. Purchase Price. The purchase price for the Properties shall be $54,693.88 (the "Purchase Price").                4. Representations of Seller. Seller represents to Buyer that:                4.1 Organization. Gladstone Energy, Inc. is a Delaware corporation, validly existing and in good standing under the laws of the State of Texas and is qualified to do business in the States of Texas and Louisiana.                4.2 Authority. Subject to applicable preferential purchase rights and restrictions of assignment as may be contained in any Joint Operating Agreement or other agreement affecting the properties, and to rights to consent by, required notices to, and filing with or action by other governmental entities, Seller has full power and authority and has taken all requisite actions, corporate or otherwise, to authorize it to carry on its business as presently conducted, to enter into this Agreement, and to perform its obligations under this Agreement.                4.3 Enforceability. This Agreement has been duly executed and delivered on behalf of Seller and constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms. At the Closing, all documents required hereunder to be executed and delivered by Seller shall be duly authorized, executed and delivered and shall constitute legal, valid and binding obligations of Seller enforceable in accordance with their respective terms.               4.4 Encumbrances. The Properties are currently subject to a bank lien in favor of Compass Bank; however, said encumbrance is being paid in full on or before August 31, 2000; therefore Seller hereby agrees to use its best efforts to cause Compass Bank to release said security interest in and to the Properties. To the best of Seller's knowledge, no other claim, demand, filing, cause of action, administrative proceeding, lawsuit or other litigation is pending or threatened that could now or hereafter materially affect the ownership, operation or value of any of the Properties.               4.5 Assignment with Special Warranty. Assignment of said Properties will cover 8.16327% of the original interest acquired by Seller from EXCO, and will be made without warranty, express or implied, except as by, through, and under Seller.               5. Representations of Buyer. Buyer represents to Seller that:               5.1 Organization. Buyer is a trust, validly existing and in good standing under the laws of the State of Texas.               5.2 Authority and Conflicts. Buyer has full power and authority to carry on its business as presently conducted, to enter into this Agreement, to purchase the Properties on the terms described in this Agreement and to perform its other obligations under this Agreement.               5.3 Authorization. The execution and delivery of this Agreement have been and the performance of this Agreement and the transactions contemplated hereby shall be at the time required to be performed hereunder, duly and validly authorized by all requisite corporation action on the part of Buyer.               5.4 Enforceability. This Agreement has been duly executed and delivered on behalf of Buyer, and constitutes a legal, valid and binding obligation of Buyer enforceable in accordance with its terms. At the Closing all documents required hereunder to be executed and delivered by Buyer shall be duly authorized, executed and delivered and shall constitute legal, valid and binding obligations of Buyer enforceable in accordance with their respective terms.               6. Expenses, Fees and Taxes. Each of the parties hereto shall pay its own fees and expenses incident to the negotiation and preparation of this Agreement and consummation of the transactions contemplated hereby. Buyer shall be responsible for the cost of all fees for the recording of transfer documents and any and all transfer fees, as well as the costs of providing Seller with a copy of all recorded documents. All other costs shall be borne by the party incurring such costs. If a determination is ever made that a sales tax or other tax arising from the sale of the Properties applies, Buyer shall be liable for such tax as well as any applicable conveyance, transfer and recording fees, and real estate transfer stamps or taxes imposed on any transfer of property pursuant to this Agreement. Buyer shall indemnify and hold Seller harmless with respect to the payment of any of such taxes, including any interest or penalties assessed thereon.                 7. Closing. Closing shall occur on or before August 31, 2000, unless otherwise extending in writing by both parties hereto. Buyer shall tender the Purchase Price and Seller shall tender an assignment of the purchased interests. Both parties hereto agree to execute any and all other documents as may be required to consummate this transaction.               8. Exhibits. The following Exhibits are incorporated herein.   Exhibit A -    Schedule of Interests Acquired by Gladstone Energy, Inc. from Humphrey Oil Interests, L. P. Exhibit B -    Schedule of Interests Being Acquired by Buyer Exhibit C -    Purchase and Sale Agreement by and between EXCO Resources, Inc. and Humphrey Oil Interests, L. P.               9. Entire Agreement; Amendments; Waivers. Should the Seller and Buyer fail to close this transaction, this Agreement shall become null and void. However, should the Seller and Buyer consummate this transaction, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all prior negotiations, discussions, agreements and understandings, whether oral or written, relating to such subject matter.               Executed as of the date set forth above.   SELLER:       GLADSTONE ENERGY, INC.       By:          /s/ J. M. Hill                                                                      J. M. Hill, President       BUYER:       G. R. PARTNERS, INC.       By:           /s/ Tom Wittenbraker                                            Title:    President                                                                       EXHIBIT "A" RIGHTHAND CREEK FIELD Schedule of Interest Acquired by Gladstone Energy, Inc. from Humphrey Oil Interests, L. P. Working Net Revenue Interest Interest U WX RB SU Reservoirwide Unit Ragley #2 .12250000 .08924932 BPO Shut-In .11690768 .07511215 APO-I .10732790 .07227683 APO-II Ragley #3 .12250000 .08931754 BPO Producing .11690768 .07511215 APO-I .10732790 .07227683 APO-II U WX RD SU Reservoirwide Unit Cavenham #1 .12250000 .08931754 Producing Cavenham #2 .12250000 .08931754 Producing Cavenham #3 .12250000 .08931754 Injection Well Crosby Land & Res. #1 .12250000 .08931754 Producing Powell Lumber #1 .12250000 .08931754 Producing Ragley Lumber Co. #1 .12250000 .08931754 Shut-In* Ragley Lumber Co. #4 .12250000 .08931754 Producing All wells located in Allen/Beauregard Parish, Louisiana EXHIBIT "B" RIGHTHAND CREEK FIELD Schedule of Interest Acquired by G. R. Partners, Inc. from Gladstone Energy, Inc. Working Net Revenue Interest Interest U WX RB SU Reservoirwide Unit Ragley #2 .01000000 .00728566 BPO Shut-In .00954348 .00613160 APO-I .00876146 .00590015 APO-II Ragley #3 .01000000 .00729123 BPO Producing .00954348 .00613160 APO-I .00876146 .00590015 APO-II U WX RD SU Reservoirwide Unit Cavenham #1 .01000000 .00729123 Producing Cavenham #2 .01000000 .00729123 Producing Cavenham #3 .01000000 .00729123 Injection Well Crosby Land & Resources #1 .01000000 .00729123 Producing Powell Lumber #1 .01000000 .00729123 Producing Ragley Lumber Co. #1 .01000000 .00729123 Shut-In Ragley Lumber Co. #4 .01000000 .00729123 Producing All wells located in Allen/Beauregard Parish, Louisiana   EXHIBIT "C" Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 30, 1999.    

Exhibit 10(ff) FIRST UNION PROMISSORY NOTE $8,000,000.00 September 27, 2000 Farmstead Telephone Group, Inc. 22 Prestige Park Circle East Hartford, Connecticut 06108 (Individually and collectively "Borrower") First Union National Bank 300 Main Street Stamford, Connecticut 06904 (Hereinafter referred to as "Bank") Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, the sum of Eight Million and No/100 Dollars ($8,000,000.00) or such sum as may be advanced and outstanding from time to time, with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this "Note"). SECURITY. Borrower has granted Bank a security interest in the collateral described in the Loan Documents, including, but not limited to, personal property collateral described in that certain Security Agreement of even date herewith. INTEREST RATE. Interest shall accrue on the unpaid principal balance of this Note from the date hereof at the LIBOR Market Index Rate plus 2.50%, as that rate may change from day to day in accordance with changes in the LIBOR Market Index Rate, ("Interest Rate"). Upon the Borrower's compliance with the Special Performance conditions as set forth in the Loan Agreement, the Interest Rate will be reduced to the LIBOR Market Index Rate plus 2.00%. "LIBOR Market Index Rate", for any day, is the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or interbank quotation). DEFAULT RATE. In addition to all other rights contained in this Note, if a Default (as defined herein) occurs and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate"). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full. INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period ("Actual/360 Computation"). The Actual/360 Computation determines the annual effective interest yield by taking the stated (nominal) rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding the nominal rate. OPTIONAL HEDGE. Borrower shall have the option to hedge the floating interest expense on up to $2,500,000.00 of permanent borrowings by converting the interest rate on these borrowings to 30 day LIBOR plus 2.50% and entering into an interest rate swap (the "Swap") with the Bank (or other counterparty acceptable to Bank) contemporaneously with the closing of the loan, pursuant to which Borrower shall receive the amount necessary to pay the interest expense due under the loan (exclusive of default interest or other adjustments provided for in the loan documents) and shall pay the amount that would be equal to the interest that would accrue on the loan at a fixed rate. Bank is willing to provide this <PAGE> 1 Swap to Borrower upon mutually agreeable terms. The actual rate is subject to market conditions at the time the Swap is consummated. The Swap will be governed by an ISDA Master Agreement and shall be secured by the Collateral described herein. REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only, commencing on November 1, 2000, and continuing on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on September 30, 2002. Bank may (but shall not be obligated to) receive payments due hereunder by direct debit from Borrower's account with Bank being account number DDA 207 996 000 1644 (Routing No. 021101108). AVAILABILITY FEE. Borrower shall pay to Bank quarterly an availability fee equal to 0.25% per annum on the average daily unused principal amount available under the Note for the preceding calendar quarter or portion thereof, commencing on December 26, 2000 and continuing on the same day of each quarterly anniversary thereafter, with a final payment due and payable on the date that all principal and accrued interest is paid in full. APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank. If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made. DEFINITIONS. Loan Documents. The term "Loan Documents" used in this Note and the other Loan Documents refers to all documents executed in connection with or related to the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and any letters of credit issued pursuant to any loan agreement to which this Note is subject, any applications for such letters of credit and any other documents executed in connection therewith or related thereto, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. Section 101). Obligations. The term "Obligations" used in this Note refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements (as defined in 11 U.S.C. Section 101) between Borrower and Bank whenever executed. Certain Other Terms. All terms that are used but not otherwise defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code. LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to 5% of each payment past due for 10 or more days. Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank's right to collect such late charge or to collect a late charge for any subsequent late payment received. ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Obligations including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. <PAGE> 2 USURY. If at any time the effective interest rate under this Note would, but for this paragraph, exceed the maximum lawful rate, the effective interest rate under this Note shall be the maximum lawful rate, and any amount received by Bank in excess of such rate shall be applied to principal and then to fees and expenses, or, if no such amounts are owing, returned to Borrower. DEFAULT. If any of the following occurs, a default ("Default") under this Note shall exist: Nonpayment; Nonperformance. The failure of timely payment or performance of the Obligations or Default under this Note or any other Loan Documents. False Warranty. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Note proves materially false, or if of a continuing nature, becomes materially false. Cross Default. At Bank's option, any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower with Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. Section 101, except that the term "Borrower" shall be substituted for the term "Debtor" therein; "Subsidiary" shall mean any business in which Borrower holds, directly or indirectly, a controlling interest). Cessation; Bankruptcy. The death of, appointment of a guardian for, dissolution of, termination of existence of, loss of good standing status (which is not remedied within 30 days) by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. Material Capital Structure or Business Alteration. Without prior written consent of Bank, (i) a material alteration in the kind or type of Borrower's business or that of Borrower's Subsidiaries, if any; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower's Subsidiaries or any guarantor, or a material portion (10% or more) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower's Subsidiaries or any guarantor, or more than 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions; (iii) the acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity; or (iv) should any Borrower or any of Borrower's Subsidiaries or any guarantor enter into any merger or consolidation. REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan Documents, Bank may at any time thereafter, take the following actions: Bank Lien. Foreclose its security interest or lien against Borrower's accounts without notice. Acceleration Upon Default. Accelerate the maturity of this Note and, at Bank's option, any or all other Obligations, whereupon this Note and the accelerated Obligations shall be immediately due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity. FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information as is required from time to time under the Loan Agreement between Bank and Debtor of even date as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Borrower's financial condition. Such information shall be true, complete, and accurate. LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may advance and readvance under this Note respectively from time to time until the maturity hereof (each an "Advance" and together the "Advances"), so long as the total principal balance outstanding under this Note at any one time does not exceed the principal amount stated on the face of this Note, subject to the limitations described in any loan agreement to which this Note is subject. Bank's obligation to make Advances under this Note shall terminate if Borrower is in Default. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date. If Borrower subscribes to Bank's cash management services and such services are applicable to this line of credit, the terms of such service shall control the manner in which funds are transferred between the applicable demand deposit account and the line of credit for credit or debit to the line of credit. <PAGE> 3 WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period, and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or any other Loan Document and without affecting the liability of Borrower or any person who may be liable under this Note or any other Loan Document. MISCELLANEOUS PROVISIONS. Assignment. This Note and the other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Note and the other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the other Loan Documents shall prohibit Bank from pledging or assigning this Note or any of the other Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. Applicable Law; Conflict Between Documents. This Note and, unless otherwise provided in any other Loan Document, the other Loan Documents shall be governed by and construed under the laws of the state named in Bank's address shown above without regard to that state's conflict of laws principles. If the terms of this Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of this Note shall control. Borrower's Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank's address shown above. Severability. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Use of Proceeds. The proceeds of the loan(s) evidenced by this Note shall be used for the commercial purposes of Borrower. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under this Note, even though the stated principal amount of this Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. Joint and Several Obligations. Each person who signs this Note as a Borrower (as defined herein) is jointly and severally obligated. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. <PAGE> 4 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS NOTE. BORROWER AND BANK AGREE THAT THEY SHALL NOT HAVE A REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN ANY DISPUTE AND HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE WHETHER THE DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY. CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS REPRESENTED BY THIS NOTE ARE COMMERCIAL TRANSACTIONS AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER. IN WITNESS WHEREOF , Borrower, on the day and year first above written, has caused this Note to be executed under seal. PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Note and the Loan Documents were executed in the State of Connecticut and delivered to Bank in the State of Connecticut.     Farmstead Telephone Group Inc.           Taxpayer Identification Number: 06-1205743         By: /s/ Robert G. LaVigne_____________( SEAL) Robert G. LaVigne, Executive Vice President and Chief Financial Officer <PAGE> 5

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.25 MASTER LEASE AGREEMENT dated as of September 26, 2000 ("Agreement")     THIS AGREEMENT is between General Electric Capital Corporation (together with its successors and assigns, if any, "Lessor") and Northwest Pipe Company ("Lessee"). Lessor has an office at One Lincoln Centre, 5400 LBJ Freeway, Suite 1280, L.B. 3, Dallas, TX 75240. Lessee is a corporation organized and existing under the laws of the state of Oregon. Lessee's mailing address and chief place of business is 200 SW Market Street, Portland, OR 97201. This Agreement contains the general terms that apply to the leasing of Equipment from Lessor to Lessee. Additional terms that apply to the Equipment (term, rent, options, etc.) shall be contained on a schedule ("Schedule"). 1.  LEASING:     (a) Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment") described in any Schedule signed by both parties.     (b) Lessor shall purchase Equipment from the manufacturer or supplier ("Supplier") and lease it to Lessee if on or before the Last Delivery Date Lessor receives (i) a Schedule for the Equipment, (ii) evidence of insurance which complies with the requirements of Section 9, and (iii) such other documents as Lessor may reasonably request. Each of the documents required above must be in form and substance satisfactory to Lessor. Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier. Once the Schedule is signed, the Lessee may not cancel the Schedule. 2.  TERM, RENT AND PAYMENT:     (a) The rent payable for the Equipment and Lessee's right to use the Equipment shall begin on the earlier of (i) the date when the Lessee signs the Schedule and accepts the Equipment or (ii) when Lessee has accepted the Equipment under a Certificate of Acceptance ("Lease Commencement Date"). The term of this Agreement shall be the period specified in the applicable Schedule. The word "term" shall include all basic and any renewal terms.     (b) Lessee shall pay rent to Lessor at its address stated above, except as otherwise directed by Lessor. Rent payments shall be in the amount set forth in, and due as stated in the applicable Schedule. If any Advance Rent (as stated in the Schedule) is payable, it shall be due when the Lessee signs the Schedule. Advance Rent shall be applied to the first rent payment and the balance, if any, to the final rent payment(s) under such Schedule. In no event shall any Advance Rent or any other rent payments be refunded to Lessee. If rent is not paid within ten (10) days of its due date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. 3.  RENT ADJUSTMENT:     (a) If, solely as a result of Congressional enactment of any law (including, without limitation, any modification of, or amendment or addition to, the Internal Revenue Code of 1986, as amended, ("Code")), the maximum effective corporate income tax rate (exclusive of any minimum tax rate) for calendar-year taxpayers ("Effective Rate") is higher than thirty-five percent (35%) for any year during the lease term, then Lessor shall have the right to increase such rent payments by requiring payment of a single additional sum. The additional sum shall be equal to the product of (i) the Effective Rate (expressed as a decimal) for such year less .35 (or, in the event that any adjustment has been made hereunder for any previous year, the Effective Rate (expressed as a decimal) used in calculating the next previous adjustment) times (ii) the adjusted Termination Value (defined below), divided by (iii) the difference between the new Effective Rate (expressed as a decimal) and one (1). The adjusted Termination Value shall be the Termination Value (calculated as of the first rent due in the year for -------------------------------------------------------------------------------- which the adjustment is being made) minus the Tax Benefits that would be allowable under Section 168 of the Code (as of the first day of the year for which such adjustment is being made and all future years of the lease term). The Termination Values and Tax Benefits are defined on the Schedule. Lessee shall pay to Lessor the full amount of the additional rent payment on the later of (i) receipt of notice or (ii) the first day of the year for which such adjustment is being made.     (b) Lessee's obligations under this Section 3 shall survive any expiration or termination of this Agreement. 4.  TAXES:     (a) If permitted by law, Lessee shall report and pay promptly all taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rents or receipts hereunder), any Schedule, Lessor or Lessee by any governmental entity or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (collectively "Taxes"). Lessee shall have no liability for Taxes imposed by the United States of America or any state or political subdivision thereof which are on or measured by the net income of Lessor except as provided in Sections 3 and 14(c). Lessee shall promptly reimburse Lessor (on an after tax basis) for any Taxes charged to or assessed against Lessor. Lessee shall show Lessor as the owner of the Equipment on all tax reports or returns, and send Lessor a copy of each report or return and evidence of Lessee's payment of Taxes upon request.     (b) Lessee's obligations, and Lessor's rights and priviledges, contained in this Section 4 shall survive the expiration or other termination of this Agreement. 5.  REPORTS:     (a) If any tax or other lien shall attach to any Equipment, Lessee will notify Lessor in writing, within ten (10) days after Lessee becomes aware of the tax or lien. The notice shall include the full particulars of the tax or lien and the location of such Equipment on the date of the notice.     (b) Lessee will deliver to Lessor, Lessee's complete financial statements, certified by a recognized firm of certified public accountants within ninety (90) days of the close of each fiscal year of Lessee. Lessee will deliver to Lessor copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee, within ninety (90) days of the close of each fiscal quarter of Lessee. Lessee will deliver to Lessor all Forms 10-K and 10-Q, if any, filed with the Securities and Exchange Commission within thirty (30) days after the date on which they are filed.     (c) Lessor may inspect any Equipment during normal business hours after giving Lessee reasonable prior notice.     (d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will give Lessor prior written notice of any relocation of Equipment. If Lessor asks, Lessee will promptly notify Lessor in writing of the location of any Equipment.     (e) If any Equipment is lost or damaged (where the estimated repair costs would exceed the greater of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000)), or is otherwise involved in an accident causing personal injury or property damage, Lessee will promptly and fully report the event to Lessor in writing.     (f)  Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default or event which 2 -------------------------------------------------------------------------------- with notice or lapse of time (or both) would become such a default within thirty (30) days after any request by Lessor. 6.  DELIVERY, USE AND OPERATION:     (a) All Equipment shall be shipped directly from the Supplier to Lessee.     (b) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable laws, regulations and insurance policies and Lessee shall not discontinue use of the Equipment.     (c) Lessee will not move any equipment from the location specified on the Schedule, without the prior written consent of Lessor.     (d) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor.     (e) Lessor shall not disturb Lessee's quiet enjoyment of the Equipment during the term of the Agreement unless a default has occurred and is continuing under this Agreement. 7.  MAINTENANCE:     (a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order and repair, normal wear and tear excepted. The Lessee shall also maintain the Equipment in accordance with manufacturer's recommendations. Lessee shall make all alterations or modifications required to comply with any applicable law, rule or regulation during the term of this Agreement. If Lessor requests, Lessee shall affix plates, tags or other identifying labels showing ownership thereof by Lessor. The tags or labels shall be placed in a prominent position on each unit of Equipment.     (b) Lessee will not attach or install anything on any Equipment that will impair the originally intended function or use of such Equipment without the prior written consent of Lessor. All additions, parts, supplies, accessories, and equipment ("Additions") furnished or attached to any Equipment that are not readily removable shall become the property of Lessor. All Additions shall be made only in compliance with applicable law. Lessee will not attach or install any Equipment to or in any other personal or real property without the prior written consent of Lessor. 8.  STIPULATED LOSS VALUE:  If for any reason any unit of Equipment becomes worn out, lost, stolen, destroyed, irreparably damaged or unusable ("Casualty Occurrences") Lessee shall promptly and fully notify Lessor in writing. Lessee shall pay Lessor the sum of (i) the Stipulated Loss Value (see Schedule) of the affected unit determined as of the rent payment date prior to the Casualty Occurrence; and (ii) all rent and other amounts which are then due under this Agreement on the Payment Date (defined below) for the affected unit. The Payment Date shall be the next rent payment date after the Casualty Occurrence. Upon Payment of all sums due hereunder, the term of this lease as to such unit shall terminate. 9.  INSURANCE:     (a) Lessee shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever from the time the Equipment is shipped to Lessee.     (b) Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may reasonably require. All such policies shall be with companies, and on terms, reasonably satisfactory to Lessor. The insurance shall include coverage for damage to or loss of the Equipment, liability for personal injuries, death or property damage. Lessor shall be named as additional insured with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. The insurance shall provide for liability 3 -------------------------------------------------------------------------------- coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00) total liability per occurrence, unless otherwise stated in any Schedule. The casualty/property damage coverage shall be in an amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. No insurance shall be subject to any co-insurance clause. The insurance policies shall provide that the insurance may not be altered or canceled by the insurer until after thirty (30) days written notice to Lessor. Lessee agrees to deliver to Lessor evidence of insurance reasonably satisfactory to Lessor.     (c) Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Lessor shall not act as Lessee's attorney-in-fact unless Lessee is in default. Lessee shall pay any reasonable expenses of Lessor in adjusting or collecting insurance. Lessee will not make adjustments with insurers except with respect to claims for damage to any unit of Equipment where the repair costs are less than the lesser of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000). Lessor may, at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor under this Agreement. 10.  RETURN OF EQUIPMENT:     (a) At the expiration or termination of this Agreement or any Schedule, Lessee shall perform any testing and repairs required to place the units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for the original intended purpose of the Equipment. If required the units of Equipment shall be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is reasonably satisfactory to Lessor. Lessee shall remove installed markings that are not necessary for the operation, maintenance or repair of the Equipment. All Equipment will be cleaned, cosmetically acceptable, and in such condition as to be immediately installed into use in a similar environment for which the Equipment was originally intended to be used. All waste material and fluid must be removed from the Equipment and disposed of in accordance with then current waste disposal laws. Lessee shall return the units of Equipment to a location within the continental United States as Lessor shall direct. Lessee shall obtain and pay for a policy of transit insurance for the redelivery period in an amount equal to the replacement value of the Equipment. The transit insurance must name Lessor as the loss payee. The Lessee shall pay for all costs to comply with this section (a).     (b) Until Lessee has fully complied with the requirements of Section 10(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. Lessor may terminate the Lessee's right to use the Equipment upon ten (10) days notice to Lessee.     (c) Lessee shall provide to Lessor a detailed inventory of all components of the Equipment including model and serial numbers. Lessee shall also provide an up-to-date copy of all other documentation pertaining to the Equipment. All service manuals, blue prints, process flow diagrams, operating manuals, inventory and maintenance records shall be given to Lessor at least ninety (90) days and not more than one hundred twenty (120) days prior to lease termination.     (d) Lessee shall make the Equipment available for on-site operational inspections by potential purchasers at least one hundred twenty (120) days prior to and continuing up to lease termination. Lessor shall provide Lessee with reasonable notice prior to any inspection. Lessee shall provide personnel, power and other requirements necessary to demonstrate electrical, hydraulic and mechanical systems for each item of Equipment. 4 -------------------------------------------------------------------------------- 11.  DEFAULT AND REMEDIES:     (a) Lessor may in writing declare this Agreement in default if: (i) Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; (ii) Lessee breaches any of its insurance obligations under Section 9; (iii) Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice from Lessor; (iv) any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; (v) Lessee or any guarantor or other obligor for the Lessee's obligations hereunder ("Guarantor") becomes insolvent or ceases to do business as a going concern; (vi) any Equipment is illegally used; (vii) if Lessee or any Guarantor is a natural person, any death or incompetency of Lessee or such Guarantor; or (viii) a petition is filed by or against Lessee or any Guarantor under any bankruptcy or insolvency laws and in the event of an involuntary petition, the petition is not dismissed within forty-five (45) days of the filing date. The default declaration shall apply to all Schedules unless specifically excepted by Lessor.     (b) After a default, at the request of Lessor, Lessee shall comply with the provisions of Section 10(a). Lessee hereby authorizes Lessor to peacefully enter any premises where any Equipment may be and take possession of the Equipment. Lessee shall immediately pay to Lessor without further demand as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rent payment date prior to the declaration of default), and all rents and other sums then due under this Agreement and all Schedules. Lessor may terminate this Agreement as to any or all of the Equipment. A termination shall occur only upon written notice by Lessor to Lessee and only as to the units of Equipment specified in any such notice. Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale. Lessor may also, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment. Lessor may use Lessee's premises for a reasonable period of time for any or all of the purposes stated above without liability for rent, costs, damages or otherwise. The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities: (i) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee under this Agreement; then (iii) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (iv) any surplus shall be retained by Lessor. Lessee shall immediately pay any deficiency in (i) and (ii) above.     (c) The foregoing remedies are cumulative, and any or all thereof may be exercised instead of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay Lessor's actual attorney's fees incurred in connection with the enforcement, assertion, defense or preservation of Lessor's rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Waiver of any default shall not be a waiver of any other or subsequent default.     (d) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. 12.  ASSIGNMENT:  LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR SUBLET ANY EQUIPMENT OR THE INTEREST OF LESSEE IN THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Lessor may, without the consent of Lessee, assign this Agreement, any Schedule or the right to enter into a Schedule. Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Schedule to such assignee or as instructed by Lessor. Lessee also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by 5 -------------------------------------------------------------------------------- assignee. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. 13.  NET LEASE:  Lessee is unconditionally obligated to pay all rent and other amounts due for the entire lease term no matter what happens, even if the Equipment is damaged or destroyed, if it is defective or if Lessee no longer can use it. Lessee is not entitled to reduce or set-off against rent or other amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any Schedule whether Lessee's claim arises out of this Agreement, any Schedule, any statement by Lessor, Lessor's liability or any manufacturer's liability, strict liability, negligence or otherwise. 14.  INDEMNIFICATION:     (a) Lessee hereby agrees to indemnify Lessor, its agents, employees, successors and assigns (on an after tax basis) from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature arising out of or relating to the Equipment or this Agreement, except to the extent the losses, damages, penalties, injuries, claims, actions, suits or expenses result from Lessor's gross negligence or willful misconduct ("Claims"). This indemnity shall include, but is not limited to, Lessor's strict liability in tort and Claims, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement or environmental damage) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing.     (b) Lessee hereby represents, warrants and covenants that (i) on the Lease Commencement Date for any unit of Equipment, such unit will qualify for all of the items of deduction and credit specified in Section C of the applicable Schedule ("Tax Benefits") in the hands of Lessor, and (ii) at no time during the term of this Agreement will Lessee take or omit to take, nor will it permit any sublessee or assignee to take or omit to take, any action (whether or not such act or omission is otherwise permitted by Lessor or by this Agreement), which will result in the disqualification of any Equipment for, or recapture of, all or any portion of such Tax Benefits.     (c) If as a result of a breach of any representation, warranty or covenant of the Lessee contained in this Agreement or any Schedule (i) tax counsel of Lessor shall determine that Lessor is not entitled to claim on its Federal income tax return all or any portion of the Tax Benefits with respect to any Equipment, or (ii) any Tax Benefit claimed on the Federal income tax return of Lessor is disallowed or adjusted by the Internal Revenue Service, or (iii) any Tax Benefit is recalculated or recaptured (any determination, disallowance, adjustment, recalculation or recapture being a "Loss"), then Lessee shall pay to Lessor, as an indemnity and as additional rent, an amount that shall, in the reasonable opinion of Lessor, cause Lessor's after-tax economic yields and cash flows to equal the Net Economic Return that would have been realized by Lessor if such Loss had not occurred. Such amount shall be payable upon demand accompanied by a statement describing in reasonable detail such Loss and the computation of such amount. The economic yields and cash flows shall be computed on the same assumptions, including tax rates as were used by Lessor in originally evaluating the transaction ("Net Economic Return"). If an adjustment has been made under Section 3 then the Effective Rate used in the next preceding adjustment shall be substituted.     (d) All references to Lessor in this Section 14 include Lessor and the consolidated taxpayer group of which Lessor is a member. All of Lessor's rights, privileges and indemnities contained in this Section 14 shall survive the expiration or other termination of this Agreement. The rights, privileges 6 -------------------------------------------------------------------------------- and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. 15.  DISCLAIMER:  LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following; (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) of the Equipment, or any other circumstance in connection with the Equipment; (ii) the use, operation or performance of any Equipment or any risks relating to it; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Agreement, Lessee shall be, and hereby is, authorized during the term of this Agreement to assert and enforce whatever claims and rights Lessor may have against any Supplier of the Equipment at Lessee's sole cost and expense, in the name of and for the account of Lessor and/or Lessee, as their interests may appear. 16.  REPRESENTATIONS AND WARRANTIES OF LESSEE:  Lessee makes each of the following representations and warranties to Lessor on the date hereof and on the date of execution of each Schedule.     (a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "Documents"). Lessee is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located.     (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws.     (c) No approval, consent or withholding of objections is required from any governmental authority or entity with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained.     (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or bylaws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party.     (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which if decided against Lessee will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement.     (f)  The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property. 7 --------------------------------------------------------------------------------     (g) Each financial statement delivered to Lessor has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of the most recent financial statement, there has been no material adverse change.     (h) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement).     (i)  The Equipment will at all times be used for commercial or business purposes. 17.  EARLY TERMINATION:     (a) On or after the First Termination Date (specified in the applicable Schedule), Lessee may, so long as no default exists hereunder, terminate this Agreement as to all (but not less than all) of the Equipment on such Schedule as of a rent payment date ("Termination Date"). Lessee must give Lessor at least ninety (90) days prior written notice of the termination.     (b) Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall (i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the Termination Value (calculated as of the rent due on the Termination Date) for the Equipment, and (B) all rent and other sums due and unpaid as of the Termination Date.     (c) If all amounts due hereunder have been paid on the Termination Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of such sale (net of any related expenses) to Lessee up to the amount of the Termination Value. If such sale is not consummated, no termination shall occur and Lessor shall refund the Termination Value (less any expenses incurred by Lessor) to Lessee.     (d) Notwithstanding the foregoing, Lessor may elect by written notice, at any time prior to the Termination Date, not to sell the Equipment. In that event, on the Termination Date Lessee shall (i) return the Equipment (in accordance with Section 10) and (ii) pay to Lessor all amounts required under Section 17(b) less the amount of the highest bid certified by Lessee to Lessor. 18.  PURCHASE OPTION:     (a) Lessee may at lease expiration purchase all (but not less than all) of the Equipment in any Schedule on an AS IS BASIS for cash equal to its then Fair Market Value (plus all applicable sales taxes). Lessee must notify Lessor of its intent to purchase the Equipment in writing at least one hundred eighty (180) days in advance. If Lessee is in default or if the Lease has already been terminated Lessee may not purchase the Equipment.     (b) "Fair Market Value" shall mean the price that a willing buyer (who is neither a lessee in possession nor a used equipment dealer) would pay for the Equipment in an arm's-length transaction to a willing seller under no compulsion to sell. In determining the Fair Market Value the Equipment shall be assumed to be in the condition in which it is required to be maintained and returned under this Agreement. If the Equipment is installed it shall be valued on an installed basis. The costs of removal from current location shall not be a deduction from the value of the Equipment. If Lessor and Lessee are unable to agree on the Fair Market Value at least one hundred thirty-five (135) days before lease expiration, Lessor shall appoint an independent appraiser (reasonably acceptable to Lessee) to determine Fair Market Value. The independent appraiser's determination shall be final, binding and conclusive. Lessee shall bear all costs associated with any such appraisal.     (c) Lessee shall be deemed to have waived this option unless it provides Lessor with written notice of its irrevocable election to exercise the same within fifteen (15) days after Fair Market Value is told to Lessee. 8 -------------------------------------------------------------------------------- 19.  MISCELLANEOUS:     (a) LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.     (b) The Equipment shall remain Lessor's property unless Lessee purchases the Equipment from Lessor and until such time Lessee shall only have the right to use the Equipment as a lessee. Any cancellation or termination by Lessor of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder shall not release Lessee from any then outstanding obligations to Lessor hereunder. All Equipment shall at all times remain personal property of Lessor even though it may be attached to real property. The Equipment shall not become part of any other property by reason of any installation in, or attachment to, other real or personal property.     (c) Time is of the essence of this Agreement. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right at any other time to demand strict compliance with this Agreement. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have specified in writing. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.     (d) If Lessee does not comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated, to effect such compliance, in whole or in part. All reasonable amounts spent and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor. Lessee shall pay the additional rent within five days after the date Lessor sends notice to Lessee requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default.     (e) Any rent or other amount not paid to Lessor when due shall bear interest, from the due date until paid, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule that are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.     (f)  Lessee hereby irrevocably authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more than ten percent (10%) within each Schedule to account for equipment change orders, equipment returns, invoicing errors, and similar matters. Lessee acknowledges and agrees that the rent shall be adjusted as a result of the change in the Capitalized Lessor's Cost. Lessor shall send Lessee a written notice stating the final Capitalized Lessor's Cost, if it has changed. 9 --------------------------------------------------------------------------------     (g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.     (h) Any cancellation or termination by Lessor, pursuant to the provisions of this Agreement, any Schedule, supplement or amendment hereto, of the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder.     (i)  To the extent that any Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest therein may be created through the transfer or possession of this Agreement in and of itself without the transfer or possession of the original of a Schedule executed pursuant to this Agreement and incorporating this Agreement by reference; and no security interest in this Agreement and a Schedule may be created by the transfer or possession of any counterpart of the Schedule other than the original thereof, which shall be identified as the document marked "Original" and all other counterparts shall be marked "Duplicate".     IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.               LESSOR:   LESSEE: General Electric Capital Corporation   Northwest Pipe Company By:   JOYCE TAYLOR   By:   BRIAN DUNHAM Name:   Joyce Taylor   Name:   Brian Dunham Title:   Sr. Risk Analyst   Title:   President AMENDMENT TO MASTER LEASE AGREEMENT This Amendment to Master Lease Agreement (this "Amendment") is made as of the 26th day of September, 2000, by and between General Electric Capital Corporation ("Lessor") and Northwest Pipe Company ("Lessee") with regard to the following facts: A.Lessor and Lessee are parties to that certain Master Lease Agreement, dated as of September 26th, 2000 (the "Lease"). B.Lessor and Lessee wish to amend the Lease as provided herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Lessor and Lessee, Lessor and Lessee hereby agree as follows: 1.The Lease is hereby amended as follows:     a.  The last sentence of Section 9(c) is stricken and replaced with the following: Lessor will apply proceeds of insurance, in whole or in part, to repair or replace Equipment or any portion thereof, except that, if the parties mutually agree or, if Lessee is in default, then at Lessor's option, insurance proceeds may also or instead be applied, in whole or in part, to satisfy any obligation of Lessee to Lessor under this Agreement.     b.  The words "following notice" are added to the end of clause (i) of Section 11(a). 10 --------------------------------------------------------------------------------     c.  After the word "compliance" in Section 12(d) are added the following words: with 5 days prior notice, except in the case of any non-compliance with insurance requirements or other non-compliance which Lessor, in its sole discretion, deems an urgent and material threat to Lessor's interests, in which case Lessor may act immediately and provide notice to Lessee as soon as practicable thereafter 2.As amended pursuant to this Amendment, the Lease shall continue in full force and effect. IN WITNESS WHEREOF, Lessor and Lessee have caused their respective duly authorized representatives to execute and deliver this Amendment as of the day and year first above written.               General Electric Capital Corporation   Northwest Pipe Company By:   JOYCE TAYLOR   By:   BRIAN DUNHAM Its:   Sr. Risk Analyst   Its:   President 11 -------------------------------------------------------------------------------- QUICKLINKS MASTER LEASE AGREEMENT dated as of September 26, 2000 ( "Agreement" ) AMENDMENT TO MASTER LEASE AGREEMENT

  AXCELIS TECHNOLOGIES, INC. 2000 STOCK PLAN As amended by the Board of Directors on October 25, 2000 ARTICLE I PURPOSE AND ADOPTION OF THE PLAN         1.01 Purpose The purpose of the Axcelis Technologies, Inc. 2000 Stock Plan (hereinafter referred to as the "Plan") is to assist in attracting and retaining highly competent employees, directors and consultants and to act as an incentive in motivating selected employees, directors and consultants of Axcelis Technologies, Inc. and its Subsidiaries (as defined below) to achieve long-term corporate objectives. The Plan has been approved by the Board of Directors of Axcelis Technologies, Inc. and its stockholder to be effective as of the date of the consummation of an initial public offering of the Company's common stock (the "Effective Date"). The Plan shall remain in effect until terminated by action of the Board; provided, however, that no Incentive Stock Option (as defined below) may be granted hereunder after the tenth anniversary of the Effective Date.     ARTICLE II DEFINITIONS      For the purposes of this Plan, capitalized terms shall have the following meanings:         2.01 Award means any grant to a Participant of one or a combination of Non-Qualified Stock Options or Incentive Stock Options described in Article VI, Stock Appreciation Rights described in Article VI, Restricted Shares described in Article VII and Performance Awards described in Article VIII.         2.02 Award Agreement means a written agreement between the Company and a Participant or a written notice from the Company to a Participant specifically setting forth the terms and conditions of an Award granted under the Plan.         2.03 Award Period means, with respect to an Award, the period of time set forth in the Award Agreement during which specified target performance goals must be achieved or other conditions set forth in the Award Agreement must be satisfied.         2.04 Beneficiary means an individual, trust or estate who or which, by a written designation of the Participant filed with the Company or by operation of law, succeeds to the rights and obligations of the Participant under the Plan and an Award Agreement upon the Participant's death.         2.05 Board means the Board of Directors of the Company.         2.06 Change in Control means, and shall be deemed to have occurred upon the occurrence of any one of the following events after Eaton Corporation disposes of substantially all of its interest in the Company: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, or (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation 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 Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Neither the initial public offering of common stock of the Company nor the disposition by Eaton of all or any portion of its interest in the Company shall be a Change in Control for purposes of this Agreement.         2.07 Code means the Internal Revenue Code of 1986, as amended. References to a section of the Code include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section.         2.08 Company means Axcelis Technologies, Inc., a Delaware corporation, and its successors.         2.09 Common Stock means Common Stock of the Company, par value $0.001 per share.         2.10 Company Voting Securities means the combined voting power of all outstanding securities of the Company entitled to vote generally in the election of directors of the Company.         2.11 Date of Grant means the date designated by the Board as the date as of which it grants an Award, which shall not be earlier than the date on which the Board approves the granting of such Award.         2.12 Disability means a total and permanent disability such that, due to physical or mental illness, injury or disease, a Participant is unable to perform any services for the Company and its Subsidiaries and, in the opinion of a qualified physician designated by the Board, such disability will be permanent and continuous during the remainder of the Participant's life.         2.13 Effective Date shall have the meaning given to such term in Section 1.02.         2.14 Exchange Act means the Securities Exchange Act of 1934, as amended.         2.15 Exercise Price means, with respect to a Stock Appreciation Right, the amount established by the Board in the related Award Agreement as the amount to be subtracted from the Fair Market Value on the date of exercise in order to determine the amount of the payment to be made to the Participant, as further described in Section 6.02(b).         2.16 Fair Market Value means, as of any applicable date, the closing price of a share of the Common Stock on the Nasdaq National Market System ("NMS") or, if not then authorized for trading on the NMS but traded on a nationally recognized exchange, the closing price of a share of the Common on such exchange or, if not then authorized or traded on any nationally recognized exchange, the fair market value of the Common Stock as determined in good faith under procedures established by the Board.         2.17 Incentive Stock Option means a stock option within the meaning of Section 422 of the Code.         2.18 Merger means any merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company.         2.19 Non-Employee Director means a member of the Board who is not also a common law employee of Company or of Eaton Corporation. A member of the Board who is an employee of Eaton Corporation shall be deemed a Non-Employee Director upon the earlier to occur of (i) his or her Retirement from Eaton Corporation or (ii) the date at which Eaton Corporation's ownership of the Common Stock of the Company is less than 20% of all then outstanding shares of Common Stock of the Company. A member of the Board who is a common law employee of the Company shall become a Non-Employee Director as of the date he or she ceases to be an active employee of the Company. For purposes of this Plan, a member of the Board who receives deferred compensation or benefits, whether through a qualified plan or other arrangement, will not be deemed to be an active employee of the Company or Eaton Corporation solely on account of the receipt of such deferred compensation or benefits.         2.20 Non-Qualified Stock Option means a stock option which is not an Incentive Stock Option.         2.21 Options means all Non-Qualified Stock Options and Incentive Stock Options granted at any time under the Plan.         2.22 Participant means a person designated to receive an Award under the Plan in accordance with Section 5.01.         2.23 Performance Awards means Awards granted in accordance with Article VIII.         2.24 Plan means the Axcelis Technologies, Inc. 2000 Stock Plan as described herein, as the same may be amended from time to time.         2.25 Purchase Price, with respect to Options, shall have the meaning set forth in Section 6.01(c).         2.26 Restricted Shares means Common Stock subject to restrictions imposed in connection with Awards granted under Article VII.         2.27 Retirement means a Participant's voluntary Termination of Employment with the consent of the Board.         2.28 Stock Appreciation Rights means Awards granted in accordance with Article VI.         2.29 Subsidiary means a subsidiary of the Company within the meaning of Section 424(f) of the Code.         2.30 Termination of Employment means the voluntary or involuntary termination of a Participant's employment with the Company or a Subsidiary for any reason, including death, Disability, Retirement or as the result of the divestiture of the Participant's employer or any similar transaction in which the Participant's employer ceases to be the Company or one of its Subsidiaries. Whether entering military or other government service shall constitute Termination of Employment, or whether a Termination of Employment shall occur as a result of Disability, shall be determined in each case by the Board in its sole discretion. In the case of a Member of the Board or consultant who is not an employee of the Company or a Subsidiary, Termination of Employment shall mean voluntary or involuntary termination of Board service or the consulting relationship, as the case may be, for any reason.     ARTICLE III ADMINISTRATION         3.01 Administration. The Plan shall be administered by the Board, except (i) awards to Non-Employee Directors under Section 6.01(b) shall be automatic and granted under the terms set forth for Non-Employee Directors under the Plan without power or authority of the Board (or if applicable a committee) to alter or amend the number, terms or conditions of such awards and (ii) awards intended to qualify as exempt from the limitations on deductible compensation imposed by Section 162(m) of the Code shall be granted and administered by a committee appointed by the Board consisting of no fewer than two members of the Board who meet each and all requirements to serve as outside directors within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder (the "162(m) Committee"). Except to the extent of matters reserved for the 162(m) Committee, the Board (or its designee, as described below) shall have exclusive and final authority in each determination, interpretation or other action affecting the Plan and its Participants. The Board (or its designee, as described below) shall have the sole discretionary authority to interpret the Plan, to establish and modify administrative rules for the Plan, to impose such conditions and restrictions on Awards as it determines appropriate, and to take such steps in connection with the Plan and Awards granted hereunder as it may deem necessary or advisable. The Board may, subject to compliance with applicable legal requirements, delegate to a person or a committee, none of whom need be members of the Board of the Company, such of its powers and authority under the Plan as it deems appropriate to designated officers or employees of the Company. The Board may appoint such person or committee to exercise any of the authority conferred upon the Board hereunder and, if a person or committee is designated to so serve, the term "Board" as used in this Plan shall include such committee. In the event of any such delegation of authority or exercise of authority by a person or committee so designated, references in the Plan to the Board shall be deemed to refer to the delegate of the Board or such committee, as the case may be.     ARTICLE IV SHARES         4.01 Number of Shares Issuable. The total number of shares initially authorized to be issued under the Plan shall be 18,500,000 shares of Common Stock. The number of shares available for issuance under the Plan shall be subject to adjustment in accordance with Section 9.07 and, for the purposes of granting Awards other than Incentive Stock Options, shall be increased annually by the lesser of (i) five (5%) percent of the then number of outstanding shares of Common Stock of the Company, (ii) 5,000,000 shares or (iii) such lesser amount determined by the Board. The shares to be offered under the Plan shall be authorized and unissued shares of Common Stock, or issued shares of Common Stock which will have been reacquired by the Company.         4.02 Shares Subject to Terminated Awards. Shares of Common Stock covered by any unexercised portions of terminated Options (including canceled Options) granted under Article VI, shares of Common Stock forfeited as provided in Section 7.02(a) and shares of Common Stock subject to any Award that are otherwise surrendered by a Participant may be subject to new Awards under the Plan. Shares of Common Stock subject to Options, or portions thereof, that have been surrendered in connection with the exercise of Stock Appreciation Rights shall not be available for subsequent Awards under the Plan, but shares of Common Stock issued in payment of such Stock Appreciation Rights shall not be charged against the number of shares of Common Stock available for the grant of Awards hereunder.         4.03 Special Section 368(c) Limitation. Notwithstanding any other provision of this Plan to the contrary, no award shall be converted into shares of Common Stock (including, but not limited to, upon exercise of an Option) if the effect of such conversion would cause Eaton Corporation to not be in control of the Company for purposes of Section 368(c) of the Code or prevent Eaton Corporation from filing a consolidated federal income tax return with the Company. Any purported conversion (including, but not limited to, an attempt to exercise an Option) shall be void and without force or effect. The Award purported to be converted into shares of Common Stock shall remain outstanding without any change in rights or obligations or the Participant or the Company. No cash or other form of consideration shall be paid or delivered in connection with any conversion prevented by this limitation. If Eaton disposes of all or substantially all of its interest in the Company, this Section 4.03 shall be without further force or effect.     ARTICLE V PARTICIPATION         Participants in the Plan shall be such employees, directors and consultants of the Company and its Subsidiaries as the Board, in its sole discretion, may designate from time to time. The Board's designation of a Participant in any year shall not require the Board to designate such person to receive Awards in any other year. The designation of a Participant to receive an Award under one portion of the Plan does not require the Board to include such Participant under other portions of the Plan. The Board shall consider such factors as it deems pertinent in selecting Participants and in determining the types and amounts of their respective Awards.     ARTICLE VI STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 6.01 Option Awards.         (a) Grant of Options. The Board may grant, to such Participants as the Board may select, Options entitling the Participants to purchase shares of Common Stock from the Company in such numbers, at such prices, and on such terms and subject to such conditions, not inconsistent with the terms of the Plan, as may be established by the Board. The terms of any Option granted under the Plan shall be set forth in an Award Agreement. No Participant may be granted an Option to purchase more than 1,250,000 shares of Common Stock in any fiscal year of the Company, except that in his or her initial year of service, a Participant may be granted an Option to purchase up to 1,250,000 shares of Common Stock.         (b) Non-Employee Director Options. As of the date of the initial public offering of the Common Stock of the Company, each person then serving as a Non-Employee Director shall be automatically granted a Non-Qualified Stock Option to purchase 24,00 shares of Common Stock. Each calendar year thereafter, each person serving as a Non-Employee Director as of the first meeting of the Board of Directors following July 1st of such calendar year will be automatically granted a Non-Qualified Stock Option to purchase 12,000 shares of Common Stock of the Company as of such meeting of the Board of Directors. Each such option shall be evidenced by a written Award Agreement that shall set forth the following terms:                 (1) The per share Purchase Price shall be equal to the Fair Market Value of a share of Common Stock on the date of grant;                 (2) The Option shall expire on the 10th anniversary of the date of grant;                 (3) The Option shall be fully vested on the 181st day after the date of grant; and                 (4) The Option shall be exercisable in accordance with Section 6.04 of this Plan but subject to Section 4.03 of this Plan.         If a member of the Board of Directors becomes a Non-Employee Director (including as a result of the operation of the second or third sentences of Section 2.19 of this Plan) on a day other than the day of the initial public offering of the Common Stock of the Company, (i) he or she shall be granted a Non-Qualified Option to purchase up to 24,000 shares of Common Stock as of the date he or she first becomes a Non-Employee Director subject to the terms set forth in (1) through (4) above and (ii) he or she shall be eligible to receive a grant of a Non-Qualified Stock Option as provided above on the day in the subsequent calendar year and each calendar year thereafter on which grants of options or other Awards under this Plan are first considered as long as he or she serves as a Non-Employee Director. Nothing set forth in this section shall prevent the Board from considering Non-Employee Directors for other awards under this Plan and from making any Awards to Non-Employee Directors.         (c) Purchase Price of Options. Subject to Section 6.01(e) with respect to certain Incentive Stock Options, the Purchase Price of each share of Common Stock which may be purchased upon exercise of any Option granted under the Plan shall be determined by the Board; provided, however, that the Purchase Price shall in all cases be equal to or greater than the Fair Market Value on the Date of Grant.         (d) Designation of Options. Except as otherwise expressly provided in the Plan, the Board may designate, at the time of the grant of an Option, such Option as an Incentive Stock Option or a Non-Qualified Stock Option; provided, however, that an Option may be designated as an Incentive Stock Option only if the applicable Participant is an employee of the Company or a Subsidiary on the Date of Grant.         (e) Special Incentive Stock Option Rules. No Participant may be granted Incentive Stock Options under the Plan (or any other plans of the Company and its Subsidiaries) that would result in Incentive Stock Options to purchase shares of Common Stock with an aggregate Fair Market Value (measured on the Date of Grant) of more than $100,000 first becoming exercisable by such Participant in any one calendar year. Notwithstanding any other provision of the Plan to the contrary, no Incentive Stock Option shall be granted to any person who, at the time the Option is granted, owns stock (including stock owned by application of the constructive ownership rules in Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary, unless at the time the Incentive Stock Option is granted the Option price is at least 110% of the Fair Market Value of the Common Stock subject to the Incentive Stock Option and the Incentive Stock Option by its terms is not exercisable for more than five (5) years from the Date of Grant.         (f) Rights as a Shareholder. A Participant or a transferee of an Option pursuant to Section 9.04 shall have no rights as a shareholder with respect to the shares of Common Stock covered by an Option until that Participant or transferee shall have become the holder of record of any such shares, and no adjustment shall be made with respect to any such shares of Common Stock for dividends in cash or other property or distributions of other rights on the Common Stock for which the record date is prior to the date on which that Participant or transferee shall have become the holder of record of any shares covered by such Option; provided, however, that Participants are entitled to share adjustments to reflect capital changes under Section 9.07. 6.02 Stock Appreciation Rights.         (a) Stock Appreciation Right Awards. The Board is authorized to grant to any Participant one or more Stock Appreciation Rights. Such Stock Appreciation Rights may be granted either independent of or in tandem with Options granted to the same Participant. Stock Appreciation Rights granted in tandem with Options may be granted simultaneously with, or, in the case of Non-Qualified Stock Options, subsequent to, the grant to such Participant of the related Options; provided, however, that: (i) any Option covering any share of Common Stock shall expire and not be exercisable upon the exercise of any Stock Appreciation Right with respect to the same share, (ii) any Stock Appreciation Right covering any share of Common Stock shall expire and not be exercisable upon the exercise of any Option with respect to the same share, and (iii) an Option and a Stock Appreciation Right covering the same share of Common Stock may not be exercised simultaneously. Upon exercise of a Stock Appreciation Right with respect to a share of Common Stock, the Participant shall be entitled to receive an amount equal to the excess, if any, of (A) the Fair Market Value of a share of Common Stock on the date of exercise over (B) the Exercise Price of such Stock Appreciation Right established in the Award Agreement, which amount shall be payable as provided in Section 6.02(c).         (b) Exercise Price. The Exercise Price established for any Stock Appreciation Right granted under this Plan shall be determined by the Board, but in the case of Stock Appreciation Rights granted in tandem with Options shall not be less than the Purchase Price of the related Options. Upon exercise of Stock Appreciation Rights, the number of shares issuable upon exercise under any related Options shall automatically be reduced by the number of shares of Common Stock represented by such Options which are surrendered as a result of the exercise of such Stock Appreciation Rights.         (c) Payment of Incremental Value. Any payment that may become due from the Company by reason of a Participant's exercise of a Stock Appreciation Right may be paid to the Participant as determined by the Board (i) all in cash, (ii) all in Common Stock, or (iii) in any combination of cash and Common Stock. In the event that all or a portion of the payment is to be made in Common Stock, the number of shares of Common Stock to be delivered in satisfaction of such payment shall be determined by dividing the amount of such payment or portion thereof by the Fair Market Value on the date of exercise . No fractional share of Common Stock shall be issued to make any payment in respect of Stock Appreciation Rights; if any fractional share would otherwise be issuable, the combination of cash and Common Stock payable to a Participant shall be adjusted as directed by the Board to avoid the issuance of any fractional share. 6.03 Terms of Stock Options and Stock Appreciation Rights.         (a) Conditions on Exercise. In addition to the conditions imposed under Section 4.03 of this Plan, an Award Agreement with respect to Options and/or Stock Appreciation Rights may contain such waiting periods, exercise dates and restrictions on exercise (including, but not limited to, periodic installments) as may be determined by the Board at the time of grant. Without limiting the applicability of Section 4.03, no Option shall be exercisable prior to the date of consummation of a disposition by Eaton Corporation of all or substantially all of its interest in the Company.         (b) Duration of Options and Stock Appreciation Rights. Options and Stock Appreciation Rights shall terminate after the first to occur of the following events: (i) Expiration of the Option or Stock Appreciation Right as provided in the related Award Agreement; or (ii) Termination of the Award as provided in Section 6.03(e), following the applicable Participant's Termination of Employment; or (iii) In the case of an Incentive Stock Option, ten years from the Date of Grant (five years in certain cases, as described in Section 6.01(e)) Non-Qualified Stock Options may, if so approved by the Board, have a stated term in excess of ten years, but such Options shall in all events be subject to termination in accordance with clauses (i) and (ii) above); or (iv) Solely in the case of a Stock Appreciation Right granted in tandem with an Option, upon the expiration of the related Option.         (c) Acceleration of Exercise Time. The Board, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable at any time after the Date of Grant, to permit the exercise of any Option or Stock Appreciation Right prior to the time such Option or Stock Appreciation Right would otherwise become exercisable under the terms of the related Award Agreement.         (d) Extension of Exercise Time. In addition to the extensions permitted under Section 6.03(e) in the event of Termination of Employment, the Board, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable on or at any time after the Date of Grant, to permit the exercise of any Option or Stock Appreciation Right after its expiration date described in Section 6.03(e), subject, however, to the limitations described in Sections 6.03(b)(i), (iii) and (iv).         (e) Exercise of Options or Stock Appreciation Rights Upon Termination of Employment. Unless an Optionee's Award Agreement provides otherwise, the following rules shall govern the treatment of Options and Stock Appreciation Rights upon Termination of Employment:                 (i) Termination of Vested Options and Stock Appreciation Rights Upon Termination of Employment. (A) Reasons Other Than Death, Disability or Retirement. In the event of a Participant's voluntary or involuntary Termination of Employment for any reason other than death, Disability or Retirement, the right of the Participant to exercise any Option or Stock Appreciation Right shall terminate on the date of such Termination of Employment, unless the exercise period is extended by the Board in accordance with Section 6.03(d). (B) Death, Disability or Retirement. In the event of a Participant's Termination of Employment by reason of death, Disability or Retirement, the right of the Participant to exercise any Option or Stock Appreciation Right which he or she was entitled to exercise upon Termination of Employment (or which became exercisable pursuant to Section 6.03(e)(ii)) shall, unless the exercise period is extended by the Board in accordance with Section 6.03(d), terminate upon the earlier of (i) the later to occur of (A) first anniversary of the date of such Termination of Employment and (B) the first anniversary of the date of consummation of a public offering of the Common Stock and (ii) the date of expiration of the Option determined pursuant to Section 6.03(b)(i), (iii) or (iv).                   (ii) Termination of Unvested Options or Stock Appreciation Rights Upon Termination of Employment. > > Subject to Section 6.03(c), to the extent the right to exercise an Option or > > a Stock Appreciation Right, or any portion thereof, has not accrued as of > > the date of Termination of Employment, such right shall expire at the date > > of such Termination of Employment regardless of the reason for such > > Termination of Employment. Notwithstanding the foregoing, the Board, in its > > sole discretion and under such terms as it deems appropriate, may permit, > > for a Participant who terminates employment by reason of Retirement and who > > will continue to render significant services to the Company or one of its > > Subsidiaries after his or her Termination of Employment, the continued > > vesting of his or her Options and Stock Appreciation Rights during the > > period in which that individual continues to render such services.         6.04 Exercise Procedures. Each Option and Stock Appreciation Right granted under the Plan shall be exercised by written notice to the Company which must be received by the officer or employee of the Company designated in the Award Agreement at or before the close of business on the expiration date of the Award. The Purchase Price of shares purchased upon exercise of an Option granted under the Plan shall be paid in full in cash by the Participant pursuant to the Award Agreement; provided, however, that the Board may (but shall not be required to) permit payment to be made by delivery to the Company of either (a) shares of Common Stock held by the Participant for at least six months (which may include Restricted Shares, subject to such rules as the Board deems appropriate) or (b) any combination of cash and Common Stock or (c) such other consideration as the Board deems appropriate and in compliance with applicable law (including payment in accordance with a cashless exercise program under which, if so instructed by a Participant, shares of Common Stock may be issued directly to the Participant's broker or dealer upon receipt of an irrevocable written notice of exercise from the Participant). In the event that any shares of Common Stock shall be transferred to the Company to satisfy all or any part of the Purchase Price, the part of the Purchase Price deemed to have been satisfied by such transfer of shares of Common Stock shall be equal to the product derived by multiplying the Fair Market Value as of the date of exercise times the number of shares of Common Stock transferred to the Company. The Participant may not transfer to the Company in satisfaction of the Purchase Price any fractional share of Common Stock. Any part of the Purchase Price paid in cash upon the exercise of any Option shall be added to the general funds of the Company and may be used for any proper corporate purpose. Unless the Board shall otherwise determine, any shares of Common Stock transferred to the Company as payment of all or part of the Purchase Price upon the exercise of any Option shall be held as treasury shares.         6.05 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all Options and Stock Appreciation Rights outstanding on the date of such Change in Control shall become immediately and fully exercisable. The provisions of this Section 6.05 shall not be applicable to any Options or Stock Appreciation Rights granted to a Participant if any Change in Control results from such Participant's beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of Company Voting Securities.     ARTICLE VII RESTRICTED SHARES         7.01 Restricted Share Awards. Subject to Section 4.03 of this Plan, the Board may grant to any Participant an Award of such number of shares of Common Stock on such terms, conditions and restrictions, whether based on performance standards, periods of service, retention by the Participant of ownership of purchased or designated shares of Common Stock or other criteria, as the Board shall establish. The terms of any Restricted Share Award granted under this Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Board and not inconsistent with this Plan.         (a) Issuance of Restricted Shares. As soon as practicable after the Date of Grant of a Restricted Share Award by the Board, the Company shall cause to be transferred on the books of the Company or its agent, shares of Common Stock, registered on behalf of the Participant, evidencing the Restricted Shares covered by the Award, subject to forfeiture to the Company as of the Date of Grant if an Award Agreement with respect to the Restricted Shares covered by the Award is not duly executed by the Participant and timely returned to the Company. All shares of Common Stock covered by Awards under this Article VII shall be subject to the restrictions, terms and conditions contained in the Plan and the applicable Award Agreements entered into by the appropriate Participants. Until the lapse or release of all restrictions applicable to an Award of Restricted Shares the share certificates representing such Restricted Shares may be held in custody by the Company, its designee, or, if the certificates bear a restrictive legend, by the Participant. Upon the lapse or release of all restrictions with respect to an Award as described in Section 7.01(d), one or more share certificates, registered in the name of the Participant, for an appropriate number of shares as provided in Section 7.01(d), free of any restrictions set forth in the Plan and the related Award Agreement shall be delivered to the Participant.         (b) Shareholder Rights. Beginning on the Date of Grant of a Restricted Share Award and subject to execution of the related Award Agreement as provided in Section 7.01(a), and except as otherwise provided in such Award Agreement, the Participant shall become a shareholder of the Company with respect to all shares subject to the Award Agreement and shall have all of the rights of a shareholder, including, but not limited to, the right to vote such shares and the right to receive dividends; provided, however, that any shares of Common Stock distributed as a dividend or otherwise with respect to any Restricted Shares as to which the restrictions have not yet lapsed, shall be subject to the same restrictions as such Restricted Shares and held or restricted as provided in Section 7.01(a).         (c) Restriction on Transferability. None of the Restricted Shares may be assigned or transferred (other than by will or the laws of descent and distribution or to an inter vivos trust with respect to which the Participant is treated as the owner under Sections 671 through 677 of the Code), pledged or sold prior to the lapse of the restrictions applicable thereto.         (d) Delivery of Shares Upon Vesting. Upon expiration or earlier termination of the forfeiture period without a forfeiture and the satisfaction of or release from any other conditions prescribed by the Board, or at such earlier time as provided under the provisions of Section 7.03, the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, subject to the requirements of Section 9.05, the Company shall deliver to the Participant or, in case of the Participant's death, to the Participant's Beneficiary, one or more share certificates for the appropriate number of shares of Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law.         7.02 Terms of Restricted Shares.         (a) Forfeiture of Restricted Shares. Subject to Sections 7.02(b) and 7.03, Restricted Shares shall be forfeited and returned to the Company and all rights of the Participant with respect to such Restricted Shares shall terminate unless the Participant continues in the service of the Company or a Subsidiary as an employee until the expiration of the forfeiture period for such Restricted Shares and satisfies any and all other conditions set forth in the Award Agreement. The Board shall determine the forfeiture period (which may, but need not, lapse in installments) and any other terms and conditions applicable with respect to any Restricted Share Award.         (b) Waiver of Forfeiture Period. Notwithstanding anything contained in this Article VII to the contrary, the Board may, in its sole discretion, waive the forfeiture period and any other conditions set forth in any Award Agreement under appropriate circumstances (including the death, Disability or Retirement of the Participant or a material change in circumstances arising after the date of an Award) and subject to such terms and conditions (including forfeiture of a proportionate number of the Restricted Shares) as the Board shall deem appropriate.         (c) Repurchase Rights. The Board may, but shall not be required to, grant to Participants who promptly inform the Board of their intention to elect federal income taxation under Section 83(b) of the Code, the right to require the Company to repurchase upon their termination of employment for any reason other than cause the shares for which federal income tax treatment under Section 83(b) of the Code was elected. Such repurchase right, if granted, may be exercised by the Participant at any time after his or her termination of employment at a price to be determined by the Board at the date of grant but in no event greater than the fair market value of such shares at the time federal income tax treatment under Section 83(b) of the Code was elected.         7.03 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all restrictions applicable to the Restricted Share Award shall terminate fully and the Participant shall immediately have the right to the delivery of share certificates for such shares in accordance with Section 7.01(d).     ARTICLE VIII PERFORMANCE AWARDS         8.01 Performance Awards.         (a) Award Periods and Calculations of Potential Incentive Amounts. Subject to Section 4.03 of this Plan, the Board may grant Performance Awards to Participants. A Performance Award shall consist of the right to receive a payment (measured by the Fair Market Value of a specified number of shares of Common Stock, increases in such Fair Market Value during the Award Period and/or a fixed cash amount) contingent upon the extent to which certain predetermined performance targets have been met during an Award Period. Performance Awards may be made in conjunction with, or in addition to, any other Awards made under this Plan. The Award Period shall be two or more fiscal or calendar years as determined by the Board. The Board, in its discretion and under such terms as it deems appropriate, may permit newly eligible employees, such as those who are promoted or newly hired, to receive Performance Awards after an Award Period has commenced.         (b) Performance Targets. The performance targets may include such goals related to the performance of the Company and/or the performance of a Participant as may be established by the Board in its discretion. The performance targets established by the Board may vary for different Award Periods and need not be the same for each Participant receiving a Performance Award in an Award Period. The Board, in its discretion, but only under extraordinary circumstances as determined by the Board, may change any prior determination of performance targets for any Award Period at any time prior to the final determination of the value of a related Performance Award when events or transactions occur to cause such performance targets to be an inappropriate measure of achievement.         (c) Earning Performance Awards. The Board, on or as soon as practicable after the Date of Grant, shall prescribe a formula to determine the percentage of the applicable Performance Award to be earned based upon the degree of attainment of performance targets.         (d) Payment of Earned Performance Awards. Payments of earned Performance Awards shall be made in cash or shares of Common Stock or a combination of cash and shares of Common Stock, in the discretion of the Board. The Board, in its sole discretion, may provide such terms and conditions with respect to the payment of earned Performance Awards as it may deem desirable.         8.02 Terms of Performance Awards.         (a) Termination of Employment. Unless otherwise provided below or in Section 8.03, in the case of a Participant's Termination of Employment prior to the end of an Award Period, the Participant will not have earned any Performance Awards for that Award Period.         (b) Retirement. If a Participant's Termination of Employment is because of Retirement prior to the end of an Award Period, the Participant will not be paid any Performance Award, unless the Board, in its sole and exclusive discretion, determines that an Award should be paid. In such a case, the Participant shall be entitled to receive a pro-rata portion of his or her Award as determined under subsection (d).         (c) Death or Disability. If a Participant's Termination of Employment is due to death or to Disability (as determined in the sole and exclusive discretion of the Board) prior to the end of an Award Period, the Participant or the Participant's personal representative shall be entitled to receive a pro-rata share of his or her Award as determined under subsection (d).         (d) Pro-Rata Payment. The amount of any payment to be made to a Participant whose employment is terminated by Retirement, death or Disability (under the circumstances described in subsections (b) and (c)) will be the amount determined by multiplying (i) the amount of the Performance Award that would have been earned through the end of the Award Period had such employment not been terminated by (ii) a fraction, the numerator of which is the number of whole months such Participant was employed during the Award Period, and the denominator of which is the total number of months of the Award Period. Any such payment made to a Participant whose employment is terminated prior to the end of an Award Period shall be made at the end of such Award Period, unless otherwise determined by the Board in its sole discretion. Any partial payment previously made or credited to a deferred account for the benefit of a Participant in accordance with Section 8.01(d) of the Plan shall be subtracted from the amount otherwise determined as payable as provided in this Section 8.02(d).         (e) Other Events. Notwithstanding anything to the contrary in this Article VIII, the Board may, in its sole and exclusive discretion, determine to pay all or any portion of a Performance Award to a Participant who has terminated employment prior to the end of an Award Period under certain circumstances (including the death, Disability or Retirement of the Participant or a material change in circumstances arising after the Date of Grant), subject to such terms and conditions as the Board shall deem appropriate.         8.03 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all Performance Awards for all Award Periods shall immediately become fully vested and payable to all Participants and shall be paid to Participants within 30 days after such Change in Control.     ARTICLE IX TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN         9.01 Plan Provisions Control Award Terms. The terms of the Plan shall govern all Awards granted under the Plan, and in no event shall the Board have the power to grant any Award under the Plan the terms of which are contrary to any of the provisions of the Plan. In the event any provision of any Award granted under the Plan shall conflict with any term in the Plan as constituted on the Date of Grant of such Award, the term in the Plan as constituted on the Date of Grant of such Award shall control. Except as provided in Section 9.03 and Section 9.07, the terms of any Award granted under the Plan may not be changed after the Date of Grant of such Award so as to materially decrease the value of the Award without the express written approval of the holder.         9.02 Award Agreement. No person shall have any rights under any Award granted under the Plan unless and until the Company and the Participant to whom such Award shall have been granted shall have executed and delivered an Award Agreement or the Participant shall have received and acknowledged notice of the Award authorized by the Board expressly granting the Award to such person and containing provisions setting forth the terms of the Award.         9.03 Modification of Award After Grant. No Award granted under the Plan to a Participant may be modified (unless such modification does not materially decrease the value of that Award) after its Date of Grant except by express written agreement between the Company and such Participant, provided that any such change (a) may not be inconsistent with the terms of the Plan, and (b) shall be approved by the Board.         9.04 Limitation on Transfer. Except as provided in Section 7.01(c) in the case of Restricted Shares, a Participant's rights and interest under the Plan may not be assigned or transferred other than by will or the laws of descent and distribution and, during the lifetime of a Participant, only the Participant personally (or the Participant's personal representative) may exercise rights under the Plan. The Participant's Beneficiary may exercise the Participant's rights to the extent they are exercisable under the Plan following the death of the Participant. Notwithstanding the foregoing, the Board may grant Non-Qualified Stock Options that are transferable, without payment of consideration, to such persons, including, but not limited to, immediate family members of the Participant or to trusts or partnerships for such family members, and the Board may also amend outstanding Non-Qualified Stock Options to provide for such transferability.         9.05 Taxes. The Company shall be entitled, if the Board deems it necessary or desirable, to withhold (or secure payment from the Participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any amount payable and/or shares issuable under such Participant's Award or with respect to any income recognized upon a disqualifying disposition (i.e. a disposition prior to the expiration of the requisite holding periods) of shares received pursuant to the exercise of an Incentive Stock Option, and the Company may defer payment of cash or issuance of shares upon exercise or vesting of an Award unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Board and shall be payable by the Participant in cash at such time as the Board determines; provided, however, that with the approval of the Board, the Participant may elect to meet his or her withholding requirement, in whole or in part, by having withheld from such Award at the appropriate time that number of shares of Common Stock, rounded up to the next whole share, the Fair Market Value of which is equal to the amount of withholding taxes due.         9.06 Intentionally Omitted         9.07 Adjustments to Reflect Capital Changes.         (a) Recapitalization. The number and kind of shares subject to outstanding Awards, the Purchase Price or Exercise Price for such shares, the number and kind of shares available for Awards subsequently granted under the Plan and the maximum number of shares in respect of which Awards can be made to any Participant in any calendar year shall be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other change in capitalization with a similar substantive effect upon the Plan or the Awards granted under the Plan. The Board shall have the power and sole discretion to determine the amount of the adjustment to be made in each case.         (b) Merger. After any Merger in which the Company is the surviving corporation, each Participant shall, at no additional cost, be entitled upon any exercise of an Option or receipt of any other Award to receive (subject to any required action by shareholders), in lieu of the number of shares of Common Stock receivable or exercisable pursuant to such Award prior to such Merger, the number and class of shares or other securities to which such Participant would have been entitled pursuant to the terms of the Merger if, at the time of the Merger, such Participant had been the holder of record of a number of shares of Common Stock equal to the number of shares of Common Stock receivable or exercisable pursuant to such Award. Comparable rights shall accrue to each Participant in the event of successive Mergers of the character described above. In the event of a Merger in which the Company is not the surviving corporation, the surviving, continuing, successor or purchasing corporation, as the case may be (the "Acquiring Corporation"), will either assume the Company's rights and obligations under outstanding Award Agreements or substitute awards in respect of the Acquiring Corporation's stock for outstanding Awards, provided, however, that if the Acquiring Corporation does not assume or substitute for such outstanding Awards, the Board shall provide prior to the Merger that any unexercisable and/or unvested portion of the outstanding Awards shall be immediately exercisable and vested as of a date prior to such Merger, as the Board so determines. The exercise and/or vesting of any Award that was permissible solely by reason of this Section 9.07(b) shall be conditioned upon the consummation of the Merger. Any Options which are neither assumed by the Acquiring Corporation not exercised as of the date of the Merger shall terminate effective as of the effective date of the Merger.         (c) Options to Purchase Shares or Stock of Acquired Companies. After any merger in which the Company or a Subsidiary shall be a surviving corporation, the Board may grant substituted options under the provisions of the Plan, pursuant to Section 424 of the Code, replacing old options granted under a plan of another party to the merger whose shares of stock subject to the old options may no longer be issued following the merger. The manner of application of the foregoing provisions to such options and any appropriate adjustments shall be determined by the Board in its sole discretion. Any such adjustments may provide for the elimination of any fractional shares which might otherwise become subject to any Options.         9.08 Certain Conditions on Awards. The Board may cancel any unexpired Awards at any time the Participant is not in compliance with any agreement between the Company and the Participant or any other legal obligation of the Participant relating to non-competition, confidentiality or proprietary interests and failure to comply with such agreements or obligations prior to, or during the twelve (12) months after, any exercise of an Option or Stock Appreciation Right shall result in the rescission of the exercise and the difference between the Fair Market Value on the date of exercise of the subject shares of Common Stock and the Purchase Price or Exercise Price, as the case may be, shall be returned to the Company by the Participant in cash within ten (10) days after notice of the rescission has been given to the Participant by the Company. Such notice may be given at any time within two years of the date of exercise.         9.09 Initial Public Offering. As a condition of participation under this Plan, each Participant shall be obligated to cooperate with the Company and the underwriters in connection with any public offering of the Company's securities and any transactions relating thereto and shall execute and deliver such agreements and documents, including without limitation, a lock-up agreement, as may be requested by the Company or the underwriters. The Participants' obligations under this Section 9.09 shall apply to any shares of Common Stock issued under the Plan as well as to any and all other securities of the Company or its successor for which such Common Stock may be exchanged or into which such Common Stock may be converted.         9.10 No Right to Employment. No employee or other person shall have any claim of right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or any of its Subsidiaries.         9.11 Awards Not Includable for Benefit Purposes. Payments received by a Participant pursuant to the provisions of the Plan shall not be included in the determination of benefits under any pension, group insurance or other benefit plan applicable to the Participant which is maintained by the Company or any of its Subsidiaries, except as may be provided under the terms of such plans or determined by the Board.         9.12 Governing Law. All determinations made and actions taken pursuant to the Plan shall be governed by the internal laws of the State of Delaware, except for its principles of conflict of laws, and construed in accordance therewith.         9.13 No Strict Construction. No rule of strict construction shall be implied against the Company, the Board or any other person in the interpretation of any of the terms of the Plan, any Award granted under the Plan or any rule or procedure established by the Board.         9.14 Captions. The captions (i.e., all Section headings) used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions had been used in the Plan.         9.15 Severability. Whenever possible, each provision in the Plan and every Award at any time granted under the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan or any Award at any time granted under the Plan shall be held to be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (b) all other provisions of the Plan, such Award and every other Award at any time granted under the Plan shall remain in full force and effect.         9.16 Amendment and Termination.         (a) Amendment. The Board shall have complete power and authority to amend the Plan at any time. No termination or amendment of the Plan may, without the consent of the Participant to whom any Award shall theretofore have been granted under the Plan, materially adversely affect the right of such individual under such Award.         (b) Termination. The Board shall have the right and the power to terminate the Plan at any time. No Award shall be granted under the Plan after the termination of the Plan, but the termination of the Plan shall not have any other effect and any Award outstanding at the time of the termination of the Plan may be exercised after termination of the Plan at any time prior to the expiration date of such Award to the same extent such Award would have been exercisable had the Plan not been terminated.

  Exhibit 10.1 AGREEMENT __________________________ THIS AGREEMENT entered into this day of 19th day of October, 2000, by and between AutoZone, Inc., a Nevada corporation and its various subsidiaries (collectively, "AutoZone"), and John C. Adams, Jr., an individual (the "Employee"), effective the Effective Date (as defined below) ("Agreement"). As in the preceding sentence, terms in this Agreement that begin with initial capital letters have the meaning set forth in this Agreement.         WHEREAS, the Employee currently serves as the Chairman of AutoZone's Board of Directors (the "Board"), and as AutoZone's Chief Executive Officer ("CEO"),         WHEREAS, the Parties have previously entered into an Amended and Restated Employment Agreement and Non-Compete Agreement dated August 31, 1999, and desire that such agreement become null and void and be replaced by this Agreement.         WHEREAS, the parties mutually desire to initiate a succession process under which the Employee may resign from his position as CEO, but remain in AutoZone's service in accordance with the terms and conditions of this Agreement, and         WHEREAS, the parties desire by this writing to set forth the employment relationship of AutoZone and the Employee during the period of this Agreement.         NOW, THEREFORE, it is AGREED as follows:         1.     Employment. On the Effective Date, the Employee shall resign from his position as AutoZone's CEO, and shall thereafter serve on a full-time basis as AutoZone's Chairman of the Board ("Chairman") subject to the terms and conditions of this Agreement. The Employee shall render such administrative and management services for AutoZone as are customarily performed by persons performing similar duties for other publicly held companies. The Employee's other duties shall be such as the Board may from time to time reasonably direct.         2.     Term. This Agreement shall be effective upon the election of the new CEO ("Effective Date") and shall continue in effect for five years after the Effective Date. The date that is five years after AutoZone elects a new Chief Executive Officer shall be the "Expiration Date" for purposes of this Agreement.         3.     Base Salary.Effective as of August 27, 2000, AutoZone agrees to pay the Employee a salary at the rate of $575,000 per annum (retroactive to August 27, 2000, after the execution of this Agreement) payable in cash at the same time and in the same manner as AutoZone pays its other executive employees ("Base Salary"). The Board shall review the rate of the Employee's Base Salary not less often than annually, and in its sole discretion may decide to increase his Base Salary.         4.     Annual Cash Bonuses. So long as Employee shall remain Chairman, the Employee shall participate in all cash bonus and incentive plans in a manner consistent with other executive officers of AutoZone, and shall participate in AutoZone's long-term cash bonus plan (if one exists) in a manner and at levels consistent with other executive officers. If at any time during the Term Employee ceases to be Chairman, Employee shall not be eligible, except as may be otherwise provided for in Paragraph 9 of this Agreement, to receive any further bonus payments or other types of incentive compensation. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to receive such bonuses.         5.     Stock Options; Other Benefits; Loans from AutoZone.                (a) Stock Options. The Employee shall be entitled to receive a stock option grant with respect to the fiscal year ending August 26, 2000, in accordance with grants (if any) made to other executive officers of AutoZone for performance in fiscal year 2000 subject to substantially the same terms and conditions as grants made to other executive officers for the same period of time, and the Employee shall be treated equitably with other senior officers. The Employee shall thereafter not be entitled to additional stock option grants pursuant to this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to receive the stock option grant referenced herein. Any stock options that the Employee holds on the Effective Date or thereafter receives as a new grant shall remain exercisable in accordance with the terms and conditions of the various stock option agreements entered into by AutoZone and Employee. In the event of any "Corporate Transaction," as currently defined in the AutoZone, Inc. Second Amended and Restated Stock Option Plan, as in effect on the Effective Date, at any time between the Effective Date and the Expiration Date, any unexercised stock options that the Employee has not exercised shall be equitably adjusted in a manner similar to adjustments (if any) that are made with respect to stock options held by other executive officers of AutoZone under that stock option plan.             (b) Participation in Retirement, Medical and Other Plans. During the Term of this Agreement, the Employee shall be eligible to participate in employee benefit plans maintained by AutoZone in the same manner as other employees of AutoZone.             (c) Other Employee Benefits; Expenses. So long as Employee remains Chairman, the Employee shall be eligible to participate in any fringe benefits which are or may become available to AutoZone's executive officers, including for example any benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with the policies of AutoZone.             (d) Loans from AutoZone. Any loan that the Employee has received from AutoZone shall become due and payable in accordance with the terms and conditions of such loans, although the Employee may at any time repay any or all loans without penalty.     6.     Loyalty; Non-competition.             (a). Non-Compete. Employee agrees that he will not, for the period commencing on the date of this Agreement and ending on the Expiration Date 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 of this Agreement,. (herein called "Competitor"), as an employee, director, consultant, beneficial or record owner, partner, joint venturer, officer or agent of the Competitor. Competitor shall mean any entity of any kind which is engaged in any manner in the same business or substantially the same business as that of AutoZone; or any entity of any kind which has any organizational unit, part, subpart, subsidiary or affiliate engaged in the same or substantially the same business as that of AutoZone. Employee and AutoZone expressly agree that the wholesale distribution of automotive parts through a network of "jobbers" or through company-owned or company-controlled outlets such as Genuine Parts - NAPA shall be a "Competitor". Provided, however, 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. By way of illustration and not limitation, "Competitor" is consequently intended to include (i) all public or independently owned automotive parts and automotive accessory specialty retailing chains such as, for example, Pep-Boys, Advance, and O'Reilly's; (ii) all chains with divisions or subsidiaries selling automotive parts and automotive accessories from separate business units (iii) all wholesalers of automotive parts or automotive accessories such as Genuine Parts - NAPA; and (iv) all other retail businesses with sales of automotive parts and/or automotive "accessories exceeding either of the minimum sales volume limitations set forth in clauses (a) or (b) of this paragraph. 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. If at any time 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 the Term.             (b) 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.             (c) Loyalty. During the term of this Agreement, the Employee will except for illnesses, reasonable vacation periods, and reasonable leaves of absence, devote all his full business time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, the Employee may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which will not present any conflict of interest with AutoZone or any of its subsidiaries or affiliates, or unfavorably affect the performance of the Employee's duties pursuant to this Agreement, or will not violate any applicable statute or regulation. "Full business time" is hereby defined as that amount of time usually devoted to like companies by similarly situated employee officers. During the term of his employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interests of AutoZone.             (d) Nothing contained in this Section shall be deemed to prevent or limit the Employee's right to invest in the capital stock or other securities of any business dissimilar from that of AutoZone, and not otherwise in violation of this Agreement.     7.     Standards. The Employee shall perform his duties under this Agreement in accordance with such reasonable standards as the Board may establish from time to time. AutoZone will provide the Employee with the working facilities and staff customary for similar Employees and necessary for him to perform his duties.     8.     Vacation and Sick Leave. At such reasonable times as the Board shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, all such voluntary absences to count as vacation time, provided that:             (a) The Employee shall be entitled to an annual vacation in accordance with the policies that the Board periodically establishes for executive officers of AutoZone.             (b) The Employee shall not receive any additional compensation from AutoZone on account of his failure to take a vacation or sick leave, and the Employee shall not accumulate unused vacation leave from one fiscal year to the next, except in either case to the extent authorized by the Board.     9.     Termination as Chairman. The Employee's services as Chairman of the Board may be terminated under the following circumstances:             (a) Death. The Employee's employment under this Agreement shall terminate upon his death during the Term of this Agreement, in which event the Employee's estate shall be entitled (i) to receive a lump sum payment equal to the total Base Salary that the Employee would have collected if he had lived until the Agreement's Expiration Date plus a prorated bonus for a partial year if Employee is Chairman at the time of his death (calculated in accordance with Paragraph 9(c)), and (ii) to exercise any stock options in accordance with the terms and conditions of the various stock option agreements between the Employee and AutoZone.             (b) Just Cause. The Board may, by written notice to the Employee, immediately terminate his employment at any time, for "Cause" which shall mean, in the good faith determination of the Board, the Employee's willful engagement in conduct which (i) is demonstrably or materially injurious to AutoZone, monetarily or otherwise, and (ii) if reasonably capable of being cured, is not cured by the Employee within 10 days after the Board provides him with a detailed notice of the conduct that is considered to be grounds for a determination of Cause. No act, or failure to act, on the Employee's part shall be considered "willful" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of AutoZone. The Employee shall have no right to earn additional compensation or benefits for any period after his termination for Cause, but shall receive his compensation, vested rights and employee benefits up to the date of his termination and any and all stock options shall be governed by the terms and conditions of such agreements.             (c) Without Just Cause. The Board may terminate the Employee's services as Chairman for any reason other than Cause, as of any annual stockholders meeting that follows the Board's delivery of at least 90 days' advance written notice to the Employee. Notwithstanding the previous sentence, the Board may terminate the Employee's services as Chairman of the Board within 90 days after the election of a new CEO by written notice to the Employee. Upon the termination of Employee's services as Chairman, Employee shall remain an employee of AutoZone until the Expiration Date available to perform such services as requested by the Board. In the event of Employee's services as Chairman being terminated without Cause in accordance with this paragraph, Employee shall be entitled to receive the following cash payments and benefits: (i) The Base Salary, as stated in Section 3 of this Agreement through the Expiration Date. (ii) A cash payment,   (a) if the Employee's services as Chairman terminates before August 26, 2001, in an amount equal to the average of the Bonus Percentage paid to the five highest-paid officers of AutoZone (excluding Employee) for the fiscal year ending on that date, multiplied by the Base Salary paid to Employee for that full fiscal year, or   (b) if Employee's services as Chairman terminate after August 26, 2001, in an amount calculated by multiplying the average of the Bonus Percentage paid to the five highest-paid officers of AutoZone (excluding Employee) for that fiscal year, times the actual Base Salary paid to Employee from the beginning of the fiscal year until the date his services as Chairman are terminated.     This cash payment shall be paid when other officer bonuses are paid for that fiscal year. "Bonus Percentage" as used in this section shall mean the percentage of the maximum obtainable bonus paid to an executive officer.   (iii) Credit under AutoZone's supplemental retirement plan equal to any pension years of service accruals that the Employee would have earned under any qualified or supplemental retirement plans of AutoZone (in existence on the Effective Date) if his service as Chairman had continued until the Expiration Date.,   (iv) Administrative assistance, at levels comparable to those in effect on the Effective Date, for the six-month period after his services as Chairman end.   (v) Such other benefits as employees of AutoZone are entitled to receive except as may be otherwise set forth in this Agreement.     Any amounts payable to the Employee pursuant to clause (i) of the preceding subsection shall be paid to him in periodic payments through the Expiration Date and any payments due under clauses (ii) or (iii) shall be paid to the Employee when such amounts are customarily paid.             (e) Voluntary Termination by Employee. The Employee may voluntarily terminate his services as Chairman with AutoZone during the term of this Agreement at any time after 2 years after the Effective Date, upon at least 90 days' prior written notice to the Board, in which case the Employee shall remain an employee of the Company available to perform such services as requested by the Board until the Expiration Date. Employee shall continue to receive the Base Salary and such other benefits as other employees of AutoZone are entitled to receive until the Expiration Date except as may be otherwise set forth in this Agreement. Upon the termination of Employee's services as Chairman, Employee shall remain an employee of AutoZone available to perform such services as requested by the Board. If Employee's services as Chairman terminate pursuant to this paragraph (e), AutoZone shall pay Employee a prorated bonus for the fiscal year in which his services as Chairman are terminated calculated in accordance with the formula stated in section 9(c)(ii)(b) of this Agreement. The bonus shall be paid when other officer bonuses are paid for that fiscal year.     10.     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.     11.    Indemnification. Employee shall be indemnified while serving as Chairman to the same extent and in the same manner as other officers of AutoZone.     12.     Reimbursement for Enforcement Proceedings. In the event that any dispute arises during or after the term of this Agreement between the Employee and AutoZone as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, the prevailing party shall be reimbursed from the losing party for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, provided that the prevailing party obtains either a written settlement or a final judgement by a court of competent jurisdiction substantially in his or its favor. Such reimbursement shall be paid within ten days of the prevailing party furnishing to the other party written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the prevailing.     13.     Federal Income Tax Withholding. AutoZone shall withhold all federal and state income or other taxes from any benefit payable under this Agreement as shall be required pursuant to any law or government regulation or ruling.     14.     Successors and Assigns.             (a) AutoZone. This Agreement shall not be assignable by AutoZone, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of AutoZone which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of AutoZone, as the case may be.             (b) Employee. Since AutoZone is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of AutoZone; provided, however, that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereunto.             (c) Attachment. Except as required by law, no right of the Employee to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect.             (d) Continuing Effect. The parties mutually agree and recognize that any provision of this Agreement that has potential effect beyond the term of this Agreement shall survive its expiration and remain fully enforceable.     15.     Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.     16.     Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Tennessee shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.     17.    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.     18.     Entire Agreement. On the Effective Date, this Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto and shall supersede any prior agreement between the parties and the Amended and Restated Employment and Non-Compete Agreement dated as of August 31, 1999, and all previous employment and non-compete agreements between Employee and AutoZone shall be null and void and of no further effect. < signature page follows > IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written.                                                                                                                       AUTOZONE, INC. Witnessed by:     /s/ Donald R. Rawlins                                                                                  By:     /s/ Robert J. Hunt     Asst. Secretary                                                                                            Title:  EVP-CFO                                                                                                                       By:     /s/ Harry L. Goldsmith                                                                                                                       Title:  Sr. V.P. & General Counsel                                                                                                                       EMPLOYEE Witnessed by:         /s/ Harry L. Goldsmith                                                                           /s/  John C. Adams, Jr.                                                                                                                       John C. Adams, Jr.          

AMENDMENT TO THE TELLABS, INC. 1998 STOCK OPTION PLAN   WHEREAS, Tellabs, Inc. (the "Company") has heretofore established the Tellabs, Inc. 1998 Stock Option Plan (the "Plan") for the benefit of present and future executives and key personnel of the Company and its subsidiaries and affiliated companies; WHEREAS, the Company deems it desirable to make certain amendments to the Plan relating to the vesting of options and stock appreciation rights ("SARs") and/or the post-employment exercise period in the event of the death, disability, or retirement of an option or SAR holder, or a change in control of the Company; WHEREAS, the Compensation Committee of the Company has considered the recommendations and recommended that the Board of Directors of the Company approve this Amendment to the Plan; and WHEREAS, the Board of Directors of the Company has approved this Amendment to the Plan. NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended, effective June 30, 2000, as follows : I. The definition of "Change in Control" under Article 2 of the Plan shall be amended in its entirety to read as follows: "Change in Control" means the first to occur of: (a) Any "person" (as defined in Section 13(d) and 14(d) of the Exchange Act), excluding for this purpose, the Company or any Subsidiary of the Company, or 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 20% or more 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; and provided further that no Change in Control will be deemed to have occurred if a person inadvertently acquires an ownership interest of 20% or more but then promptly reduces that ownership interest below 20%; (b) During any two consecutive years (not including any period beginning prior to June 30, 2000), individuals who at the beginning of such two-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, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; (c) 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; (ii) no person (excluding any company resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such company resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then combined voting power of the then outstanding voting securities of such company except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. II. Section 6.8 shall be amended in its entirety to read as follows: 6.8 Termination of Employment. Except as set forth in Article 10 with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Award Agreement evidencing an Option, the following rules shall apply upon termination of the Participant's employment with the Company and all Subsidiaries: (a) Except as set forth in subsections (b), (c), and (d) below, in the event a Participant ceases to be an Employee for any reason, any Option or unexercised portion thereof granted under this Plan may be exercised, to the extent such Option would have been exercisable by the Participant hereunder on the date on which the Participant ceased to be an Employee, within three months of such date (seven months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of the expiration of the term of the Option. (b) In the event of termination of employment due to the death the Participant, each Option held by the Participant shall become exercisable in full and may be exercised at any time prior to the expiration date of the Option or within one year after the date of the Participant's death, whichever period is shorter. (c) In the event of termination of employment due to the Disability of the Participant, each Option held by the Participant may, to the extent exercisable at the time of such termination, be exercised at any time prior to the expiration date of the Option or within three years after the date of the Participant's termination of employment, whichever period is shorter. (d) In the event of termination of employment due to the retirement of the Participant on or after attaining age 55, all or a portion of each Option held by the Participant, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Participant's attained age and one point for each year of continuous service with the Company or its Subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Company or an affiliate of the Company, but excluding any service prior to January 1, 1975), At least 70 but less than 80 points          50% of each unvested option shall vest At least 80 but less than 90 points          75% of each unvested option shall vest At least 90 points                                  100% of each unvested option shall vest and all Options held by the Participant to the extent then exercisable may be exercised at any time prior to the expiration date of the Option or within three years after the date of the Participant's retirement, whichever period is shorter. (e) Notwithstanding anything in this Plan to the contrary, any ISO which is exercised after the expiration of three months following the cessation of employment for any reason other than Disability or death or one year after the date of termination of employment due to Disability or death, shall be treated as a NQSO. III. Section 7.7 shall be amended in its entirety to read: 7.7 Termination of Employment. Except as set forth in Article 10 with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Award Agreement evidencing the SAR, the following rules shall apply upon termination of the Participant's employment with the Company and all Subsidiaries: (a) Except as set forth in subsections (b), (c), and (d) below, in the event a Participant ceases to be an Employee for any reason, any SAR or unexercised portion thereof granted under this Plan may be exercised, to the extent such SAR would have been exercisable by the Participant hereunder on the date on which the Participant ceased to be an Employee, within three months of such date (seven months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of the expiration of the term of the SAR. (b) In the event of termination of employment due to the death the Participant, each SAR held by the Participant shall become exercisable in full and may be exercised at any time prior to the expiration date of the SAR or within one year after the date of the Participant's death, whichever period is shorter. (c) In the event of termination of employment due to the Disability of the Participant, each SAR held by the Participant may, to the extent exercisable at the time of such termination, be exercised at any time prior to the expiration date of the SAR or within three years after the date of the Participant's termination of employment, whichever period is shorter. (d) In the event of termination of employment due to the retirement of the Participant on or after attaining age 55, all or a portion of each SAR held by the Participant, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Participant's attained age and one point for each year of continuous service with the Company or its Subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Company or an affiliate of the Company, but excluding any service prior to January 1, 1975), At least 70 but less than 80 points          50% of each unvested SAR shall vest At least 80 but less than 90 points          75% of each unvested SAR shall vest At least 90 points                                  100% of each unvested SAR shall vest and all SARs held by the Participant to the extent then exercisable may be exercised at any time prior to the expiration date of the SAR or within three years after the date of the Participant's retirement, whichever period is shorter. IV. Article 10 shall be amended in its entirety to read: 10.1 Effect of Change in Control. Upon the occurrence of a Change in Control, any and all Options and SARs granted hereunder shall become immediately exercisable and remain exercisable until such Options and SARs expire or terminate under the provisions of this Plan. 10.2 Change in Control Not Approved by Incumbent Board. Upon the occurrence of a Change in Control not approved by the Incumbent Board, any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term without regard to termination of employment subsequent to such Change in Control. IN WITNESS WHEREOF, the foregoing amendments to the Tellabs, Inc. 1998 Stock Option Plan are hereby adopted as of the 30th day of June, 2000, by the undersigned officer duly authorized by resolutions adopted by the written consent of the Board of Directors dated June 30, 2000.   TELLABS, INC.   By: /s Michael J. Birck Name: Michael J. Birck Its: President and Chief Executive Officer

QuickLinks -- Click here to rapidly navigate through this document AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT     THIS AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and entered into as of October 31, 2000, by and among Avocent Employment Services Co. (formerly known as Polycon Investments, Inc.), a Texas corporation ("Employer"), Avocent Corporation, a Delaware corporation, and Doyle C. Weeks (the "Employee"). RECITALS     WHEREAS, the Employer is a direct or indirect subsidiary of Avocent Corporation engaged in the business of leasing employees to Avocent Corporation and its affiliates, including Apex Inc. ("Apex") and Cybex Computer Products Corporation ("Cybex");     WHEREAS, Avocent Corporation and its affiliates (collectively referred to in this Agreement as "Avocent") are engaged in the business of designing, manufacturing, and selling stand-alone console/ KVM switching systems, console/KVM remote access products, and integrated server cabinet solutions for the client/server computing market;     WHEREAS, Employee, Employer, and Cybex entered into that certain Employment and Noncompetition Agreement dated July 1, 1999, as amended by that certain First Amendment dated March 7, 2000 (collectively, the "Original Employment Agreement"); and     WHEREAS, on March 8, 2000, Apex, Cybex, and Avocent Corporation entered into an Agreement and Plan of Reorganization dated March 8, 2000 (the "Reorganization Agreement"). Pursuant to the Reorganization Agreement, (i) Apex Acquisition Corp., a wholly-owned subsidiary of Avocent, merged with and into Apex on July 1, 2000 (the "Apex Merger"), and upon the Apex Merger, Apex became a wholly-owned subsidiary of Avocent, and (ii) Cybex Acquisition Corp., a wholly-owned subsidiary of Avocent, merged with and into Cybex (the "Cybex Merger") on July 1, 2000, and upon the Cybex Merger, Cybex also became a wholly-owned subsidiary of Avocent; and     WHEREAS, for and in consideration of an increase in base pay, certain incentive bonus eligibility and awards, and an award of stock options that would not otherwise be made to Employee, Employer, Employee, Cybex, and Avocent now wish to amend and restate the Original Employment Agreement with this Amended and Restated Employment and Noncompetition Agreement. AGREEMENT     THE PARTIES HERETO AGREE AS FOLLOWS:     1.  DUTIES.  During the term of this Agreement, the Employee agrees to be employed by Employer and to serve Avocent as its Executive Vice President of Group Operations and Business Development, and Employer agrees to employ the Employee and lease the Employee to Avocent to serve Avocent in such capacities. The Employee shall devote such of his business time, energy, and skill to the affairs of Avocent and Employer as shall be necessary to perform the duties of Executive Vice President of Group Operations and Business Development. The Employee shall report to the President of the Employer, Cybex, and Avocent Corporation and to the Boards of Directors of the Employer, Cybex, and Avocent Corporation, and at all times during the term of this Agreement, the Employee shall have powers and duties at least commensurate with his position as Executive Vice President of Group Operations and Business Development of Avocent Corporation.     2.  TERM OF EMPLOYMENT.       2.1  DEFINITIONS.  For purposes of this Agreement the following terms shall have the following meanings:     (a) "TERMINATION FOR CAUSE" shall mean termination by the Employer of the Employee's employment by the Employer by reason of the Employee's willful dishonesty towards, fraud upon, or deliberate injury or attempted injury to, the Employer or Avocent or -------------------------------------------------------------------------------- by reason of the Employee's willful material breach of this Agreement which has resulted in material injury to the Employer or Avocent.     (b) "TERMINATIONS OTHER THAN FOR CAUSE" shall mean termination by the Employer or Avocent Corporation of the Employee's employment by the Employer (other than in a Termination for Cause) and shall include any constructive termination of the Employee's employment by reason of material breach of this Agreement by the Employer or Avocent, such constructive termination to be effective upon thirty (30) days written notice from the Employee to the Employer of such constructive termination.     (c) "VOLUNTARY TERMINATION" shall mean termination by the Employee of the Employee's employment by the Employer other than (i) constructive termination as described in subsection 2.1(b), (ii) "Termination Upon a Change in Control" as described in Section 2.1(e), and (iii) termination by reason of the Employee's disability or death as described in Sections 2.5 and 2.6.     (d) "TERMINATION UPON A CHANGE IN CONTROL" shall mean (i) a termination by the Employee of the Employee's employment with the Employer or services to Avocent within six (6) months following any "Change in Control" other than any "Change in Control" contemplated by or described in the Reorganization Agreement and/or resulting from the closing of the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger (as such terms are defined in the Reorganization Agreement), or (ii) any termination by the Employer or Avocent Corporation of the Employee's employment by the Employer (other than a Termination for Cause) within eighteen (18) months following any "Change in Control" other than any "Change in Control" contemplated by or described in the Reorganization Agreement and/or resulting from the closing of the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger (as such terms are defined in the Reorganization Agreement).     (e) "CHANGE IN CONTROL" shall mean any one of the following events:      (i) Any person (other than Avocent) acquires beneficial ownership of Employer's, Cybex's, or Avocent Corporation's securities and is or thereby becomes a beneficial owner of securities entitling such person to exercise twenty-five percent (25%) or more of the combined voting power of Employer's, Cybex's, or Avocent Corporation's then outstanding stock. For purposes of this Agreement, "beneficial ownership" shall be determined in accordance with Regulation 13D under the Securities Exchange Act of 1934, or any similar successor regulation or rule; and the term "person" shall include any natural person, corporation, partnership, trust or association, or any group or combination thereof, whose ownership of Employer's, Cybex's, or Avocent Corporation's securities would be required to be reported under such Regulation 13D, or any similar successor regulation or rule.     (ii) Within any twenty-four (24) month period, the individuals who were Directors of Avocent Corporation at the beginning of any such period, together with any other Directors first elected as directors of Avocent Corporation pursuant to nominations approved or ratified by at least two-thirds (2/3) of the Directors in office immediately prior to any such election, cease to constitute a majority of the Board of Directors of Avocent Corporation.     (iii) Avocent Corporation's stockholders approve:     (1) any consolidation or merger of Avocent Corporation in which Avocent Corporation is not the continuing or surviving corporation or pursuant to which 2 -------------------------------------------------------------------------------- shares of Avocent Corporation common stock would be converted into cash, securities or other property, other than a merger or consolidation of Avocent Corporation in which the holders of Avocent Corporation's common stock immediately prior to the merger or consolidation have substantially the same proportionate ownership and voting control of the surviving corporation immediately after the merger or consolidation; or     (2) any sale, lease, exchange, liquidation or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Avocent Corporation. Notwithstanding subparagraphs (e)(iii)(1) and (e)(iii)(2) above, the term "Change in Control" shall not include a consolidation, merger, or other reorganization if upon consummation of such transaction all of the outstanding voting stock of Avocent Corporation is owned, directly or indirectly, by a holding company, and the holders of Avocent Corporation's common stock immediately prior to the transaction have substantially the same proportionate ownership and voting control of such holding company after such transaction.     (iv) Cybex's stockholders approve:     (1) any consolidation or merger of Cybex in which Cybex is not the continuing or surviving corporation or pursuant to which shares of Cybex common stock would be converted into cash, securities or other property, other than a merger or consolidation of Cybex (including a merger of Cybex into Avocent Corporation) in which the holders of Cybex's common stock immediately prior to the merger or consolidation have substantially the same proportionate ownership and voting control of the surviving corporation immediately after the merger or consolidation; or     (2) any sale, lease, exchange, liquidation or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Cybex. Notwithstanding subparagraphs (e)(iv)(1) and (e)(iv)(2) above, the term "Change in Control" shall not include a consolidation, merger, or other reorganization if upon consummation of such transaction all of the outstanding voting stock of Cybex is owned, directly or indirectly, by a holding company, and the holders of Cybex's common stock immediately prior to the transaction have substantially the same proportionate ownership and voting control of such holding company after such transaction.     2.2  BASIC TERM.  The term of employment of the Employee by the Employer shall be for the period beginning immediately prior to the closing of the Cybex Merger (as described in the Reorganization Agreement) on July 1, 2000, and ending on December 31, 2004, unless terminated earlier pursuant to this Section 2. At any time before December 31, 2004, the Employer and the Employee may by mutual written agreement extend the Employee's employment under the terms of this Agreement for such additional periods as they may agree.     2.3  TERMINATION FOR CAUSE.  Termination For Cause may be effected by the Employer at any time during the term of this Agreement and shall be effected by thirty (30) days written notification to the Employee from the Boards of Directors of Employer and Avocent Corporation stating the reason for termination. Upon Termination For Cause, the Employee immediately shall be paid all accrued salary, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, 3 -------------------------------------------------------------------------------- all to the date of termination, but the Employee shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.4  TERMINATION OTHER THAN FOR CAUSE.  Notwithstanding anything else in this Agreement, the Employer may effect a Termination Other Than For Cause at any time upon giving thirty (30) days written notice to the Employee of such termination. Upon any Termination Other Than For Cause, the Employee shall immediately be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, and all severance compensation provided in Section 4.2, but no other compensation or reimbursement of any kind.     2.5  TERMINATION BY REASON OF DISABILITY.  If, during the term of this Agreement, the Employee, in the reasonable judgment of the Board of Directors of Avocent, has failed to perform his duties under this Agreement on account of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than six (6) consecutive months, the Employer shall have the right to terminate the Employee's employment hereunder by delivery of written notice to the Employee at any time after such six month period and payment to the Employee of all accrued salary, bonus compensation in an amount equal to the average annual bonus earned by the Employee as an employee of Avocent and its affiliates and predecessors in the two (2) years immediately preceding the date of termination, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, with the exception of medical and dental benefits which shall continue through the expiration of this Agreement, but the Employee shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.6  TERMINATION BY REASON OF DEATH.  In the event of the Employee's death during the term of this Agreement, the Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs and the Employer shall pay to his estate or such beneficiaries as the Employee may from time to time designate all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, but the Employee's estate shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.7  VOLUNTARY TERMINATION.  Notwithstanding anything else in this Agreement, the Employee may effect a Voluntary Termination at any time upon giving thirty (30) days written notice to the Employer of such termination. In the event of a Voluntary Termination, the Employer shall immediately pay all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (other than pension plan or profit sharing plan benefits which 4 -------------------------------------------------------------------------------- will be paid in accordance with the applicable plan), any benefits under any plans of Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, but no other compensation or reimbursement of any kind, including without limitation, severance compensation.     2.8  TERMINATION UPON A CHANGE IN CONTROL.  In the event of a Termination Upon a Change in Control, the Employee shall immediately be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation, if any (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 Employer or Avocent in which the Employee is a participant to the full extent of the Employee's rights under such plans (including having the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated), accrued vacation pay and any appropriate business expenses incurred by the Employee in connection with his duties hereunder, all to the date of termination, and all severance compensation provided in Section 4.1, but no other compensation or reimbursement of any kind. Employee acknowledges and agrees that the transactions described in the Reorganization Agreement including, without limitation, the Cybex Merger, the Apex Merger, and the Merger do not constitute, and shall not be construed retroactively or otherwise as constituting, a "Change in Control" as defined in Section 2.1(e) and that any future termination of Employee's employment with Employer will not constitute a "Termination Upon A Change in Control" under Section 2.1(d) or this Section 2.8 unless there is a Change in Control as defined in Section 2.1(e) of this Agreement after the date of this Agreement.     3.  SALARY, BENEFITS AND BONUS COMPENSATION.       3.1  BASE SALARY.  Effective July 1, 2000, as payment for the services to be rendered by the Employee as provided in Section 1 and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee a "Base Salary" at the rate of $250,000 per annum, payable in equal bi-weekly installments. The Base Salary for each calendar year (or proration thereof) beginning January 1, 2001 shall be determined by the Board of Directors of Avocent Corporation upon a recommendation of the Compensation Committee of Avocent Corporation (the "Compensation Committee"), which shall authorize an increase in the Employee's Base Salary in an amount which, at a minimum, shall be equal to the cumulative cost-of-living increment on the Base Salary as reported in the "Consumer Price Index, Huntsville, Alabama, All Items," published by the U.S. Department of Labor (using July 1, 2000, as the base date for computation prorated for any partial year). The Employee's Base Salary shall be reviewed annually by the Board of Directors and the Compensation Committee of Avocent Corporation.     3.2  BONUSES.  The Employee shall be eligible to receive a bonus for each calendar year (or portion thereof) during the term of this Agreement and any extensions thereof, with the actual amount of any such bonus to be determined in the sole discretion of the Board of Directors of Avocent Corporation based upon its evaluation of the Employee's performance during such year. All such bonuses shall be payable during the last month of the fiscal year or within forty-five (45) days after the end of the fiscal year to which such bonus relates. All such bonuses shall be reviewed annually by the Compensation Committee of Avocent Corporation.     3.3  ADDITIONAL BENEFITS.  During the term of this Agreement, the Employee shall be entitled to the following fringe benefits:     (a)  THE EMPLOYEE BENEFITS.  The Employee shall be eligible to participate in such of Avocent's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of or Avocent, including, without limitation, stock option plans, Section 401(k) plan, profit sharing plans, annual physical 5 -------------------------------------------------------------------------------- examinations, dental and medical plans, personal catastrophe and disability insurance, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Cybex or Avocent, the Employee's employment with the Employer (or any successor) will be deemed to have commenced on the date that Employee first commenced employment with Cybex, which was February 1, 1995.     (b)  VACATION.  The Employee shall be entitled to vacation in accordance with the Avocent Corporation's vacation policy but in no event less than three weeks during each year of this Agreement.     (c)  LIFE INSURANCE.  For the term of this Agreement and any extensions thereof, the Employer shall at its expense procure and keep in effect term life insurance on the life of the Employee, payable to such beneficiaries as the Employee may from time to time designate, in an aggregate amount equal to the lesser of (i) three times the Employee's Base Salary or (ii) $500,000. Such policy shall be owned by the Employee or by any person or entity with an insurable interest in the life of the Employee.     (d)  REIMBURSEMENT FOR EXPENSES.  During the term of this Agreement, the Employer or Avocent Corporation shall reimburse the Employee for reasonable and properly documented out-of-pocket business and/or entertainment expenses incurred by the Employee in connection with his duties under this Agreement.     4.  SEVERANCE COMPENSATION.       4.1  SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL.  In the event the Employee's employment is terminated in a Termination Upon a Change in Control, the Employee shall be paid as severance compensation his Base Salary (at the rate payable at the time of such termination) for a period of eighteen (18) months from the date of termination of this Agreement, on the dates specified in Section 3.1, and an amount equal to the average annual bonus earned by the Employee as an employee of Avocent Corporation and its affiliates and predecessors in the two (2) years immediately preceding the date of termination. Notwithstanding anything in this Section 4.1 to the contrary, the Employee may in the Employee's sole discretion, by delivery of a notice to the Employer within thirty (30) days following a Termination Upon a Change in Control, elect to receive from the Employer a lump sum severance payment by bank cashier's check equal to the present value of the flow of cash payments that would otherwise be paid to the Employee pursuant to this Section 4.1. Such present value shall be determined as of the date of delivery of the notice of election by the Employee and shall be based on a discount rate equal to the interest rate of 90-day U.S. Treasury bills, as reported in The Wall Street Journal (or similar publication), on the date of delivery of the election notice. If the Employee elects to receive a lump sum severance payment, Avocent Corporation shall cause the Employer to make such payment to the Employee within ten (10) days following the date on which the Employee notifies the Employer of the Employee's election. The Employee shall also be entitled to have the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated. The Employee shall be provided with medical plan benefits under any health plans of Avocent or Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans for a period of 12 months from the date of termination of this Agreement; provided, however, that the benefits under any such plans of Employer or Avocent in which the Employee is a participant, including any such perquisites, shall cease upon employment by a new employer.     4.2  SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE.  In the event the Employee's employment is terminated in a Termination Other Than for Cause, the Employee shall be paid as severance compensation his Base Salary (at 6 -------------------------------------------------------------------------------- the rate payable at the time of such termination) for a period of eighteen (18) months from the date of such termination, on the dates specified in Section 3.1, and an amount equal to the average annual bonus earned by the Employee as an employee of Avocent Corporation and its affiliates and predecessors in the two (2) years immediately preceding the date of termination. Notwithstanding anything in this Section 4.2 to the contrary, the Employee may in the Employee's sole discretion, by delivery of a notice to the Employer within thirty (30) days following a Termination Other Than for Cause, elect to receive from the Employer a lump sum severance payment by bank cashier's check equal to the present value of the flow of cash payments that would otherwise be paid to the Employee pursuant to this Section 4.2. Such present value shall be determined as of the date of delivery of the notice of election by the Employee and shall be based on a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as reported in The Wall Street Journal (or similar publication), on the date of delivery of the election notice. If the Employee elects to receive a lump sum severance payment, Avocent Corporation shall cause the Employer to make such payment to the Employee within ten (10) days following the date on which the Employee notifies the Employer of the Employee's election. The Employee shall also be entitled to have the vesting of any awards granted to the Employee under any Cybex or Avocent stock option plans fully accelerated.     4.3  NO SEVERANCE COMPENSATION UNDER OTHER TERMINATION.  In the event of a Voluntary Termination, Termination For Cause, termination by reason of the Employee's disability pursuant to Section 2.5, or termination by reason of the Employee's death pursuant to Section 2.6, the Employee or his estate shall not be paid any severance compensation.     5.  NON-COMPETITION OBLIGATIONS.  Unless waived or reduced by the Employer or Avocent, during the term of this Agreement and for a period of 12 months thereafter, the Employee will not, without the Employer's prior written consent, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, engage in any business activity in the United States, Canada, or Europe which is substantially similar to or in direct competition with any of the business activities of or services provided by the Employer at such time. Notwithstanding the foregoing, the ownership by the Employee of not more than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or on The Nasdaq Stock Market shall not be deemed, in and of itself, to violate the prohibitions of this Section 5.     6.  MISCELLANEOUS.       6.1  PAYMENT OBLIGATIONS.  If litigation after a Change in Control shall be brought to enforce or interpret any provision contained herein, the Employer and Avocent Corporation, to the extent permitted by applicable law and the Employer's and Avocent Corporation's Articles of Incorporation and Bylaws, each hereby indemnifies the Employee for the Employee's reasonable attorneys' fees and disbursements incurred in such litigation.     6.2  GUARANTEE.  Avocent Corporation hereby unconditional and irrevocable guarantees the payment obligations of the Employer under this Agreement, including, without limitation, the Employer's obligations under Section 6.1 hereof.     6.3  WITHHOLDINGS.  All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local, and other withholdings and similar taxes and payments required by applicable law.     6.4  WAIVER.  The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 7 --------------------------------------------------------------------------------     6.5  ENTIRE AGREEMENT; MODIFICATIONS.  Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral with respect to the subject matter hereof including without limitation, the Original Employment Agreement, and any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to the Employee from the Employer or Avocent Corporation. In particular, Employee acknowledges and agrees that the terms and conditions of this Agreement (and not the Original Employment Agreement) shall apply to all stock option awards granted to Employee under any Cybex or Avocent stock option plan (including, without limitation, Employee's September 18, 2000 stock option award from Avocent Corporation). All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought.     6.6  NOTICES.  All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given upon hand delivery to an officer of the Employer or the Employee, as the case may be, or upon three (3) days after mailing to the respective persons named below: If to the Employer/Avocent: Avocent Corporation 4991 Corporate Drive Huntsville, AL 35805 Attn: Executive Vice President Copy to General Counsel   If to the Employee:   Doyle C. Weeks [          ] [          ]     Any party may change such party's address for notices by notice duly given pursuant to this Section 6.6.     6.7  HEADINGS.  The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement.     6.8  GOVERNING LAW; VENUE.  This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama. The Employee, the Employer, and Avocent Corporation each hereby expressly consents to the exclusive venue of the state and federal courts located in Huntsville, Madison County, Alabama, for any lawsuit arising from or relating to this Agreement.     6.9  ARBITRATION.  Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in Huntsville, Alabama, in accordance with the Rules of the American Arbitration Association, and judgment upon any proper award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be three (3) arbitrators, one (1) to be chosen directly by each party at will, and the third arbitrator to be selected by the two (2) arbitrators so chosen. To the extent permitted by the Rules of the American Arbitration Association, the selected arbitrators may grant equitable relief. Each party shall pay the fees of the arbitrator selected by him and of his own attorneys, and the expenses of his witnesses and all other expenses connected with the presentation of his case. The cost of the arbitration including the cost of the record or transcripts thereof, if any, administrative fees, and all other fees and costs shall be borne equally by the parties. 8 --------------------------------------------------------------------------------     6.10  SEVERABILITY.  If a court or other body of competent jurisdiction determines that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible.     6.11  SURVIVAL OF EMPLOYER'S OBLIGATIONS.  The Employer's and Avocent Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to the Employer or Avocent Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of the Employer or Avocent Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, this Agreement shall not be assignable either by the Employer (except to an affiliate of the Employer (including Avocent Corporation) in which event the Employer shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by the Employee.     6.12  COUNTERPARTS.  This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement.     6.13  INDEMNIFICATION.  In addition to any rights to indemnification to which the Employee is entitled to under the Employer's Articles of Incorporation and Bylaws, the Employer and Avocent Corporation shall indemnify the Employee at all times during and after the term of this Agreement to the maximum extent permitted under the corporation laws of the State of Delaware and any other applicable state law, and shall pay the Employee's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.     6.14  INDEMNIFICATION FOR SECTION 4999 EXCISE TAXES.  In the event that it shall be determined that any payment or other benefit paid by the Employer or Avocent Corporation to or for the benefit of the Employee under this Agreement or otherwise, but determined without regard to any additional payments required under this Amendment (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the "Excise Tax"), then the Employer and Avocent Corporation shall indemnify the Employee for such Excise Tax in accordance with the following:     (a) The Employee shall be entitled to receive an additional payment from the Employer and/or Avocent Corporation equal to (i) one hundred percent (100%) of any Excise Tax actually paid or finally or payable by the Employee in connection with the Payments, plus (ii) an additional payment in such amount that after all taxes, interest and penalties incurred in connection with all payments under this Section 2(a), the Employee retains an amount equal to one hundred percent (100%) of the Excise Tax.     (b) All determinations required to be made under this Section shall be made by the Avocent Corporation's primary independent public accounting firm, or any other nationally recognized accounting firm reasonably acceptable to the Avocent Corporation and the Employee (the "Accounting Firm"). Avocent Corporation shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Employer and the Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Employer. For purposes of making the calculations required by this Section, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G 9 -------------------------------------------------------------------------------- and 4999 of the Internal Revenue Code, provided the Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Internal Revenue Code). The payments to which the Employee is entitled pursuant to this Section shall be paid by the Employer and/or Avocent Corporation to the Employee in cash and in full not later than thirty (30) calendar days following the date the Employee becomes subject to the Excise Tax.     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.     AVOCENT EMPLOYMENT SERVICES, INC.:           By:   /s/ JULIE YARBROUGH    --------------------------------------------------------------------------------     Its: President --------------------------------------------------------------------------------           AVOCENT CORPORATION:           By:   /s/ DOUGLAS E. PRITCHETT    --------------------------------------------------------------------------------     Its: Senior Vice President --------------------------------------------------------------------------------           EMPLOYEE:           /s/ DOYLE C. WEEKS    -------------------------------------------------------------------------------- Doyle C. Weeks 10 -------------------------------------------------------------------------------- QUICKLINKS AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT RECITALS AGREEMENT

Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Exhibit 10.21 EXELIXIS INC. - DOW AGROSCIENCES LLC AGREEMENT This Agreement, effective upon the date of the last signature hereto (hereafter "Effective Date"), is between Exelixis, Inc. (hereafter "EXEL"), which has an office located at 170 Harbor Way, P.O. Box 511, South San Francisco, CA 94083-0511, and Dow AgroSciences llc (hereafter "DAS"), which has an office located at 9330 Zionsville Road, Indianapolis, IN 46268. Whereas , EXEL has expertise in the field of functional genomics and model genetic systems; Whereas , DAS has expertise in the field of fungicides and herbicides and will provide EXEL with DAS Historical Compounds (hereinafter defined); Whereas , EXEL and DAS desire to use their respective expertise together in a Research Project (hereafter "RP") to identify genes encoding Cognate Target (as hereafter defined) sites or High Quality Molecular Target Sites (as hereafter defined), and then develop Research Milestones (as hereafter defined) based on these Cognate Target sites or High Quality Molecular Target Sites, and then use these Research Milestones to identify fungicides and herbicides that interact with these Cognate Target sites and High Quality Molecular Target Sites; and Whereas , DAS will provide EXEL access to DAS Historical Compounds for screening for biological activity related to human therapeutic, diagnostic or vaccine products; Now Therefore , EXEL and DAS (hereafter "Party" if singular or "Parties" if plural) agree as follows: DEFINITIONS "Active Ingredient" (hereafter "AI" if singular and "AIs" if plural) shall mean a compound that can be used as a fungicide or herbicide. "Adjustment Factor" or "AF" shall mean [ * ] in a Combination Product (as hereafter defined). "Affiliate" shall mean an enterprise or entity, directly or indirectly, owned or controlled by a Party, under common ownership or control with a Party, or which, directly or indirectly, owns or controls a Party. Ownership means at least a fifty (50) percent ownership interest, and control means the right to exercise management control. For purposes of this Section 1.3, the word "control" (including the correlative meanings "controlled by" or "under the common control with") shall mean the actual power, either directly or indirectly, through one or more intermediaries, to direct or cause the direction of the management and policies of such enterprise or entity, whether by the ownership of at least fifty (50) percent of the voting stock of such enterprise or entity, or by contract or otherwise. "Approved FH" shall mean a Fungicide/Herbicide (as hereafter defined) that DAS has received approval to sell in a Major Country (as hereafter defined) from the appropriate government authority in that Major Country. "Candidate Target" shall mean a [ * ] that confers resistance or hypersensitivity to a compound when its activity in the organism has been altered (i.e. suppressed or overexpressed). "Cognate Target" shall mean a [ * ] such as, for example, [ * ] which has been demonstrated by [ * ] that are agreed upon by the Joint Management Team (as hereafter defined), to encode a molecular target site of a fungicide or herbicide provided by DAS to EXEL during the course of the collaboration under this Agreement. "Cognate Target Assay" shall mean an assay, or an expression system, developed utilizing a Cognate Target that (i) [ * ] in the course of the collaboration under this Agreement, (ii) [ * ] , and (iii) [ * ] "Combination Product" shall mean a product that contains [ * ] AIs, where at least one of such AIs is a Fungicide/Herbicide. "DAS's Field" shall mean fungicides and herbicides useful for the agricultural industry including, but not limited to, [ * ] , and shall include activities within this field related to these fungicides and herbicides, such as, for example, making, using, selling, and importing these fungicides and herbicides. "DAS Historical Compound" (hereafter "DAS HC" if singular and "DAS HCs" if plural) shall mean [ * ] (which includes [ * ] ) or [ * ] collection. "Development" shall mean the [ * ] stage of commercialization and is initiated at the successful completion and preliminary analysis of the [ * ] and the commitment [ * ] . "EXEL's Field" shall mean [ * ] generated under the Research Project including, but not limited to, [ * ] subject to Section 13.2. "EXEL's Human Use Field" shall mean [ * ] and shall include [ * ] "Fungicide/Herbicide" (hereafter "FH" if singular and "FHs" if plural) shall mean a fungicide or herbicide identified using a Research Milestone. "High Quality Molecular Target Site" or "HQMT Site" shall mean a molecular target site that: is at least as sensitive as molecular target sites recognized as being industry state of the art; is present in [ * ] that cause damage in major crop markets; is present [ * ] that cause damage in major crop markets; is not present in [ * ] or is sufficiently [ * ] as to represent an opportunity to achieve commercial levels of selectivity; and has an [ * ] that causes damage in a major crop market that is functionally equivalent. "Independent Research" shall mean [ * ] either independently or pursuant to an agreement with a third party, and specifically includes [ * ] "Major Country" shall mean [ * ] "Net Sales" shall mean the total amount received by DAS, its Affiliates, and its licensees, during a calendar year (January 1-December 31), from sales of Stand-Alone Product (as hereafter defined) to independent, unrelated third parties, in bona fide arms- length transactions, less the following standard deductions actually paid or allowed, and not subject to refund: sales tax, excise tax, value added tax, and other taxes and duties imposed on the sale, use, or distribution of Stand-Alone Product; normal and customary cash, trade, and quantity discounts; amounts paid or credited by reason of rejection or return of goods, defects, rebates, or bona fide retroactive price reductions; and expenses for freight, insurance and the like paid in connection with the distribution or sale of Stand-Alone Product. If non-cash consideration, with a cash value greater than [ * ] U.S. Dollars [ * ] as reasonably estimated by DAS, is received in a bona fide arms-length transaction for commercial value, for any Stand-Alone Product or Combination Product sold or otherwise transferred to an independent third party not an Affiliate of the seller or transferor, the fair market value of such non-cash consideration on the date of the transfer, shall be included in the calculation of Net Sales, [ * ] or the Adjusted Net Sales [ * ] When calculating the Net Sales, the amount of such sales in foreign currencies shall be converted into U.S. Dollars at the average rate of exchange at the time for the applicable calendar year in accordance with DAS's then current standard practices. "Adjusted Net Sales" shall mean the total amount obtained by adjusting the amount received by DAS, its Affiliates, and its licensees, during a calendar year (January 1-December 31), from sales of Combination Product to independent, unrelated third parties, in bona fide arms- length transactions, less the following standard deductions: sales tax, excise tax, value added tax, and other taxes and duties imposed on the sale, use, or distribution of Combination Product; normal and customary cash, trade, and quantity discounts actually allowed; amounts paid or credited by reason of rejection or return of goods, defects, rebates, or bona fide retroactive price reductions; and expenses for freight, insurance and the like paid in connection with the distribution or sale of Combination Product; where such adjusting is determined in accordance with Exhibits A1, A2, A3, and A4. "Country Adjusted Net Sales" or "CANS" shall mean that portion of Adjusted Net Sales that took place in a certain country. "Country Net Sales" or "CNS" shall mean that portion of Net Sales that took place in a certain country. "Country Total Net Sales" or "CTNS" shall mean that portion of Total Net Sales (as hereafter defined) that took place in a certain country, which is equal to the CNS of Stand-Alone Products (if any) containing a certain Fungicide/Herbicide plus the sum of CANS of those Combination Products (if any) containing the same Fungicide/Herbicide in the country in question. "Total Net Sales" or "TNS" shall mean the Net Sales of Stand-Alone Products (if any) containing a certain FH plus the sum of Adjusted Net Sales of Combination Products (if any) containing the same FH. "Patent" shall mean a document, representing an intellectual property right, made by a government or sovereign of a country that can be used to exclude others from practicing the invention claimed in the document. "Predevelopment" shall mean the [ * ] stage of commercialization of a Product (as hereafter defined) and is characterized by initiation of [ * ] . "Product" shall mean a Stand-Alone Product or Combination Product or both. "Related Compound" shall mean a Homolog, Isomer, Analog, or First Order Derivative of a DAS HC. "Analog" shall mean [ * ] thereof by an analogous element. "First Order Derivative" shall mean [ * ] . "Homolog" shall mean [ * ] that does not affect the essential relationship of the functional groups in the DAS HC. "Isomer" shall mean [ * ] . "Research Milestone" shall mean: a Cognate Target Assay; or a biochemical activity assay, or expression system, for a HQMT Site [ * ]; which is accepted by the Joint Management Team. "Stand-Alone Product" shall mean a product that contains one FH and no other AI. "OBJECTIVES OF THE RP" It is an objective of this RP for DAS to supply EXEL with a steady state of up to [ * ] compounds, where such compounds have fungicidal or herbicidal activity or both (hereafter "DAS Supplied Compounds"). DAS will provide EXEL any necessary information regarding the compounds relating to safe handling procedures. It is an objective of this RP for EXEL to apply its expertise in functional genomics and model genetic systems to [ * ]. EXEL and DAS shall [ * ] the DAS Supplied Compounds using [ * ] and using [ * ]. EXEL shall evaluate the [ * ] compounds in [ * ] Candidate Target sites (hereafter "CT Site") and [ * ]; and [ * ] the herbicidal or fungicidal molecular target site of the DAS Supplied Compound as a Cognate Target. EXEL and DAS shall [ * ] according to the criteria as set forth in Section 1.15. Attached Exhibit B outlines the scope of the workplan defined under this Agreement. It is an objective of this RP for DAS to identify FHs by using its expertise in conjunction with a Research Milestone. Both parties agree that the RP shall be a [ * ] program, many aspects of which are [ * ] in nature. Therefore, decisions about how to proceed within the workplan in Exhibit B are dependent upon and shall be adjusted [ * ]. "RP MANAGEMENT" The management of the RP shall be the responsibility of two committees: the Joint Management Team (hereafter "JMT"); and the Joint Research Team (hereafter "JRT"). The JMT shall be composed of up to three (3), with a minimum of two (2), members from each Party. Each Party shall have one (1) vote. The JMT shall meet at least two (2) times a year. The JMT shall consist of senior members from each Party authorized to make decisions with respect to matters including, but not limited to, setting research goals, allocating staff to specific programs, determining program expansions, determining and granting milestones, resolving disputes, and making strategic decisions. The JMT shall also have responsibility for establishing and monitoring the intellectual property strategy and portfolio developed by the collaboration. Dispute resolution shall be determined pursuant to Section 19.1. The JRT shall be composed of up to three (3) members, with a minimum of two, (2) scientists from each Party who are responsible in their respective organizations for day to day management of the RP. Each Party shall have one (1) vote. The JRT shall meet at least quarterly to review the results and help direct the RP. Dispute resolution shall be determined pursuant to Section 19.1. The JRT shall report to the JMT and at least one (1) member from each Party shall be a member of both the JMT and the JRT. The members of the JMT and members of the JRT shall communicate with each other as often as necessary. Communications may be by telephone or televideo conferences or both, monthly, or on some occasions more often than monthly. Each Party shall be responsible for its own expenses in conducting its activities under this Agreement. Minutes shall be prepared for all meetings of the JMT and JRT. The Parties shall approve JMT and JRT minutes. Minutes of these meetings shall be reviewed, revised, if necessary, and approved by both Parties within ten (10) business days of receipt of the first draft. An Intellectual Property Committee (hereafter "IPC") shall be formed with representation from each Party. The IPC shall make reports to the JMT. Responsibilities of the IPC will include, but not be limited to, review of materials for publication that arise during or from the RP. The IPC shall review requests and make recommendations to the JMT as to whether any information may be published. The recommendation shall be consistent with the protection of the intellectual property generated under this Agreement. The IPC shall have at least one representative familiar with intellectual property in the area of the RP, preferably at least one (1) patent attorney, from each Party. "RP RESOURCES" EXEL shall provide a core group of [ * ] Full-Time Equivalent (hereafter "FTE") scientists to work directly on the RP. DAS shall provide funding for this core group at the rate of [ * ] U.S. Dollars [ * ] per FTE for the [ * ] year, [ * ] U.S. Dollars [ * ] per FTE for the [ * ] year, and [ * ] U.S. Dollars [ * ] per FTE for the [ * ] year. EXEL shall ensure that this core group shall be supported by staff with expertise in required areas. DAS shall make each year's FTE funding payments in four (4) quarterly installments. However, a first quarterly payment of [ * ] U.S. Dollars [ * ] shall be made within [ * ] days of the Effective Date; this payment shall be a credit against the FTE's expended during the first quarter of this Agreement and any overpayment by DAS shall be a credit for the second quarter payment. EXEL shall inform DAS of any such overpayment with the second quarter invoice; the remaining quarterly payments will be due within [ * ] days of receiving an invoice from EXEL reasonably detailing the number of FTEs used in that quarter. DAS shall provide funding for a minimum of [ * ] months. Thereafter, DAS shall provide EXEL [ * ] months' notice should DAS decide that this Agreement should be terminated based on a lack of advancement of the RP as set forth in the workplan in Exhibit B. Other than for reasons of lack of advancement of the RP or unremedied material breach, DAS shall have no right to terminate this Agreement prior to the end of the three (3) year term. Upon written notice to EXEL, DAS shall have the right to increase total FTEs from [ * ] to [ * ] in the [ * ] years, subject to DAS determining that there are additional goals DAS wishes to accomplish during those years that could not be accomplished with [ * ] FTEs. This increase would be at [ * ] following the JRT and JMT review of the [ * ] year's accomplishments. However, [ * ], the minimum [ * ] FTE commitment shall remain in effect until such time that this Agreement terminates or expires. Nothing in this Agreement shall require DAS to provide funding for support of the RP in excess of the guaranteed funding that is set forth in this Article IV, unless DAS agrees to do so in a separate written document. "RESEARCH MILESTONES" EXEL shall deliver Research Milestones. The JMT in collaboration with the JRT will be responsible for defining a research plan using available biological and molecular data to assess the quality of a molecular target site relative to the definition in Section 1.15. EXEL and DAS will jointly have the responsibility to answer questions pertaining to quality in advancing Cognate Targets to HQMT site as outlined in Exhibit B. The specifications for each Research Milestone will be set by the JMT. DAS shall use Research Milestones to identify fungicides and herbicides that interact with the Cognate Target Site or High Quality Molecular Target Site. Within [ * ] year of EXEL delivering a Research Milestone, DAS shall inform EXEL whether it desires to pursue further research utilizing this Research Milestone in DAS's Field. During this [ * ] year period, EXEL shall not grant any third party any rights to the Cognate Target or HQMT Site associated with that Research Milestone, without first allowing DAS an opportunity to obtain exclusive rights in DAS's Field under the terms and conditions in this Agreement. If DAS does not desire to pursue further work with this Research Milestone on an exclusive basis, the Cognate Target or HQMT Site associated with this Research Milestone shall be deemed a Non-Exclusive Target Site (hereafter "NET"). If DAS desires to pursue further work with this Research Milestone on an exclusive basis, the Cognate Target or HQMT Site associated with this Research Milestone shall be deemed a Limited-Exclusive Target Site (hereafter "LET"). If DAS, after further work on a LET, decides that it does not desire to perform any additional work on such LET on such exclusive basis, such LET shall be reclassified as a NET. DAS shall have a period of [ * ] years from the date in which DAS determines that the Cognate Target or HQMT Site associated with a Research Milestone is a LET where EXEL shall not perform, [ * ] any work [ * ] for such Cognate Target or HQMT Site, for any third party. However, EXEL [ * ] to a third party provided such [ * ] arose from Independent Research performed on behalf of such third party by EXEL. DAS shall pay EXEL [ * ] U.S. Dollars [ * ] within [ * ] days of a Research Milestone being deemed a LET, which shall be the sole consideration for the [ * ] period of limited exclusivity for each LET. DAS shall provide EXEL with written annual updates concerning its diligence with each LET. DAS shall have the right to have a maximum of [ * ] LETs during the first [ * ] of this Agreement. DAS can have these LETs running concurrently. If a Research Milestone is deemed a LET more than [ * ] year after the Effective Date but less than [ * ] after the Effective Date, the [ * ] period of limited exclusivity shall run past the end of the first [ * ] years of this Agreement without further compensation to EXEL besides the payment in Section 5.5. After the first [ * ] years of this Agreement the number of LETs and the amount of the payment for the [ * ] period of limited exclusivity for each of these LETs, shall have to be negotiated. "MILESTONE PAYMENTS" DAS shall pay [ * ] U.S. Dollars [ * ] to EXEL within [ * ] days of delivery of each Research Milestone. Only one (1) Research Milestone payment is due for any one molecular target site. DAS shall pay to EXEL the following amounts for achievement of milestones: For each FH, which was identified using a Research Milestone, and which DAS decides to enter into Predevelopment, DAS shall pay EXEL [ * ] U.S. Dollars [ * ] within [ * ] days of the decision to enter into Predevelopment, which decision DAS shall provide by written notice to EXEL; For each FH, which was identified using a Research Milestone, and which DAS decides to enter into Development, DAS shall pay EXEL [ * ] U.S. Dollars [ * ] within [ * ] days of the decision to enter into Development, which decision DAS shall provide by written notice to EXEL; For each FH, which was identified using a Research Milestone, and which becomes an Approved FH, DAS shall pay EXEL [ * ] U.S. Dollars [ * ] within [ * ] days of the first Major Country approval which DAS shall confirm by written notice to EXEL. DAS shall provide EXEL with a progress report, on a [ * ] basis, outlining the status of each Research Milestone or each FH, which was identified using a Research Milestone, including anticipation of entering Predevelopment, Development, and/or Approved FH. "ROYALTY PAYMENTS" For each FH, DAS shall pay EXEL a royalty based on TNS as follows: in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is protected by a Patent derived from work conducted on the RP, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] but less than, or equal to, [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country, shall be [ * ] percent of CTNS for such country; in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is protected by a Patent derived from work conducted on the RP, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] but less than, or equal to, [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country, shall be [ * ] percent of CTNS for such country; in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is protected by a Patent derived from work conducted on the RP, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country, shall be [ * ] percent of CTNS for such country; in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is not protected by a Patent, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] but less than, or equal to, [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country, shall be [ * ] percent of CTNS for such country; in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is not protected by a Patent, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] but less than, or equal to, [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country, shall be [ * ] percent of CTNS for such country; in a country where the composition of a certain FH or the use of the FH as a fungicide or herbicide is not protected by a Patent, and the TNS for such FH is greater than [ * ] U.S. Dollars [ * ] per calendar year, the royalty for such FH, sold in that country shall be [ * ] percent of CTNS for such country. DAS shall pay the royalty set forth in Sections 7.1.1- 7.1.6 for a period of [ * ] years from the date DAS receives an Approved FH, or for the life of any Patents that cover the [ * ], whichever is longer. After all Patents that cover the [ * ] become unenforceable in a country, for any reason, any additional royalty due (because the time period that DAS paid a royalty under Sections 7.1.1-7.1.3 in that country was less than [ * ] years), in that country, shall be calculated in accordance with Sections 7.1.4-7.1.6 (and this royalty shall be paid until the time period that DAS paid a royalty under Section 7.1.1-7.1.6 equals [ * ] years. If one (1), or more, third parties contribute to DAS's identification of a FH prior to Predevelopment, the royalties due under Section 7.1 shall be divided equally among EXEL and such third parties. In any case, only a maximum of [ * ] additional third parties shall share in such royalties. In the event DAS decides to enter into an additional third party business relationship under which such third party would collaborate with DAS in the areas of combinatorial chemistry or structure-based design, then [ * ]. Prior to the identification of a Cognate Target Assay or HQMT Site, DAS may attempt to use [ * ] provided by EXEL to discover fungicides and herbicides. If DAS uses [ * ], any patentable fungicides or herbicides identified by DAS shall be considered to be FHs for purposes of section 6.2 milestone payments and shall be considered to be FHs for royalty payments under 7.1, however, all such royalty payments will be reduced [ * ] percent. [ * ], all such royalty payments, thereafter, shall be at [ * ] percent, as provided for in Section 7.1 and in addition EXEL shall be paid the milestone payment in accordance with Section 6.1 for such Research Milestone. DAS shall pay only one (1) royalty for each FH sold and that royalty is calculated using Section 7.1, and such royalty is then subject to modification in accordance with Section 7.2 or 7.3 if required. All royalties due under this Article 7 shall be paid [ * ], on a country-by-country basis, within [ * ] days of the end of the relevant [ * ]. Each royalty payment shall be accompanied by a statement stating the number, description, and CTNS in each country of each Product sold during the relevant [ * ]. All payments due under this Agreement to EXEL shall be made by bank wire transfer in immediately available funds to an account designated by EXEL. All payments hereunder shall be made in U.S. Dollars. EXEL shall pay any and all taxes levied on account of all payments it receives under this Agreement. If laws or regulations require that taxes be withheld, DAS will (i) deduct those taxes from the remittable payment, (ii) pay the taxes to the proper taxing authority, and (iii) send evidence of the obligation together with proof of tax payment to EXEL within [ * ] days following that tax payment. DAS shall keep complete, true and accurate books of account and records for the purpose of determining the payments to be made under this Agreement. Such books and records shall be kept for at least three (3) years following the end of the calendar year to which they pertain. Such records will be open for inspection during such three year period by independent accountants, jointly agreed to by DAS and EXEL, solely for the purpose of verifying payment statements hereunder. Such inspections shall be made no more than once each calendar year, at reasonable times and on reasonable notice. Inspections conducted under this Section 7.9 shall be at the expense of EXEL, unless a variation or error producing the greater of (i) an increase exceeding five (5) percent of the royalty amount or (ii) [ * ] U.S. Dollars [ * ], stated for the period covered by the inspection, is established in the course of such inspection, whereupon all costs relating to the inspection for such period and any unpaid amounts (plus interest) that are discovered will be paid promptly by DAS. If a FH is sold in a country where there is no Patent that protects the composition of the FH, or there is no Patent that protects the use of the FH as a fungicide or herbicide, and if subsequent to these sales of such FH a Patent issues that does protect the composition of the FH, or a Patent issues that does protect the use of the FH as a fungicide or herbicide, then DAS shall recalculate the royalties paid to EXEL on such sales before such Patent issued and shall pay EXEL for such sales as if the Patent issued before such sales, taking into account any payments already made to EXEL for such sales. "DISCLOSED INFORMATION" All materials and information, not generated under this Agreement, that is or has been disclosed by one Party (the "Disclosing Party") (hereafter "Disclosed Information") shall be treated by the other Party (the "Receiving Party") as confidential. The Receiving Party shall hold in confidence and not publish, disclose, or allow any third party access to, nor use for any purpose other than that authorized herein, any Disclosed Information without the Disclosing Party's prior written consent. This obligation of confidentiality shall remain in effect throughout the term of this Agreement and for five (5) years from the date of termination or expiration of this Agreement or the termination or expiration of any extension hereof. However, this obligation shall not apply to: Disclosed Information that the Receiving Party can show was in its possession prior to disclosure hereunder and which was not received from Disclosing Party under obligation of secrecy; Disclosed Information that the Receiving Party can show was available to the public, provided it is available to the public through no fault of the Receiving Party; Disclosed Information that the Receiving Party can show was received from a third party unrelated to the Disclosing Party which had a right to disclose same; and Disclosed Information that is required to be disclosed by operation of law, governmental regulation, or court order, provided the Receiving Party gives the Disclosing Party notice of such disclosure prior to making such disclosure, and Receiving Party uses all reasonable efforts to secure confidential protection for such Disclosed Information. Upon termination of this Agreement, or otherwise upon request from the Disclosing Party, the Receiving Party shall promptly return to the Disclosing Party all Disclosed Information and additionally shall permanently delete all electronically, or otherwise stored, Disclosed Information from all of the Receiving Party's systems containing same, except one hard copy may be maintained by the Receiving Party in order to determine its responsibilities under this Agreement. Either Party may make known the existence of this Agreement, however, neither Party shall disclose any details of this Agreement or the RP, subject to Section 10.1. "CONFIDENTIALITY" All information generated by either Party pursuant to this Agreement shall be "Confidential Information" (hereafter "Generated Information"). A Party receiving Generated Information of the other Party will (i) maintain in confidence such Generated Information to the same extent such Party maintains its own proprietary information, (ii) not disclose such Generated Information in DAS's Field to any third party without prior written consent of the other Party, and (iii) not use such Generated Information for any purpose except those permitted by this Agreement. This obligation of confidentiality shall remain in effect for five (5) years from the date of termination or expiration of this Agreement or the termination or expiration of any extension hereof. This Section does not apply to the submission or prosecution of patent applications. However, this obligation shall not apply to: Generated Information that a Party can show was in its possession prior to generation hereunder and which was not received from a third party under obligation of secrecy; Generated Information that a Party can show was available to the public, provided it is available to the public through no fault of such Party; Generated Information that a Party can show was received from a third party unrelated to that Party which had a right to disclose same; and Generated Information that is required to be disclosed by operation of law, governmental regulation, or court order, provided the disclosing Party gives the other Party notice of such disclosure prior to making such disclosure, and the disclosing Party uses all reasonable efforts to secure confidential protection for such Generated Information. Generated Information in DAS's Field that is generated as a result of the work performed by EXEL under the RP shall be co-owned by DAS and EXEL. "PUBLICITY" The Parties agree that the public announcement of the execution of this Agreement shall be substantially in the form of the press release attached as Exhibit C. Any other publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties; provided, however, that any disclosure which is required by law as advised by the disclosing Party's counsel may be made by making prompt notice of such legally required disclosure and to the extent practicable shall provide the other Party an opportunity to comment on the proposed disclosure. "PUBLICATIONS" Neither Party shall publish or present the results of studies carried out under this Agreement without the opportunity for prior review and approval by the other Party, such approval not to be unreasonably withheld. Subject to Section 10.1, each Party agrees to provide the other Party the opportunity to review any proposed abstracts, manuscripts or presentations (including verbal presentations) which relate to any Cognate Target or HQMT Site at least thirty (30) days prior to its intended submission for publication and agrees, upon request, not to submit any such abstract or manuscript for publication until the other Party is given a reasonable period to secure patent protection for any material in such publication which such Party believes to be patentable. Any disputes between the Parties regarding delaying a publication or presentation to permit filing of a patent application shall be referred to the JMT. This section does not apply to the submission or prosecution of patent applications. "INTELLECTUAL PROPERTY" Each Party shall own the entire right, title and interest in and to any and all of its Pre-Existing Technologies (which shall mean any technologies existing before the Effective Date) or Sole Inventions, and Patents covering such Pre-Existing Technologies or Sole Inventions. Each Party shall retain control over and bear all expenses associated with the filing, prosecution and maintenance of all Patents claiming Pre-existing Technologies or Sole Inventions. The JRT shall prepare a written report in conjunction with the IPC within [ * ] days of the end of each quarter describing any Sole Inventions, Joint Inventions, and Generated Information arising during the prior quarter. Such reports shall be submitted to the JMT not less than once every six (6) months. The IPC, in consultation with the JMT, shall decide whether to file a patent application for a Joint Invention. Under the direction of the JMT, the IPC shall supervise and direct the filing, prosecution and maintenance of all patent applications and Patents covering Joint Inventions. DAS shall bear the expenses associated with the filing, prosecution (including any interferences, reissue proceedings and reexaminations) and maintenance of all patent applications and Patents on Joint Inventions relating to DAS's Field. [ * ] shall bear the expenses associated with the filing, prosecution (including any interferences, reissue proceedings and reexaminations) and maintenance of all patent applications and Patents on Joint Inventions relating to EXEL's Field and EXEL's Human Use Field. A Party electing not to pay any such costs and expenses with respect to a patent application or Patent covering a Joint Invention must provide the other Party with not less than [ * ] months notification before any relevant deadline. If the other Party assumes the expenses associated with the patent application or Patent, such Party will thereby become the sole owner of the Joint Invention and the patent application or Patents claiming such Joint Invention and any license rights regarding such intellectual property shall be terminated. Each Party shall have the sole right, but not the obligation, to institute, prosecute or control any action or proceeding with respect to infringement by a third party of one or more Patents covering the Party's Pre-Existing Technologies or Sole Inventions. Either Party not wishing to file a patent application arising from the RP, when the other Party wishes to file an application, shall cooperate with the Party that wishes to file an application by providing the necessary information for the application and executing necessary documents for the application to the extent that it pertains to the filing Party's Field or Fields. Subject to rights of exclusivity provided for under Sections 5.3 and 5.4, EXEL shall have the exclusive right to use Generated Information outside DAS's Field. "LICENSES" Subject to the terms and conditions of this Agreement, EXEL hereby grants, and agrees to grant, a non-exclusive, worldwide, royalty-bearing (as determined in accordance with Article 7) license under any intellectual property rights relating to DAS's Field that EXEL now owns , or hereafter acquires, for DAS, its Affiliates and licensees, to use any of the Generated Information in DAS's Field and to make, use, import or sell any FH. DAS covenants that it will not use a CT Site or Cognate Target or HQMT Site for performing independent research in the field of [ * ]. In any event, DAS acknowledges and agrees that EXEL has the right to a CT Site or Cognate Target or HQMT Site for use in EXEL's Field. During the term of the RP, EXEL grants to DAS a right to negotiate a [ * ] license to [ * ] during the course of the collaboration under the RP, under terms and conditions to be negotiated. In the event EXEL wants to grant an [ * ] license to [ * ] during the course of the collaboration under the RP, EXEL shall notify DAS in writing of its intent to grant an [ * ] license and shall provide DAS with all relevant information concerning such [ * ] and DAS shall have [ * ] days to notify EXEL of its interest in pursuing a business relationship concerning this [ * ] and an additional [ * ] days after DAS gives notice to EXEL for DAS and EXEL to come to an agreement concerning further development of such [ * ] by DAS. DAS hereby grants, and agrees to grant, EXEL a fully paid-up, nonexclusive license, under any intellectual property rights now owned, or acquired during the term of this Agreement, for EXEL to conduct its research obligations under this Agreement in a manner consistent with Article 14. "DAS's HISTORICAL COMPOUNDS" DAS shall provide EXEL with information regarding DAS HCs, on reasonable conditions specified by DAS. DAS shall allow EXEL to use the DAS HCs to screen for [ * ]. EXEL shall have the right to receive up to [ * ] U.S. Dollars in value (the cumulative value as calculated as follows) of DAS HCs. The cost of compounds from DAS's Historical Compound collection that are not from third parties shall be [ * ] per mg. The cost of compounds from DAS's combinatorial chemistry compound collection shall be [ * ] per mg. The cost of compounds from DAS's Historical Compound collection that are from third parties shall be [ * ] per mg. Each compound sent to EXEL shall have [ * ] added to the cost to cover handling. DAS will supply EXEL with between [ * ] mg of each compound requested. However, in any case, EXEL shall have access to up to [ * ] compounds during the first [ * ] years of this Agreement; and access to more than [ * ] compounds shall have to be negotiated. Subject to their availability, EXEL shall have the right to purchase additional quantities of selected compounds, in the range of [ * ] mg, at the [ * ] price per mg and cost of handling, for confirmatory tests and secondary biological and biological assays. DAS will make reasonable efforts to supply EXEL with chemical information (e.g., original source of the compound, method of synthesis, physical properties, etc.) for DAS HCs that may be required for EXEL to follow-up on biological activity discovered in EXEL assays. If EXEL desires to commercialize [ * ] such commercialization shall be subject to an agreement for world-wide rights between EXEL and DAS which will be negotiated in good faith. "TERM" Unless this Agreement is terminated earlier in accordance with the provisions of this Agreement, the RP and the Parties' collaboration under this Agreement shall be for a minimum term of three (3) years and DAS shall have an option to renew [ * ] thereafter. If DAS elects to exercise its option to renew, DAS shall provide EXEL with written notice of its election at least [ * ] days prior to the expiration of the initial three (3) year term, or extended [ * ] year term. The rights and obligations set forth in this Agreement in Articles 5, 6, 7, 8, 9, 10, 11, 12 and 13 shall survive expiration or termination of this Agreement. Any amendment to this Agreement shall be in writing and signed by the Parties. Should EXEL fail to meet the material objectives of this RP, and [ * ], then DAS upon reasonable written notice of such intention to EXEL, shall have the right to terminate this Agreement upon [ * ] business days prior written notice; subject to the condition set forth in Section 4.1 that DAS shall provide funding for at least [ * ] months after the Effective Date and shall thereafter provide [ * ] months notice if DAS wants to terminate this Agreement. Should DAS fail to meet its payment obligations under this Agreement, and if reasonable efforts by the Parties under Section 19.1 fail to resolve the issues in regards to such payments, then EXEL upon reasonable written notice of such intention to DAS, shall have the right to terminate this Agreement upon ten (10) business days prior written notice. "SEVERABILITY, INTEGRATION, AND ALTERATION" In the event any provision of this Agreement should be held invalid, the Parties agree to use reasonable efforts to achieve a mutually acceptable provision which is in accordance with the commercial spirit and intent of this Agreement, so that same becomes valid and the remaining part of this Agreement shall not be materially affected thereby. This Agreement constitutes the entire agreement between the Parties on the subject matter hereof, and all prior negotiations, agreements, understandings, and the (i) Letter of Intent entered into March 13, 2000 and (ii) Mutual Non-Disclosure Agreement entered into on August 20, 1998, and Amendments thereto entered into on July 7, 1999, and December 10, 1999, are expressly superseded and terminated hereby. Neither Party may assign or transfer this Agreement or any rights or obligations herein without the prior written consent of the other, except that a Party may make an assignment of this Agreement without the other Party's consent, to an Affiliate or to a successor to all or substantially all of the agriculture business of such Party, whether in a merger, sale of stock, sale of assets or other similar transaction, provided that any such permitted successor or assignee of rights and/or obligations herein shall first, either by operation of law or in writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 16.3 shall be null and void and of no legal effect. "NOTICES" Any notices required or permitted hereunder shall be given to the appropriate Party at the address specified below or at such other address as the Party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or sent by certified or registered mail, three (3) days after the date of mailing. For EXEL Senior Vice President, Business Development Exelixis, Inc. 170 Harbor Way P.O. Box 511 South San Francisco, CA 94083-0511 With a copy to: Vice President, Legal Affairs Exelixis, Inc. 170 Harbor Way P.O. Box 511 South San Francisco, CA 94083-0511 For DAS: Vice President, Research and Development Dow AgroSciences LLC 9330 Zionsville Road Indianapolis, IN 46268 With a copy to: General Patent Counsel Dow AgroSciences LLC 9330 Zionsville Road Indianapolis, IN 46268 For invoices please send to: Dow AgroSciences LLC 9330 Zionsville Road Indianapolis, IN 46268 ATTN Accounts Payable "GOVERNING LAW" Resolution of all disputes arising out of or related to this Agreement or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the substantive laws of the State of Delaware, as applied to agreements executed and performed entirely in the State of Delaware by residents of the State of Delaware, without regard to conflicts of law rules. "DISPUTE RESOLUTION" In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, the Parties shall try to settle their differences amicably between themselves first by referring the disputed matter to the respective heads of research of each Party, and if not resolved by the research heads, by referring the disputed matter to the respective Chief Executive Officers of each Party. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within twenty (20) days after such notice, such representatives of the Parties shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within thirty (30) days of their first meeting of such negotiations, either Party may seek to have such dispute resolved in any United States federal court of competent jurisdiction and appropriate venue. The Parties hereby consent to jurisdiction in the United States federal courts. If, notwithstanding such consent, United States federal courts would not have proper jurisdiction over a dispute, then such dispute may be submitted to a state court in the United States with proper jurisdiction and venue. The Parties agree that, except as provided in Section 12, any dispute under this Agreement shall be submitted exclusively to a state or federal court in the United States. The Parties hereby execute this Agreement by their respective duly authorized representatives as of the date shown below. Exelixis Inc. Dow AgroSciences LLC By: /s/ Lloyd Kunimoto By: /s/ Charles Fischer Title: Sr. Vice President, Business Development Title: President / CEO Dow Agro Date: July 11, 2000 Date: July 10, 2000 EXHIBIT A1 Exhibit A1 - To determine the Adjusted Net Sales for a Combination Product when the Combination Product contains a FH and another AI where the FH is sold as a Stand-Alone Product and the other AI is sold as a stand-alone product, the formula for calculating Adjusted Net Sales is as follows: [ * ] For example, FH sold as a Stand-Alone Product at a use rate of X for $15. The other AI is sold as a stand alone product at use rate Y for $10. FH (at use rate X) and the other AI (at use rate Y) are sold in a Combination Product for $30. [ * ] EXHIBIT A2 Exhibit A2 - To determine the Adjusted Net Sales of a Combination Product when the Combination Product contains a FH and another AI where the FH is not sold as a Stand-Alone Product, but the other AI is sold as a stand alone product at the same use rate as in the Combination Product, the formula for calculating Adjusted Net Sales is as follows: [ * ] For example, FH sold as a Combination Product with another AI at use rate X. The other AI at use rate X as a stand alone product sells for $5 in same market as the Combination Product. Combination Product sells for $15. [ * ] EXHIBIT A3 Exhibit A3 - To determine the Adjusted Net Sales for a Combination Product when the Combination Product contains a FH and another AI where the FH is not sold as a Stand-Alone Product, but the other AI is sold as a stand alone product at twice the use rate as in the Combination Product, the formula for calculating Adjusted Net Sales is as follows: [ * ] For example, FH sold as a Combination Product with another AI at use rate X. The other AI at use rate [ * ] as a stand alone product sells for $10 in same market as the Combination Product. Combination Product sells for $15. [ * ] EXHIBIT A4 Exhibit A4 - To determine the Adjusted Net Sales for a Combination Product when the Combination Product contains a FH and another AI and the FH is not sold as a Stand-Alone Product nor is the other AI sold as a stand alone product, the formula for calculating Adjusted Net Sales is as follows: [ * ] For example, FH sold in combination with another AI for $15 [ * ] EXHIBIT C Contact: Angela Bitting Exelixis, Inc. (650) 837-7579 [email protected] Garry Hamlin Dow AgroSciences (317) 337-4799 [email protected] DOW AGROSCIENCES AND EXELIXIS ANNOUNCE CROP PROTECTION COLLABORATION SOUTH SAN FRANCISCO, Calif. and INDIANAPOLIS, Indiana - July XX, 2000 -- Exelixis and Dow AgroSciences today announced they have entered into a three-year collaboration to develop novel fungicides and herbicides for crop protection. As a result, Dow AgroSciences should be able to more rapidly develop certain new classes of fungicides and herbicides. Under the terms of the agreement, Exelixis will identify and validate targets and format screening assays that will be used by Dow AgroSciences to develop new classes of fungicides and herbicides. Dow AgroSciences will receive a non-exclusive license with respect to these targets. Dow AgroSciences will provide research funding, in addition to milestone payments and royalties on the sales of products resulting from the collaboration. In addition, Exelixis will utilize a collection of proprietary compounds from Dow AgroSciences that may be useful in Exelixis' internal drug discovery programs. Financial terms were not disclosed. "Farmers spend billions of dollars each year to minimize crop yield losses due to weeds and fungal diseases. Dow AgroSciences is committed to developing the safest and most effective products to control such pests. Our collaboration with Exelixis will enable us to efficiently identify high quality targets which will enable us to speed the discovery and development of new fungicides and herbicides of value to agriculture," said Len Smith, Vice President of Ag Chem and Urban Pest R&D for Dow AgroSciences. "Our agreement with Dow AgroSciences leverages our technology platform in an area where we have significant expertise," said George A. Scangos, Ph.D., president and chief executive officer of Exelixis. "As a life sciences company, we are focused on the improvement of human health through better pharmaceuticals and better agriculture." Dow AgroSciences LLC, based in Indianapolis, Ind., USA, is a global leader in providing pest management and biotechnology products that improve the quality and quantity of the earth's food supply and contribute to the safety, health and quality of live of the world's growing population. Dow AgroSciences has approximately 6000 people in over 50 countries dedicated to its business, and has worldwide sales of more than US $2 billion. Dow AgroSciences is a wholly-owned subsidiary of The Dow Chemical Company. Exelixis, Inc. is a leading biotechnology company focused on the life sciences industries through its expertise in comparative genomics and model system genetics. These technologies provide a rapid, efficient and cost- effective way to move from DNA sequence data to knowledge about the function of genes and the proteins that they encode. The company's technology is broadly applicable to all life science industries including pharmaceutical, diagnostic, agricultural biotechnology and animal health. Exelixis has partnerships with Bayer, Pharmacia Corporation and Bristol-Myers Squibb and is leveraging these relationships to fund its internal development program in the area of oncology. For more information, please visit the company's web site at www.exelixis.com. The forward looking statements contained in this press release involve risks and uncertainties that may affect the respective company's operations, markets, products, services, prices and other factors as more fully discussed elsewhere and in each of their filings with the U.S. Securities and Exchange Commission. These risks and uncertainties include, but are not limited to the ability of the parties to identify novel targets and develop novel herbicides or fungicides in a rapid manner, if at all. For Exelixis, in particular, there can be no assurance that the collaboration will result in any milestone or royalty payments. For Dow AgroSciences, there is no assurance that the company's expectations will be realized. # # # Exhibit B [ * ] --------------------------------------------------------------------------------

Exhibit 10(q) Contract No. 117182   NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural) TRANSPORTATION RATE SCHEDULE FTS AGREEMENT DATED March 16, 2000 UNDER SUBPART G OF PART 284 OF THE FERC'S REGULATIONS   1. SHIPPER is: NORTH SHORE GAS COMPANY, a LDC. 2. (a) MDQ totals: 5,000 MMBTU per day.      (b) Service option selected (check any or all):      [ ] LN [ ] SW [ ]NB 3. TERM: April 1, 2000 through October 31, 2002. 4. Service will be ON BEHALF OF: [X] Shipper or [ ]Other: 5. The ULTIMATE END USERS are customers within any state in the continental U.S.; or (specify state)________________________________________________. 6. [ ] This Agreement supersedes and cancels a _____________ Agreement dated ___________. [X] Service and reservation charges commence the latter of: (a) April 1, 2000, and (b) the date capacity to provide the service hereunder is available on Natural's System. [ ] Other:_____________________________________________ 7. SHIPPER'S ADDRESSES   NATURAL'S ADDRESSES   General Correspondence : NORTH SHORE GAS COMPANY   NATURAL GAS PIPELINE COMPANY OF AMERICA RAULIE DE LARA   ATTENTION: ACCOUNT SERVICES 130 E. RANDOLPH DR.   ONE ALLEN CENTER, SUITE 1000 CHICAGO, IL 60601-6207   500 DALLAS ST., 77002     P. O. BOX 283 77001-0283     HOUSTON, TEXAS         Statements/Invoices/Accounting Related Materials : NORTH SHORE GAS COMPANY   NATURAL GAS PIPELINE COMPANY OF AMERICA 130 E. RANDOLPH DR.   ATTENTION: ACCOUNT SERVICES CHICAGO, IL 60601-6207   ONE ALLEN CENTER, SUITE 1000     500 DALLAS ST., 77002     P.O. BOX 283 77001-0283     HOUSTON, TEXAS     Payments :     NATURAL GAS PIPELINE COMPANY OF AMERICA     P.O. BOX 70605     CHICAGO, ILLINOIS 60673-0605           FOR WIRE TRANSFER OR ACH:     DEPOSITORY INSTITUTION: THE CHASE     MANHATTAN BANK, NEW YORK, NY     WIRE ROUTING #: 021000021     ACCOUNT #: 323-206042     8. The above stated Rate Schedule, as revised from time to time, controls this Agreement and is incorporated herein. The attached Exhibits A, B, and C are part of this Agreement. NATURAL AND SHIPPER ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT THAT STATE LAW IS APPLICABLE, NATURAL AND SHIPPER EXPRESSLY AGREE THAT THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE WHICH WOULD APPLY THE LAW OF ANOTHER STATE. This Agreement states the entire agreement between the parties and no waiver, representation, or agreement shall affect this Agreement unless it is in writing. Shipper shall provide the actual end user purchasers names(s) to Natural if Natural must provide them to the FERC. AGREED TO BY: NATURAL GAS PIPELINE COMPANY OF AMERICA   NORTH SHORE GAS COMPANY "Natural"   "Shipper"       By: /s/ David J. Devine   By: /s/ William E. Morrow       Name: David J. Devine   Name: William E. Morrow       Title: Vice President, Business Planning   Title: Vice President     Contract No. 117182     EXHIBIT A DATED: March 16, 2000 EFFECTIVE DATE: April 1, 2000   COMPANY: NORTH SHORE GAS COMPANY CONTRACT: 117182   RECEIPT POINT/S   County/Parish   PIN   MDQ Name / Location Area State No. Zone (MMBtu/d)             PRIMARY RECEIPT POINT/S                       1. LOBO/NGPL AGUA DULCE NUECES NUECES TX 901022 04 5,000 INTERCONNECT WITH LOBO           PIPELINE COMPANY IN BLOCK 3,           ANDRES F. DE LA FUENTE GRANTE,           A-111, NUECES COUNTY, TEXAS.             SECONDARY RECEIPT POINT/S All secondary receipt points, and the related priorities and volumes, as provided under the Tariff provisions governing this Agreement. RECEIPT PRESSURE, ASSUMED ATMOSPHERIC PRESSURE Natural gas to be delivered to Natural at the Receipt Point/s shall be at a delivery pressure sufficient to enter Natural's pipeline facilities at the pressure maintained from time to time, but Shipper shall not deliver gas at a pressure in excess of the Maximum Allowable Operating Pressure (MAOP) stated for each Receipt Point. The measuring party shall use or cause to be used an assumed atmospheric pressure corresponding to the elevation at such Receipt Point/s. RATES Except as provided to the contrary in any written agreement(s) between the parties in effect during the term hereof, Shipper shall pay Natural the maximum rate and all other lawful charges as specified in Natural's applicable rate schedule. FUEL GAS AND GAS LOST AND UNACCOUNTED FOR PERCENTAGE (%) Shipper will be assessed the applicable percentage for Fuel Gas and Gas Lost and Unaccounted For. TRANSPORTATION OF LIQUIDS Transportation of liquids may occur at permitted points identified in Natural's current Catalog of Receipt and Delivery Points, but only if the parties execute a separate liquids agreement.     EXHIBIT B DATED: March 16, 2000 EFFECTIVE DATE: April 1, 2000   COMPANY: NORTH SHORE GAS COMPANY CONTRACT: 117182   DELIVERY POINT/S   County/Parish   PIN   MDQ Name / Location Area State No. Zone (MMBtu/d)             PRIMARY DELIVERY POINT/S                       1. PGLC/NGPL CRAWFORD COOK COOK IL 904360 09 5,000 INTERCONNECT WITH THE           PEOPLES GAS LIGHT AND COKE           COMPANY AT TRANSPORTER'S           CRAWFORD METER STATION IN           SEC. 34-T39N-R13E, COOK COUNTY,           ILLINOIS.             SECONDARY DELIVERY POINT/S All secondary delivery points, and the related priorities and volumes, as provided under the Tariff provisions governing this Agreement. DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE Natural gas to be delivered by Natural to Shipper, or for Shipper's account, at the Delivery Point/s shall be at the pressure available in Natural's pipeline facilities from time to time. The measuring party shall use or cause to be used an assumed atmospheric pressure corresponding to the elevation at such Delivery Point/s.     EXHIBIT C DATED: March 16, 2000 EFFECTIVE DATE: April 1, 2000   COMPANY: NORTH SHORE GAS COMPANY CONTRACT: 117182   Pursuant to Natural's tariff, an MDQ exists for each primary transportation path segment and direction under the Agreement. Such MDQ is the maximum daily quantity of gas which Natural is obligated to transport on a firm basis along a primary transportation path segment. A primary transportation path segment is the path between a primary receipt, delivery, or node point and the next primary receipt, delivery, or node point. A node point is the point of interconnection between two or more of Natural's pipeline facilities. A segment is a section of Natural's pipeline system designated by asegment number whereby the Shipper under the terms of their agreement based on the points within the segment identified on Exhibit C have throughput capacity rights. The segment numbers listed on Exhibit C reflect this Agreement's path corresponding to Natural's most recent Pipeline System Map which identifies segments and their corresponding numbers. All information provided in this Exhibit C is subject to the actual terms and conditions of Natural's Tariff.     EXHIBIT C DATED: March 16, 2000 EFFECTIVE DATE: April 1, 2000   COMPANY: NORTH SHORE GAS COMPANY CONTRACT: 117182   Segment   Upstream   Forward/Backward   Flow Through Number   Segment   Haul(Contractual)   Capacity 20   0   F   0 22   20   F   5,000 26   22   F   5,000 27   26   F   5,000 28   27   F   5,000 31   28   F   5,000

Exhibit 10.24 EXECUTION COPY ___________________________________________________________________________________                 $250,000,000   CREDIT AGREEMENT   among   DIMON INCORPORATED, as Borrower,   THE DOMESTIC SUBSIDIARIES OF THE BORROWER FROM TIME TO TIME PARTIES HERETO, as Guarantors,   THE LENDERS PARTIES HERETO and FIRST UNION NATIONAL BANK, as Administrative Agent       FIRST UNION SECURITIES, INC., as Sole Lead Arranger and Sole Book Manager Dated as of June 27, 2000             -81-         TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1 Section 1.1 Defined Terms 1 Section 1.2 Other Definitional Provisions 20 Section 1.3 Accounting Terms 20 ARTICLE II THE LOANS; AMOUNT AND TERMS 21 Section 2.1 Loans 21 Section 2.2 Fees 23 Section 2.3 Commitment Reductions 23 Section 2.4 Prepayments 23 Section 2.5 Minimum Principal Amount of Tranches 24 Section 2.6 Default Rate and Payment Dates 24 Section 2.7 Conversion Options 24 Section 2.8 Computation of Interest and Fees 25 Section 2.9 Pro Rata Treatment and Payments 25 Section 2.10 Non-Receipt of Funds by the Administrative Agent 27 Section 2.11 Inability to Determine Interest Rate 28 Section 2.12 Illegality 28 Section 2.13 Requirements of Law 29 Section 2.14 Indemnity 30 Section 2.15 Taxes 31 Section 2.16 Extension of Maturity Date 33 ARTICLE III REPRESENTATIONS AND WARRANTIES 34 Section 3.1 Financial Condition 34 Section 3.2 No Change 35 Section 3.3 Corporate Existence; Compliance with Law 35 Section 3.4 Corporate Power; Authorization; Enforceable Obligations; No Consents 35 Section 3.5 No Legal Bar; No Default 36 Section 3.6 No Material Litigation 36 Section 3.7 Investment Company Act 36 Section 3.8 Margin Regulations 36 Section 3.9 ERISA 36 Section 3.10 Environmental Matters 37 Section 3.11 Use of Proceeds 38 Section 3.12 Subsidiaries 38 Section 3.13 Ownership 38 Section 3.14 Indebtedness 38 Section 3.15 Taxes 38 Section 3.16 Intellectual Property 38 Section 3.17 Solvency 39 Section 3.18 Investments 39 Section 3.19 No Burdensome Restrictions 39 Section 3.20 Brokers' Fees 39 i -82- Section 3.21 Labor Matters 39 Section 3.22 Accuracy and Completeness of Information 39 Section 3.23 Material Contracts 40 ARTICLE IV CONDITIONS PRECEDENT 40 Section 4.1 Conditions to Closing Date and Initial Loans 40 Section 4.2 Conditions to All Extensions of Credit 43 ARTICLE V AFFIRMATIVE COVENANTS 43 Section 5.1 Financial Statements 44 Section 5.2 Certificates; Other Information 45 Section 5.3 Payment of Obligations 46 Section 5.4 Conduct of Business and Maintenance of Existence 46 Section 5.5 Maintenance of Property; Insurance 46 Section 5.6 Inspection of Property; Books and Records; Discussions 47 Section 5.7 Notices 47 Section 5.8 Environmental Laws 48 Section 5.9 Financial Covenants 49 Section 5.10 Additional Guarantors 49 ARTICLE VI NEGATIVE COVENANTS 50 Section 6.1 Indebtedness 50 Section 6.2 Liens 50 Section 6.3 Guaranty Obligations 52 Section 6.4 [Intentionally Omitted] 52 Section 6.5 Consolidation, Merger, Sale or Purchase of Assets, etc. 53 Section 6.6 Acquisitions, Advances, Investments and Loans 54 Section 6.7 Transactions with Affiliates 56 Section 6.8 Ownership of Subsidiaries; Restrictions 57 Section 6.9 Fiscal Year; Changes in Capital Structure Organizational Documents; Material Contracts 57 Section 6.10 Limitation on Restricted Actions 57 Section 6.11 Restricted Payments 58 Section 6.12 Prepayments of Indebtedness, etc. 58 Section 6.13 Sale Leasebacks 58 Section 6.14 No Further Negative Pledges 58 Section 6.15 Maximum Uncommitted Inventories 59 ARTICLE VII EVENTS OF DEFAULT 59 Section 7.1 Events of Default 59 Section 7.2 Acceleration; Remedies 61 ARTICLE VIII THE AGENT 62 Section 8.1 Appointment 62 Section 8.2 Delegation of Duties 62 Section 8.3 Exculpatory Provisions 62 Section 8.4 Reliance by Administrative Agent 63 ii -83- Section 8.5 Notice of Default 63 Section 8.6 Non-Reliance on Administrative Agent and Other Lenders 64 Section 8.7 Indemnification 64 Section 8.8 Administrative Agent in Its Individual Capacity 65 Section 8.9 Successor Administrative Agent 65 ARTICLE IX MISCELLANEOUS 65 Section 9.1 Amendments and Waivers 65 Section 9.2 Notices 67 Section 9.3 No Waiver; Cumulative Remedies 67 Section 9.4 Survival of Representations and Warranties 67 Section 9.5 Payment of Expenses and Taxes 68 Section 9.6 Successors and Assigns; Participations; Purchasing Lenders 68 Section 9.7 Adjustments; Set-off 71 Section 9.8 Table of Contents and Section Headings 72 Section 9.9 Counterparts 72 Section 9.10 Effectiveness 72 Section 9.11 Severability 73 Section 9.12 Integration 73 Section 9.13 Governing Law 73 Section 9.14 Consent to Jurisdiction and Service of Process 73 Section 9.15 Arbitration 74 Section 9.16 Confidentiality 75 Section 9.17 Acknowledgments 75 Section 9.18 Waivers of Jury Trial 76 ARTICLE X GUARANTY 76 Section 10.1 The Guaranty 76 Section 10.2 Bankruptcy 77 Section 10.3 Nature of Liability 77 Section 10.4 Independent Obligation 77 Section 10.5 Authorization 78 Section 10.6 Reliance 78 Section 10.7 Waiver 78 Section 10.8 Limitation on Enforcement 79 Section 10.9 Confirmation of Payment 79 iii -84- Schedules Schedule 1.1(a) Form of Account Designation Letter Schedule 2.1(a) Schedule of Lenders and Commitments Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.1(e) Form of Note Schedule 2.7 Form of Notice of Conversion/Extension Schedule 3.10 Environmental Matters Schedule 3.12 Subsidiaries Schedule 3.14 Indebtedness Schedule 3.21 Labor Matters Schedule 3.23 Material Contracts Schedule 5.2(c) Form of Borrowing Base Certificate Schedule 5.10 Form of Joinder Agreement Schedule 6.2 Liens Schedule 9.2 Addresses for Notices to Credit Parties and Lenders/Lending Offices Schedule 9.6(c) Form of Commitment Transfer Supplement [Copies of these Schedules have been omitted from this filing, but will be furnished supplementally to the Commission upon request.] iv -85-                   CREDIT AGREEMENT, dated as of June 27, 2000, among DIMON INCORPORATED, a Virginia corporation (the "Borrower"), those Domestic Subsidiaries of the Borrower identified as a "Guarantor" on the signature pages hereto and such other Domestic Subsidiaries of the Borrower as may from time to time become a party hereto (collectively, the "Guarantors"), the several banks and other financial institutions as may from time to time become parties to this Agreement (collectively, the "Lenders" and individually, a "Lender"), and FIRST UNION NATIONAL BANK, a national banking association, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent").       W I T N E S S E T H:                       WHEREAS, the Borrower has requested that the Lenders make loans and other financial accommodations to the Borrower in the amount of up to $250,000,000, as more particularly described herein; and                 WHEREAS, the Lenders have agreed to make such loans and other financial accommodations to the Borrower on the terms and conditions contained herein.                NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows:   ARTICLE I DEFINITIONS                 Section 1.1     Defined Terms.                As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the following meanings:                 "Account Designation Letter" shall mean the Notice of Account Designation Letter dated the Closing Date from the Borrower to the Administrative Agent substantially in the form attached hereto as Schedule 1.1(a).                 "Acquisition" shall mean any transaction, or any series of related transactions, by which the Borrower and/or any of its Subsidiaries directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any Person or division thereof, whether through purchase of assets, merger or otherwise, (b) acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority in ordinary voting power of the securities of a Person which have ordinary voting power for the election of directors or (c) otherwise acquires control of a 50% or more ownership interest in any such Person.   -86-                         "Additional Credit Party" shall mean each Person that becomes a Guarantor by execution of a Joinder Agreement in accordance with Section 5.10.                 "Administrative Agent" shall have the meaning set forth in the first paragraph of this Agreement and any successors in such capacity.                 "Advances on Tobacco" means loans, advances and extensions of credit made by the Borrower or any of its Subsidiaries to growers and other suppliers of tobacco (including Affiliates) and tobacco growers' cooperatives, whether short-term or long-term, in the ordinary course of business to finance the growing or processing of tobacco.                 "Affiliate" shall mean as to any Person, any other Person (excluding any Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" a Person if such Person possesses, directly or indirectly, power either (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.                 "Agreement" shall mean this Credit Agreement, as amended, modified or supplemented from time to time in accordance with its terms.                 "Alternate Base Rate" shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean, at any time, the rate of interest per annum publicly announced from time to time by First Union at its principal office in Charlotte, North Carolina as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by First Union as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change.                 2 -87-                         "Alternate Base Rate Loans" shall mean Loans that bear interest at an interest rate based on the Alternate Base Rate.                 "Applicable Lending Office" shall mean, with respect to each Lender, such Lender's Domestic Lending Office in the case of an Alternate Base Rate Loan and such Lender's LIBOR Lending Office in the case of LIBOR Rate Loans.                 "Applicable Percentage" shall mean, for any day, the rate per annum set forth below opposite the applicable Level then in effect based on the Borrower's then current Debt Rating, it being understood that the Applicable Percentage for (i) Loans which are Alternate Base Rate Loans shall be the percentage set forth under the column "Alternate Base Rate Margin" (ii) Loans which are LIBOR Rate Loans shall be the percentage set forth under the column "LIBOR Rate Margin" and (iii) the Commitment Fee shall be the percentage set forth under the column "Commitment Fee": Level Rating Alternate Base Rate Margin LIBOR Rate Margin Commitment Fee _______________________________________________________________________________________ I BBB/Baa2 0.25% 1.50% 0.50% II BBB-/Baa3 0.75% 2.00% 0.75% III BB+/Ba1 1.25% 2.50% 1.00% IV BB/Ba2 1.75% 3.00% 1.00% V BB-/Ba3 2.00% 3.25% 1.00%                Any change in the Applicable Percentage due to a change in the Debt Rating shall be effective on the effective date of such change in the Debt Rating. Notwithstanding the foregoing, the Borrower shall be obligated to provide notice to the Administrative Agent and the Lenders of any change in the Debt Rating in accordance with Section 5.2(h). The initial Applicable Percentage shall be set at a rate no lower than that set forth in Level III and shall not be adjusted to a higher Level (that is, Level I or Level II) for the first two complete fiscal quarters following the Closing Date.                If (a) only one of S&P and Moody's at any time of determination shall have in effect a Debt Rating, the Applicable Percentage shall be determined by reference to the available rating, (b) neither S&P nor Moody's at any time of determination shall have in effect a Debt Rating, the Applicable Percentage will be set in accordance with Level V, (c) the ratings established by S&P and Moody's shall fall within different levels, the Applicable Percentage shall be based upon the lower rating, (d) any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change, and (e) S&P or Moody's shall change the basis on which ratings are established, each reference to the Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be.                   3 -88-                       "Approved Accounting Firm" shall mean PricewaterhouseCoopers LLP or any other independent public accountants selected by the Borrower and reasonably satisfactory to the Required Lenders.                 "Bankruptcy Code" shall mean the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.                 "Borrower" shall have the meaning set forth in the first paragraph of this Agreement.                 "Borrowing Base" means, as of any day, the sum of (a) 80% of Eligible Receivables, plus (b) 80% of total Advances on Tobacco, plus (c) 90% of Committed Inventories constituting Eligible Inventory, plus (d) 60% of Uncommitted Inventories constituting Eligible Inventory, in each case as set forth in the most recent Borrowing Base Certificate delivered to the Administrative Agent and the Lenders in accordance with the terms of Section 5.2(c).                 "Borrowing Base Certificate" shall have the meaning set forth in Section 5.2(c).                 "Borrowing Date" shall mean, in respect of any Loan, the date such Loan is made.                 "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term "Business Day" shall also exclude any day on which banks in London, England are not open for dealings in Dollar deposits in the London interbank market.                 "Calculation Period" shall mean as of the last day of any fiscal quarter the four fiscal-quarter period of the Borrower ending on such date.                 "Capital Lease" shall mean any lease of property, real or personal, the obligations with respect to which are required to be capitalized on a balance sheet of the lessee in accordance with GAAP.                 "Capital Lease Obligations" shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP.                 "Capital Stock" shall mean (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, membership interests and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.                 "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of         4 -89-             the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition ("Government Obligations"), (ii) U.S. dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit, Eurodollar time deposits and Eurodollar certificates of deposit of (y) any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 or (z) any bank whose short term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 364 days from the date of acquisition, (iii) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition, (iv) repurchase agreements with a bank or trust company (including a Lender) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America, (v) obligations of any state of the United States or any political subdivision thereof for the payment of the principal and redemption price of and interest on which there shall have been irrevocably deposited Government Obligations maturing as to principal and interest at times and in amounts sufficient to provide such payment, and (vi) auction preferred stock rated in the highest short term credit rating category by S&P or Moody's.                 "Change of Control" means such time as:                                 (i)  any Person or group (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act) has become, directly or indirectly, the beneficial owner, by way of merger, consolidation or otherwise, of 30% or more of the voting power of the Voting Stock of the Borrower on a fully-diluted basis, after giving effect to the conversion and exercise of all outstanding warrants, options and other securities of the Borrower convertible into or exercisable for Voting Stock of the Borrower (whether or not such securities are then currently convertible or exercisable); or                                 (ii)  the sale, lease or transfer of all or substantially all of the consolidated assets of the Borrower to any Person or group; or                                 (iii)  during any period of two consecutive calendar years, individuals who at the beginning of such period constituted the Board of Directors of the Borrower, together with any new members of such Board of Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the members of such Board of Directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Borrower then in office; or                                 (iv)  the Borrower consolidates with or merges with or into another Person or any Person consolidates with, or merges with or into, the Borrower (in each case, whether or not in compliance with the terms of this Agreement), in any such event pursuant to a transaction in which immediately after the             5 -90-           consummation thereof Persons owning a majority of the Voting Stock of the Borrower immediately prior to such consummation shall cease to own a majority of the Voting Stock of the Borrower.                 "Closing Date" shall mean the date of this Agreement.                 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.                 "Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Loans in an aggregate principal amount at any time outstanding up to such Lender's Revolving Committed Amount as specified in Schedule 2.1(a), as such amount may be reduced from time to time in accordance with the provisions hereof.                 "Commitment Fee" shall have the meaning set forth in Section 2.2(a).                 "Commitment Percentage" shall mean, for each Lender, the percentage identified as its Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c).                 "Commitment Period" shall mean the period from and including the Closing Date to but not including the Maturity Date.                 "Commitment Transfer Supplement" shall mean a Commitment Transfer Supplement, substantially in the form of Schedule 9.6(c).                 "Committed Inventories" shall mean tobacco inventories for which the Borrower has received a Confirmed Order.                 "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code.                 "Confirmed Order" shall mean an order by a customer not an Affiliate of the Borrower which has been accepted in the ordinary course of business by representatives of the Borrower or an Affiliate of the                 Borrower and recorded on the inventory records of such Affiliate or the Borrower.                 "Consolidated EBIT" shall mean, for any fiscal period of the Borrower, the sum (without duplication) of (i) Consolidated Net Income of the Borrower for such period, plus (ii) the Consolidated Income Tax Expense deducted in determining such Consolidated Net Income, plus (iii) the Consolidated Interest Expense deducted in determining such Consolidated Net Income, minus (iv) any extraordinary items of gain included in Consolidated Net Income for such period, determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated EBITDA" shall mean, for any fiscal period of the Borrower, the sum of (i) Consolidated EBIT for such period, plus (ii) the aggregate amount of the Borrower's depreciation expense and         6 -91-           amortization expense for such period to the extent deducted in determining Consolidated Net Income, in each case determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Fixed Charge Coverage Ratio" shall mean, at any date, the ratio of (a) the sum of (i) Consolidated EBITDA for the Calculation Period ending on such date, minus (ii) Consolidated Income Tax Expense for such Calculation Period, minus (iii) Consolidated Net Capital Expenditures for such Calculation Period, plus (iv) Consolidated Rental Expense for such Calculation Period to (b) the sum of (i) scheduled payments of principal of the Borrower's Consolidated Funded Debt during such Calculation Period (including, without limitation, the principal component of scheduled payments under Capital Leases), plus (ii) Consolidated Interest Expense for such Calculation Period, plus (iii) the amount of dividends, distributions, stock repurchases and stock redemptions paid in cash by the Borrower or any of its Subsidiaries (other than any such dividend, distribution, stock repurchase or stock redemption payments made to the Borrower or any of its Subsidiaries) during such Calculation Period, plus (iv) Consolidated Rental Expense for such Calculation Period, in each case determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Funded Debt" shall mean, at any date, all liabilities of the Borrower and its Subsidiaries that are or should be reflected at such date on the Borrower's consolidated balance sheet as long-term debt and current maturities of long-term debt in accordance with GAAP.                 "Consolidated Income Tax Expense" shall mean, for any fiscal period of the Borrower, the Borrower's income tax expense for such period, determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Interest Expense" shall mean, for any fiscal period of the Borrower, the Borrower's interest expense for such period (including, without limitation, the interest component of payments under Capital Leases), determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Leverage Ratio" shall mean, at any date, the ratio of (a) Consolidated Total Debt to (b) the sum of (i) Consolidated Net Worth, plus (ii) Consolidated Total Debt.                 "Consolidated Net Capital Expenditures" shall mean, for any fiscal period of the Borrower, the greater of (i) the difference between (a) all expenditures by the Borrower and its Subsidiaries during such period for the acquisition or leasing of any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year (such fixed assets or improvements referred to as "Capital Assets") and which are or should be reflected on the Borrower's consolidated statement of cash flows for such period as capital expenditures in accordance with GAAP less (b) the net cash proceeds received by the Borrower and its Subsidiaries during such period from the sale of Capital Assets and (ii) zero.                 "Consolidated Net Income" shall mean, for any fiscal period of the Borrower, the Borrower's net income (or net loss) for such period, determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.             7 -92-                           "Consolidated Net Worth" shall mean, at any date, (a) the Borrower's total stockholders' equity at such date, without giving effect to (i) the effect of foreign currency translation adjustments under Financial Accounting Standards Board Statement No. 52, "Foreign Currency Translation", (ii) the effect of the adjustments to the value of the Borrower's investments in debt and equity securities under Financial Accounting Standards Board Statement No. 115, "Accounting For Certain Investments In Indebtedness And Equity Securities", and (iii) the effect of the cost of postretirement benefits to employees of the Borrower under Financial Accounting Standards Board Statement No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions", minus (b) any write-up of the Borrower's assets subsequent to June 30, 1999, determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Rental Expense" shall mean, for any fiscal period of the Borrower, the Borrower's rental expense under Operating Leases for such period, determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Tangible Net Worth" shall mean, at any date, the sum of (i) Consolidated Net Worth, minus (ii) the amount of the Borrower's intangible assets at such date, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired, or otherwise), capitalized expenses, patents, trademarks, tradenames, copyrights, franchises, licenses and deferred charges (such as, without limitation, unamortized costs and costs of research and development), all determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Total Assets" shall mean, at any date, the Borrower's total assets, as determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Total Debt" shall mean, at any date, the aggregate amount of all Indebtedness which creates Consolidated Interest Expense, whether or not such interest is deferred.                 "Consolidated Total Senior Debt" shall mean, at any date, the aggregate principal amount of (a) short-term bank debt, (b) outstanding Loans, (c) the Senior Debt Securities, (d) current maturities of long-term debt, (e) customer advances and (f) other senior Indebtedness, in each case as determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.                 "Consolidated Total Senior Debt to Borrowing Base Ratio" shall mean, at any date, the ratio of (a) Consolidated Total Senior Debt to (b) the Borrowing Base.                 "Consolidated Working Capital" shall mean, at any date, the amount by which the Borrower's current assets exceed its current liabilities at such date, determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP.                 "Contractual Obligation" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.             8 -93-                           "Covenant Defeasance" shall mean an election by the Borrower under the Senior Indenture to release the obligations of the Borrower under the Senior Debt Securities with respect to certain covenants set forth in the Senior Indenture.                 "Credit Documents" shall mean a collective reference to this Agreement, the Notes, the Fee Letter, any Joinder Agreement, each Notice of Borrowing, each Notice of Conversion and all documents delivered to the Administrative Agent or any Lender in connection therewith.                 "Credit Party" shall mean any of the Borrower or the Guarantors.                 "Credit Party Obligations" shall mean, without duplication, all of the obligations of the Credit Parties to the Lenders and the Administrative Agent, whenever arising, under this Agreement, the Notes or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a filing of a petition of bankruptcy under the Bankruptcy Code with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code).                 "Debt Rating" shall mean the debt rating for the Borrower's senior, unsecured, non-credit enhanced long term indebtedness for money borrowed as determined by Moody's and S&P.                 "Default" shall mean any of the events specified in Section 7.1, whether or not any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied.                 "Defaulting Lender" shall mean, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the term of this Credit Agreement, including the funding of a Participation Interest in accordance with the terms hereof, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement, or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.                 "Dollars" and "$" shall mean dollars in lawful currency of the United States of America.                 "Domestic Lending Office" shall mean, initially, the office of each Lender designated as such Lender's Domestic Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which Alternate Base Rate Loans of such Lender are to be made.                 "Domestic Subsidiary" shall mean any Subsidiary that is organized and existing under the laws of the United States or any state or commonwealth thereof or under the laws of the District of Columbia.                 "Eligible Inventory" means, as of any date of determination and without duplication, the lower of the aggregate book value (based on an average cost valuation, consistently applied in accordance with GAAP                 9 -94-           principles) or fair market value of all raw materials and finished goods inventory owned by the Borrower or any of its Material Domestic Subsidiaries less appropriate reserves determined in accordance with GAAP but excluding in any event (i) inventory subject to a Lien that is not a Permitted Lien, (ii) inventory which is not in good condition or fails to meet standards for sale or use imposed by governmental agencies, departments or divisions having regulatory authority over such goods, (iii) inventory which is not useable or salable and (iv) inventory which fails to meet such other specifications and requirements as may from time to time be established by the Administrative Agent in its reasonable discretion.                 "Eligible Receivables" means, as of any date of determination and without duplication, the aggregate book value of all accounts receivable, receivables, and obligations for payment created or arising from the sale of inventory or the rendering of services in the ordinary course of business (collectively, the "Receivables"), owned by or owing to the Borrower or any of its Subsidiaries, net of allowances and reserves for doubtful or uncollectible accounts and sales adjustments consistent with such Person's internal policies and in any event in accordance with GAAP, but excluding in any event (i) any Receivable which is subject to a Lien that is not a Permitted Lien, (ii) Receivables which are more than 90 days past due (net of reserves for bad debts in connection with any such Receivables), (iii) Receivables owing by an account debtor which is not solvent or is subject to any bankruptcy or insolvency proceeding of any kind, (iv) Receivables which are contingent or subject to offset, deduction, counterclaim, dispute or other defense to payment, in each case to the extent of such offset, deduction, counterclaim, dispute or other defense, (v) Receivables for which any direct or indirect Subsidiary or any Affiliate is the account debtor and (vi) Receivables which fail to meet such other specifications and requirements as may from time to time be established by the Administrative Agent in its reasonable discretion.                 "Environmental Claim" shall mean any claim, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release into or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, investigation, removal, remedial or response costs, litigation costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions, releases or threatened releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower or any of its Subsidiaries, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.                 "Environmental Law" shall mean any federal, state or local law, statute, ordinance, code, rule, regulation, decree, order, judgment, or principles of common law relating to (i) releases or threatened releases of Hazardous Materials or materials containing Hazardous Materials; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials or materials containing Hazardous Materials; or (iii) otherwise relating to the environment or to the protection of human health.                 10 -95-                         "Environmental Permits" shall have the meaning set forth in Section 3.10(b).                 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.                 "Eurodollar Reserve Percentage" shall mean for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York City.                 "Event of Default" shall mean any of the events specified in Section 7.1; provided, however, that any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied.                 "Extension of Credit" shall mean, as to any Lender, the making of a Loan by such Lender.                 "Federal Funds Effective Rate" shall have the meaning set forth in the definition of "Alternate Base Rate".                 "Fee Letter" shall mean that certain Fee Letter dated April 10, 2000 among the Borrower, First Union and First Union Securities, Inc.                 "First Union" shall mean First Union National Bank, a national banking association.                 "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary.                 "GAAP" shall mean generally accepted accounting principles in effect in the United States of America applied on a consistent basis, subject, however, in the case of determination of compliance with the financial covenants set out in Section 5.9 to the provisions of Section 1.3.                 "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.                 "Guaranty Obligations" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any property constituting security therefor, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency               11 -96-           or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made.                 "Guarantor" shall mean (a) any of the Material Domestic Subsidiaries identified as a "Guarantor" on the signature pages hereto and (b) the Additional Credit Parties which execute a Joinder Agreement, together with their successors and permitted assigns.                 "Guaranty" shall mean the guaranty of the Guarantors set forth in Article X.                 "Hazardous Materials" shall mean (i) those substances defined in or regulated as toxic or hazardous under the following federal statutes and their state counterparts, as well as the statutes' implementing regulations, as amended from time to time: the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Clean Water Act; the Safe Drinking Water Act; the Toxic Substances Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Federal Food, Drug, and Cosmetic Act; and the Clean Air Act; and (ii) any pollutant, contaminant or other substance with respect to which a Governmental Authority requires environmental investigation, monitoring, reporting or remediation.                 "Hostile Acquisition" shall mean any Acquisition involving a tender offer or proxy contest that has not been recommended or approved by the board of directors of the Person that is the subject of the Acquisition prior to the first public announcement or disclosure relating to such Acquisition.                 "Indebtedness" of any Person shall mean, at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) 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), (d) all obligations of such Person as lessee under Capital Leases, (e) all obligations of such Person to purchase securities or other property which arise out of or in connection with the sale of the same or substantially similar securities or property, (d) all non-contingent obligations of such Person to reimburse any other Person in respect of amounts paid under letters of credit, surety and appeal bonds and performance bonds or similar instruments assuring any other Person of the performance of any act or acts or the payment of any obligation, (e) all obligations of others secured by a Lien on any asset of such Person, whether or not such obligation is assumed by such Person and (f) the principal portion of all obligations of such Person under any synthetic lease or other similar off-balance sheet financing product.                 "Insolvency" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA.           12 -97-                         "Insolvent" shall mean being in a condition of Insolvency.                 "Interest Payment Date" shall mean (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December and on the Maturity Date, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any LIBOR Rate Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period.                 "Interest Period" shall mean, with respect to any LIBOR Rate Loan,                                (i)  initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower in the Notice of Borrowing or Notice of Conversion given with respect thereto; and                                (ii)  thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto;                 provided that the foregoing provisions are subject to the following:                                                (A)  if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;                                                (B)  any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month;                                                (C)  if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected LIBOR Rate Loan;                                                (D)  any Interest Period in respect of any Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and                                                (E)  no more than eight (8) LIBOR Tranches may be in effect at any one time. For purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Tranches, even if they shall begin on the same date and have the same duration, although borrowings,                     13 -98-         extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Tranche.                 "Investment" means all investments, in cash or by delivery of property made, directly or indirectly in, to or from any Person, whether by acquisition of shares of Capital Stock, property, assets, indebtedness or other obligations or securities or by loan advance, capital contribution or otherwise.                 "Joinder Agreement" shall mean a Joinder Agreement substantially in the form of Schedule 5.10, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 5.10.                 "Legal Defeasance" shall mean an election by the Borrower under the Senior Indenture to discharge the obligations of the Borrower and the guarantors of the Senior Debt Securities under or in respect of the Senior Debt Securities.                 "Lender" shall have the meaning set forth in the first paragraph of this Agreement.                 "LIBOR" shall mean, for any LIBOR Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). If, for any reason, neither of such rates is available, then "LIBOR" shall mean the rate per annum at which, as determined by the Administrative Agent, Dollars in an amount comparable to the Loans then requested are being offered to leading banks at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected.                 "LIBOR Lending Office" shall mean, initially, the office of each Lender designated as such Lender's LIBOR Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which the LIBOR Rate Loans of such Lender are to be made.                         14 -99-                         "LIBOR Rate" shall mean a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula:                                LIBOR Rate  =                                                  LIBOR                                                                                    ________________________________                                                                                    1 .00 - Eurodollar Reserve Percentage                 "LIBOR Rate Loan" shall mean Loans the rate of interest applicable to which is based on the LIBOR Rate.                 "Lien" shall mean any deed of trust, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, 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 and any Capital Lease having substantially the same economic effect as any of the foregoing).                 "Loans" shall have the meaning set forth in Section 2.1.                 "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Credit Parties and their Subsidiaries taken as a whole, (b) the ability of the Borrower or any Guarantor to perform its obligations, when such obligations are required to be performed, under this Agreement, any of the Notes or any other Credit Document or (c) the validity or enforceability of this Agreement, any of the Notes or any of the other Credit Documents or the material rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.                 "Material Contract" shall mean any contract or other arrangement, whether written or oral, to which the Borrower or any Subsidiary is a party as to which contract the breach, nonperformance or cancellation of such contract by any party thereto could reasonably be expected to have a Material Adverse Effect.                 "Material Domestic Subsidiary" shall mean any Domestic Subsidiary of the Borrower which would constitute a "significant subsidiary" of the Borrower as defined in Rule 1.02 of Regulation S-X promulgated by the Securities and Exchange Commission except that for purposes of this definition all references in such Rule 1.02 to "ten percent (10%)" shall be deemed to be references to "five percent (5%)".                 "Maturity Date" shall mean June 27, 2002, as such date may be extended for one year periods pursuant to the terms of Section 2.16.                 "Moody's" shall mean Moody's Investors Service, Inc.                 "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.               15 -100-                           "Note" or "Notes" shall mean the promissory notes of the Borrower in favor of each of the Lenders evidencing the Loans provided pursuant to Section 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time.                 "Notice of Borrowing" shall mean the written notice of borrowing as referenced and defined in Section 2.1(b)(i).                 "Notice of Conversion" shall mean the written notice of extension or conversion as referenced in Section 2.7.                 "Obligations" shall mean, collectively, the Loans.                 "Operating Lease" shall mean any lease which is not a Capital Lease.                 "Participant" shall have the meaning set forth in Section 9.6(b).                 "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.                 "Permitted Investments" shall have the meaning set forth in Section 6.6.                 "Permitted Liens" shall have the meaning set forth in Section 6.2.                 "Person" shall mean 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" shall mean, at any particular time, any employee benefit plan which is covered by Title IV of ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.                 "Prime Rate" shall have the meaning set forth in the definition of Alternate Base Rate.                 "Pro Forma Basis" means, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the last day of the most recent fiscal quarter preceding the date of such transaction with respect to which the Administrative Agent and the Lenders shall have received the financial statements referred to in Section 5.1(a) or (b), as applicable.                 "Purchasing Lenders" shall have the meaning set forth in Section 9.6(c).                 "Recovery Event" shall mean the receipt by the Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation award payable by reason of theft, loss, physical destruction or damage,           16 -101-           taking or similar event with respect to any of their respective property or assets.                 "Register" shall have the meaning set forth in Section 9.6(d).                 "Reorganization" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA.                 "Reportable Event" shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period is waived under PBGC Reg. Section 4043.                 "Required Lenders" shall mean Lenders holding in the aggregate not less than 66 2/3% of the Commitments or outstanding Loans, as the case may be; provided, however, that if any Lender shall be a Defaulting Lender at such time, then there shall be excluded from the determination of Required Lenders, Obligations owing to such Defaulting Lender and such Defaulting Lender's Commitments, or after termination of the Commitments, the principal balance of the Obligations owing to such Defaulting Lender.                 "Requirement of Law" shall mean, as to any Person, the Certificate of Incorporation and Bylaws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other 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.                 "Responsible Officer" shall mean, as to (a) the Borrower, the President and Chief Executive Officer or the Chief Financial Officer or (b) any other Credit Party, any duly authorized officer thereof.                 "Restricted Payment" shall mean (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding, (b) 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 the Borrower or any of its Subsidiaries, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding, or (d) any payment or prepayment of principal of, premium, if any, or interest on, redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness.                 "Revolving Committed Amount" shall mean, collectively, the aggregate amount of all Commitments as referenced in Section 2.1(a), as such amount may be reduced from time to time in accordance with the provisions hereof, and, individually, the amount of each Lender's Commitment as specified on Schedule 2.1(a).                     17 -102-                           "S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw Hill, Inc.                 "Senior Debt Securities" shall mean any one of the 8 7/8% Senior Notes due 2006, in an aggregate principal amount of $125,000,000, issued by the Borrower pursuant to the Senior Indenture, as such Senior Debt Securities may be supplemented, amended or otherwise modified from time to time.                 "Senior Indenture" shall mean that certain Indenture, dated as of May 29, 1996, by and among the Borrower, as issuer, and Crestar Bank, as trustee, as supplemented, amended or otherwise modified from time to time.                 "Single Employer Plan" shall mean any Plan which is not a Multiemployer Plan.                 "Solvent" means, with respect to the Borrower and each other Credit Party on a particular date, that (a) the fair saleable value of each such Person's assets, measured on a going concern basis, exceeds all probable liabilities of such Person (including any liabilities to be incurred pursuant to this Agreement), (b) such Person does not have unreasonably small capital in relation to the business in which it is or proposes to be engaged and (c) such Person has not incurred debts beyond its ability to pay such debts as they become due.                 "Specified Sales" shall mean (a) the sale, transfer, lease or other disposition of inventory and materials in the ordinary course of business and (b) the sale, transfer or other disposition of Permitted Investments.                 "Split-Dollar Agreement" shall mean an agreement between the Borrower or any of its Subsidiaries and an employee of the Borrower or such Subsidiary (or one or more affiliates of such employee that shall be the owner of the policy of life insurance referred to below), pursuant to which the Borrower or such Subsidiary shall agree to fund non-scheduled premiums under a policy of insurance on the life of such employee and such employee (or such affiliate or affiliates) shall agree to reimburse the Borrower or such Subsidiary for such non-scheduled premiums upon the termination of such agreement.                 "Split-Dollar Assignment" shall mean a collateral assignment executed and delivered in connection with a Split-Dollar Program by an employee of the Borrower or one of its Subsidiaries (or one or more affiliates of such employee that shall be the owner of the policy of life insurance referred to below), by which such employee (or such affiliate or affiliates), as collateral security for such employee's (or such affiliate's or affiliates') obligations under the Split-Dollar Agreement executed and delivered in connection with such Split-Dollar Program, assigns to the Borrower or such Subsidiary the policy of insurance on the life of such employee contemplated by such Split-Dollar Agreement.                 "Split-Dollar Program" shall mean an arrangement, established under a Split-Dollar Agreement between the Borrower or any of its Subsidiaries and an employee thereof (or one or more affiliates of such employee), whereby the Borrower or such Subsidiary establishes a split-dollar life insurance program for the benefit of such employee and agrees to pay non-scheduled premiums under the life insurance policy issued in               18 -103-           connection therewith, subject to the obligation of such employee (or such affiliate or affiliates) to reimburse the aggregate amount of such nonscheduled premiums upon the termination of such program.                 "Subordinated Indebtedness" shall mean any other Indebtedness incurred by any Credit Party which by its terms is specifically subordinated in right of payment to the prior payment of the Credit Party Obligations.                 "Subordinated Debt Securities" shall mean any one of the 6 1/4% Convertible Subordinated Debentures due March 31, 2007, in an original aggregate principal amount of $140,000,000, issued by the Borrower pursuant to the Subordinated Indenture (of which original principal amount, $73,328,440 is outstanding as of the Closing Date), as such Subordinated Debt Securities may be supplemented, amended or otherwise modified from time to time.                 "Subordinated Indenture" shall mean that certain Indenture, dated as of April 1, 1997, by and among the Borrower and LaSalle National Bank, as trustee, as supplemented, amended or otherwise modified from time to time.                 "Subsidiary" shall mean, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.                 "Taxes" shall have the meaning set forth in Section 2.15.                 "Tranche" shall mean the collective reference to LIBOR Rate Loans whose Interest Periods begin and end on the same day. A Tranche may sometimes be referred to as a "LIBOR Tranche".                 "Transfer Effective Date" shall have the meaning set forth in each Commitment Transfer Supplement.                 "2.15 Certificate" shall have the meaning set forth in Section 2.15.                 "Type" shall mean, as to any Loan, its nature as an Alternate Base Rate Loan or LIBOR Rate Loan, as the case may be.                 "Uncommitted Inventories" shall mean tobacco inventories for which the Borrower has not received a Confirmed Order.                 "Voting Stock" means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons         19 -104-           performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency.                  Section 1.2     Other Definitional Provisions.                 a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or other Credit Documents or any certificate or other document made or delivered pursuant hereto.                 (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified.                 (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.                  Section 1.3     Accounting Terms.                 Unless otherwise specified herein, all accounting terms 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 with the most recent audited consolidated financial statements of the Borrower delivered to the Lenders; provided that, if the Borrower notifies the Administrative Agent that it wishes to amend any covenant in Section 5.9 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Section 5.9 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.                 The Borrower shall deliver to the Administrative Agent and each Lender at the same time as the delivery of any annual or quarterly financial statements given in accordance with the provisions of Section 5.1, (i) a description in reasonable detail of any material change in the application of accounting principles employed in the preparation of such financial statements from those applied in the most recently preceding quarterly or annual financial statements as to which no objection shall have been made in accordance with the provisions above and (ii) a reasonable estimate of the effect on the financial statements on account of such changes in application.                         20 -105-           ARTICLE II THE LOANS; AMOUNT AND TERMS                  Section 2.1     Loans.                 (a) Commitment. During the Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Loans") to the Borrower from time to time for the purposes hereinafter set forth; provided, however, that (i) with regard to each Lender individually, the sum of such Lender's share of outstanding Loans shall not exceed such Lender's Commitment Percentage of the aggregate Revolving Committed Amount as set forth in Schedule 2.1(a), and (ii) with regard to the Lenders collectively, the sum of the aggregate amount of outstanding Loans shall not exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base. For purposes hereof, the aggregate amount available hereunder shall be TWO HUNDRED FIFTY MILLION DOLLARS ($250,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 2.3, the "Revolving Committed Amount"). Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof. LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office.                 (b) Loan Borrowings.                                 (i)  Notice of Borrowing. The Borrower shall request a Loan borrowing by delivering to the Administrative Agent a Notice of Borrowing in the form attached hereto as Schedule 2.1(b)(i) (a "Notice of Borrowing") (or telephone notice promptly confirmed in writing by delivering to the Administrative Agent a Notice of Borrowing, which delivery may be by fax) not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested borrowing in the case of Alternate Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of LIBOR Rate Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, (D) whether the borrowing shall be comprised of Alternate Base Rate Loans, LIBOR Rate Loans or a combination thereof, and if LIBOR Rate Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a LIBOR Rate Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Loan requested, then such notice shall be deemed to be a request for an Alternate Base Rate Loan hereunder. The Administrative Agent shall give notice to each Lender promptly upon receipt of each Notice of Borrowing, the contents thereof and each such Lender's share thereof.                       21 -106-                                           (ii)  Minimum Amounts. Each Loan borrowing shall be in a minimum aggregate principal amount of (A) with respect to LIBOR Rate Loans, $3,000,000 and integral multiples of $1,000,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less) or (B) with respect to Alternate Base Rate Loans, $1,000,000 and integral multiples of $500,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less).                                 (iii)  Advances. Each Lender will make its Commitment Percentage of each Loan borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Schedule 9.2, or at such other office as the Administrative Agent may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent.                 (c) Repayment. The principal amount of all Loans shall be due and payable in full on the Maturity Date.                 (d) Interest. Subject to the provisions of Section 2.8, Loans shall bear interest as follows:                                 (i)  Alternate Base Rate Loans. During such periods as Loans shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Percentage; and                              (ii)  LIBOR Rate Loans. During such periods as Loans shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Percentage.                 Interest on Loans shall be payable in arrears on each Interest Payment Date.                 (e) Notes. Each Lender's Commitment Percentage of the Loans shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of Schedule 2.1(e).                                 22 -107-                            Section 2.2     Fees.                 (a) Commitment Fee. In consideration of the Commitment, the Borrower agrees to pay to the Administrative Agent for the ratable benefit of the Lenders a commitment fee (the "Commitment Fee") in an amount equal to the Applicable Percentage per annum on the average daily unused amount of the aggregate Revolving Committed Amount. The Commitment Fee shall be payable quarterly in arrears on the 15th day following the last day of each calendar quarter for the prior calendar quarter.                 (b) Administrative Fee. The Borrower agrees to pay to the Administrative Agent the annual administrative fee as described in the Fee Letter.                  Section 2.3     Commitment Reductions.                 (a) Voluntary Reductions. The Borrower shall have the right to terminate or permanently reduce the unused portion of the Revolving Committed Amount at any time or from time to time upon not less than five Business Days' prior notice to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction which shall be in a minimum amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof and shall be irrevocable and effective upon receipt by the Administrative Agent, provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments of the Loans made on the effective date thereof, the sum of the then outstanding aggregate principal amount of the Loans would exceed the lesser of (i) the Revolving Committed Amount or (ii) the Borrowing Base.                 (b) Maturity Date. The Commitment shall automatically terminate on the Maturity Date.                  Section 2.4     Prepayments.                 (a) Optional Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that each partial prepayment of Loans shall be in a minimum principal amount of $10,000,000 and integral multiples of $1,000,000 in excess thereof. The Borrower shall give three Business Days' irrevocable notice in the case of LIBOR Rate Loans and one Business Day's irrevocable notice in the case of Alternate Base Rate Loans, to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable). Amounts prepaid under this Section 2.4(a) shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments under this Section 2.4(a) shall be subject to Section 2.14, but otherwise without premium or penalty. Interest accrued through the date of prepayment on the principal amount prepaid shall be payable on the next occurring Interest Payment Date that would have occurred had such loan not been prepaid or, at the request of the Administrative                     23 -108-             Agent, such interest shall be payable on any date that a prepayment is made hereunder. Amounts prepaid on the Loans may be reborrowed in accordance with the terms hereof.                 (b) Mandatory Prepayments.                                 (i)  Revolving Committed Amount. If at any time after the Closing Date, the sum of the aggregate principal amount of outstanding Loans shall exceed the lesser of (A) the Revolving Committed Amount or (B) the Borrowing Base, the Borrower immediately shall prepay the Loans in an amount sufficient to eliminate such excess.                                 (ii)  Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 2.4(b) shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments under this Section 2.4(b) shall be subject to Section 2.14 and be accompanied by interest on the principal amount prepaid through the date of prepayment.                  Section 2.5     Minimum Principal Amount of Tranches.                 All borrowings, payments and prepayments in respect of the Loans shall be in such amounts and be made pursuant to such elections so that after giving effect thereto the aggregate principal amount of the Loans comprising any Tranche shall not be less than with respect to (i) LIBOR Rate Loans, $3,000,000 or a whole multiple of $1,000,000 in excess thereof and (ii) Alternate Base Rate Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof.                  Section 2.6     Default Rate and Payment Dates.                 Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then the Alternate Base Rate plus the highest Applicable Percentage (Level V) plus 2%).                  Section 2.7     Conversion Options.                 (a) The Borrower may elect from time to time to convert Alternate Base Rate Loans to LIBOR Rate Loans, by giving the Administrative Agent irrevocable written notice of such election not later than 11:00 a.m. (Charlotte, North Carolina time) on the date which is three Business Days prior to the requested date of conversion. A form of Notice of Conversion/Extension is attached as Schedule 2.7. If the date upon which an Alternate Base Rate Loan is to be converted to a LIBOR Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan.               24 -109-           All or any part of outstanding Alternate Base Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) partial conversions shall be in an aggregate principal amount of $3,000,000 or a whole multiple of $1,000,000 in excess thereof.                 (b) Any LIBOR Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in Section 2.7(a); provided, that no LIBOR Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan at the end of the applicable Interest Period with respect thereto. If the Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR Rate Loans is not permitted hereunder, such LIBOR Rate Loans shall be automatically converted to Alternate Base Rate Loans at the end of the applicable Interest Period with respect thereto.                  Section 2.8     Computation of Interest and Fees.                 (a) Interest payable hereunder with respect to Alternate Base Rate Loans based on the Prime Rate shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Rate on the Business Day of the determination thereof. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change.                 (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the computations used by the Administrative Agent in determining any interest rate.                  Section 2.9     Pro Rata Treatment and Payments.                 (a) Each borrowing of Loans and any reduction of the Commitments shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment under this Agreement or any Note shall be applied, first, to any fees then due and owing by the Borrower pursuant to Section 2.2, second, to interest then due and owing in respect of the Notes of the Borrower and, third, to principal then due and owing hereunder and under the Notes of the Borrower. Each payment on account of any fees pursuant to Section 2.2 shall be made pro rata in accordance with the respective amounts due and owing. Each payment                   25 -110-         (other than prepayments) by the Borrower on account of principal of and interest on the Loans, shall be made pro rata according to the respective amounts due and owing in accordance with Section 2.4 hereof. Each optional prepayment on account of principal of the Loans shall be applied to such of the Loans as the Borrower may designate (to be applied pro rata among the Lenders). Each mandatory prepayment on account of principal of the Loans shall be applied in accordance with Section 2.4(b); provided, that prepayments made pursuant to Section 2.12 shall be applied in accordance with such section. All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense, set-off or counterclaim and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent's office specified on Schedule 9.2 in Dollars and in immediately available funds not later than 1:00 P.M. (Charlotte, North Carolina time) on the date when due. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Rate Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Rate Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.                 (b) Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:                 FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents;                 SECOND, to payment of any fees owed to the Administrative Agent;                 THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations owing to such Lender;                 FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest;                           26 -111-                           FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations;                 SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and                 SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.                 In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; and (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above.                  Section 2.10     Non-Receipt of Funds by the Administrative Agent.                 (a) Unless the Administrative Agent shall have been notified in writing by a Lender prior to the date a Loan is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Loan available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent on such date, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for the applicable borrowing pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Effective Rate.                 (b) Unless the Administrative Agent shall have been notified in writing by the Borrower, prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Borrower does not intend to make such payment, the Administrative Agent may assume that the Borrower has made such payment when due, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such payment date an amount equal to the portion of such assumed payment to which such Lender is entitled hereunder, and if the Borrower has not in fact made such                   27 -112-         payment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender. If such amount is repaid to the Administrative Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the Administrative Agent on demand interest on such amount in respect of each day from the date such amount was made available by the Administrative Agent to such Lender to the date such amount is recovered by the Administrative Agent at a per annum rate equal to the Federal Funds Effective Rate.                 (c) A certificate of the Administrative Agent submitted to the Borrower or any Lender with respect to any amount owing under this Section 2.10 shall be conclusive in the absence of manifest error.                  Section 2.11     Inability to Determine Interest Rate.                 Notwithstanding any other provision of this Agreement, if (i) the Administrative Agent shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining LIBOR for such Interest Period, or (ii) the Required Lenders shall reasonably determine that the LIBOR Rate does not adequately and fairly reflect the cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested be outstanding as a LIBOR Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and the Lenders at least two Business Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans shall be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, LIBOR Rate Loans for the Interest Periods so affected.                  Section 2.12     Illegality.                 Notwithstanding any other provision of this Agreement, if the adoption of or any change after the date hereof in any Requirement of Law or in the interpretation or application thereof by the relevant Governmental Authority to any Lender shall make it unlawful for such Lender or its LIBOR Lending Office to make or maintain LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its LIBOR Lending Office the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Borrower thereof, (b) the commitment of such Lender hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until the Administrative Agent shall give notice that the condition or situation which gave rise to the suspension shall no longer exist, and (c) such Lender's Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law as Alternate Base Rate Loans. The Borrower hereby agrees promptly to pay any Lender, upon its                   28 -113-         demand, any additional amounts necessary to compensate such Lender for actual and direct costs (but not including anticipated profits) reasonably incurred by such Lender in making any repayment in accordance with this Section including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its LIBOR Lending Office) to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens reasonably deemed by such Lender to be material.                  Section 2.13     Requirements of Law.                 (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:                            (i)  shall subject such Lender to any tax of any kind whatsoever with respect to any LIBOR Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for changes in the rate of tax on the overall net income of such Lender);                             (ii)  shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the LIBOR Rate hereunder; or                             (iii)  shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining LIBOR Rate Loans or to reduce any amount receivable hereunder or under any Note, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender reasonably deems to be material as determined by such Lender with respect to its LIBOR Rate Loans. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or LIBOR Lending Office, as the case may be) to avoid or to minimize any amounts which might otherwise be payable pursuant to this paragraph of this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional                     29 -114-             costs or legal or regulatory burdens reasonably deemed by such Lender to be material.                 (b) If any Lender shall have reasonably determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, within fifteen (15) days after demand by such Lender, the Borrower shall pay to such Lender such additional amount as shall be certified by such Lender as being required to compensate it for such reduction. Such a certificate as to any additional amounts payable under this Section submitted by a Lender (which certificate shall include a description of the basis for the computation), through the Administrative Agent, to the Borrower shall be conclusive absent manifest error.                 (c) The agreements in this Section 2.13 shall survive the termination of this Agreement and payment of the Notes for a period of thirty (30) days after the Maturity Date.                  Section 2.14     Indemnity.                 The Borrower hereby agrees to indemnify each Lender and to hold such Lender harmless from any funding loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms hereof, (b) default by the Borrower in accepting a borrowing after the Borrower has given a Notice of Borrowing in accordance with the terms hereof, (c) default by the Borrower in making any prepayment after the Borrower has given a notice therefor in accordance with the terms hereof, and/or (d) the making by the Borrower of a prepayment of a Loan, or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender, through the Administrative Agent, to the Borrower (which certificate must be delivered to the Administrative Agent within thirty days following such default, prepayment or conversion) shall be conclusive in the absence of manifest error. The agreements in this Section shall survive termination of this Agreement and payment of the Notes and all other amounts payable hereunder.                           30 -115-                          Section 2.15     Taxes.                 (a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.9 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 or measured by all or part of its net 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 or, in the case of each Lender, 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 or under any Note 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 2.15) 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)& #9;In addition, the Borrower agrees to pay any present or future stamp, documentary or intangibles taxes or any other similar taxes, charges or levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes or any of the other Loan Documents (hereinafter referred to as "Other Taxes").                (c)& #9;The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.15) 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 thirty (30) days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. The Administrative Agent or any Lender claiming indemnification pursuant to this Section 2.15(c) shall make written demand therefor no later than one (1) year after the earlier of (i) the date on which such Lender or the Administrative Agent makes payment of such Taxes or Other Taxes and (ii) the date on which the appropriate Governmental Authority makes written demand on such Lender or the Administrative Agent for payment of such Taxes or Other Taxes.                 (d) If a Lender or the Administrative Agent shall become entitled to claim a refund, credit or reduction in respect of Taxes or Other Taxes as to which it has been indemnified by the Borrower, or with respect to which the Borrower has made payments pursuant to this Section 2.15, such Lender or the Administrative Agent shall, within ninety (90) days after receipt of a written request by the Borrower and at Borrower's sole expense, make an appropriate filing or claim with the appropriate Governmental Authority to                   31 -116-         obtain or use such refund, credit or reduction. Upon a written request of the Borrower, each Lender or the Administrative Agent shall use reasonable efforts to cooperate with the Borrower in determining whether or not the Administrative Agent or such Lender is entitled to such a refund, credit or reduction. If a Lender or the Administrative Agent receives a refund or realizes the benefit of a credit or reduction in respect of any such Taxes or other Taxes (whether or not as a result of a filing or claim made pursuant to the first sentence of this paragraph), such Lender or the Administrative Agent shall within ninety (90) days from the date of such receipt or realization pay over the amount of such refund, credit or reduction to the Borrower (but only to the extent of indemnity payments made or other amounts paid by the Borrower under this Section 2.15 with respect to such Taxes or Other Taxes), net of all reasonable out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund, credit or reduction); provided that the Borrower (upon the written request of such Lender or the Administrative Agent) agrees to repay the amount paid over to the Borrower to such Lender or the Administrative Agent (together with any interest payable to the relevant Governmental Authority) in the event such Lender or the Administrative Agent is required to repay such refund, credit or reduction to such Governmental Authority.                 (e) Within forty-five (45) days after the date of any payment of Taxes by the Borrower, the Borrower will furnish to the Administrative Agent, at its address set forth on Section 2.1(a), the original or a certified copy of a receipt (if any) evidencing payment thereof.                (f)& #9;Each Lender that is a non-resident alien or is 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 (or, in the case of any Person becoming a Lender after the Closing Date, on or prior to the effective date of the Commitment Transfer Supplement pursuant to which it becomes a Lender), from time to time thereafter if requested in writing by the Borrower, and upon any change in designation of the Lender's Applicable Lending Office (but only so long as such Lender remains lawfully able to do so), shall provide each of the Borrower and the Administrative Agent (i) if such Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a duly completed original U.S. Treasury Department Form W-8 (or successor form) certifying that such Lender is not a United States citizen or resident (or that such Lender is filing for a foreign corporation, partnership, estate or trust) and providing the name and address of the Lender, together with a certificate representing that it is not a bank within the meaning of Section 881(c)(3)(A) of the Code and is not a ten percent (10%) shareholder (within the meaning of Section 871(h)(3)(B) of the Code) with respect to the Borrower, or (ii) if such Lender is a bank within the meaning of Section 881(c)(3)(A) of the Code, a duly completed original U.S. Treasury Department Form W-8 BEN or Form W-8 ECI (or successor form), whichever is applicable, properly claiming complete exemption from United States withholding tax on payments by the Borrower pursuant to this Agreement and under the Notes.                 (g) The Borrower shall not be required to indemnify any Lender or the Administrative Agent, or to pay any other amount to any such Lender, in respect of any Tax pursuant to this Section 2.15 to the extent that:                     32 -117-         (i) in the case of a Lender that is a non-resident alien or is organized under the laws of a jurisdiction outside the United States, the obligation to make such indemnification or to pay such other amount would not have arisen but for a failure by such non-resident Lender to comply with the provisions of Section 2.15(f), unless such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided; provided, however, that should a Lender be subject to withholding Tax because of such failure, the Borrower shall take such steps (at Lender's expense) as the Lender shall reasonably request in writing to assist the Lender to recover such Tax; or (ii) such Tax was applicable on the date such Lender or Administrative Agent became a party to this Agreement or, with respect to payments to a new Applicable Lending Office, the date such Lender designated such Applicable Lending Office; provided, however, that this clause (ii) shall not apply to any Lender or new Applicable Lending Office that becomes a Lender or Applicable Lending Office as a result of an assignment or designation made at the request of the Borrower, and provided further that this clause (ii) shall not apply to the extent the indemnity payment or other amount any transferee Lender, or a Lender through a new Applicable Lending Office, would be entitled to receive does not exceed the indemnity payment or other amount that the Lender making the assignment, or making the designation of such new Applicable Lending Office, would have been entitled to receive in the absence of such assignment or designation.                 (h) In the event that a Lender that originally provided such form as may be required under Section 2.15(f) thereafter ceases to qualify for complete exemption from United States withholding tax, such Lender may assign its interest under this Agreement to any Eligible Assignee in accordance with Section 9.6 and such Eligible Assignee shall be entitled to the same benefits under this Section 2.15 as the assignor provided that the rate of United States withholding tax (and the rate of any Taxes or Other Taxes) applicable to such Eligible Assignee shall not exceed the rate then applicable to the assignor.                                 (i)  The agreements in this Section 2.15 shall survive the termination of this Agreement and the payment of the Notes for a period of thirty (30) days after the Maturity Date.                  Section 2.16     Extension of Maturity Date.                 The Borrower may, not earlier than 120 days and not later than 90 days prior to the Maturity Date (or each anniversary date thereafter if the Maturity Date is extended), by notice to the Lenders, make written request of the Lenders to extend the Maturity Date for an additional one year period. Each Lender shall make a determination not later than 60 days after receipt of the extension request as to whether or not it will agree to extend the Maturity Date as requested; provided, however, that failure by any Lender to make a timely response to the Borrower's request for extension of the Maturity Date shall be deemed to constitute a refusal by the Lender to extend the Maturity Date. If, in response to a request for an extension of the Maturity Date, one or more Lenders shall fail to agree to the requested extension (the "Disapproving Lenders"), then provided that the requested extension is approved by Lenders holding at least 51% of the Commitments hereunder (the "Approving Lenders"), the revolving credit facility may be extended and continued at a lower aggregate amount equal to the Commitments held by the Approving Lenders. In any such case, (i) the Maturity Date                   33 -118-         relating to the Commitments held by the Disapproving Lenders shall remain as then in effect with repayment of the Loans and other amounts outstanding that are owing to such Disapproving Lenders being due on such date and termination of their respective Commitments on such date, (ii) the Maturity Date relating to the Commitments held by the Approving Lenders shall be extended by an additional one year period, and (iii) the Borrower may, at its own expense with the assistance of the Administrative Agent, subject to the terms of Section 9.6, make arrangements for another bank or financial institution to acquire, in whole or in part, the Commitment of any Disapproving Lender. Where any such arrangements are made for another bank or financial institution to acquire the Commitment of a Disapproving Lender, or any portion thereof, then upon payment of the Loans and other amounts outstanding that are owing to such Disapproving Lender and termination of its Commitment relating thereto, such Disapproving Lender shall promptly transfer and assign, in whole or in part, as requested, without recourse (in accordance with and subject to the provisions of Section 9.6), all or part of its interests, rights and obligations under this Agreement to such bank or financial institution which shall assume such assigned obligations.   ARTICLE III REPRESENTATIONS AND WARRANTIES                 To induce the Lenders to enter into this Agreement and to make the Extensions of Credit herein provided for, each of the Credit Parties hereby represents and warrants to the Administrative Agent and to each Lender that:                  Section 3.1     Financial Condition.                 (a) The consolidated balance sheet of the Borrower and its Subsidiaries as of June 30, 1999 and the related consolidated statements of income, cash flows and stockholders' equity for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP and set forth in the Borrower's 1999 Form 10-K, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Subsidiaries as of such date and the consolidated results of operations and cash flows for such fiscal year. The Borrower and its Subsidiaries did not, as of June 30, 1999, have any material contingent obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment, which is not reflected in any of such financial statements or notes thereto.                 (b) The unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of March 31, 2000 and the related unaudited consolidated statements of income, cash flows and stockholders' equity for the nine months then ended, set forth in the Borrower's Quarterly Report for the fiscal quarter ended March 31, 2000 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in paragraph (a), the consolidated financial position of the Borrower and its Subsidiaries as of such date and the consolidated results of operations and cash flows for such nine-month period (subject to normal year-end adjustments).               34 -119-                            Section 3.2     No Change.                 Except for those matters disclosed in the Confidential Information Memorandum dated May 2000 provided by the Borrower to the Lenders (which the Borrower does not believe could reasonably be expected to have a Material Adverse Effect) and since June 30, 1999 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect.                  Section 3.3     Corporate Existence; Compliance with Law.                 Each of the Credit Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the requisite power and authority and the legal right to own and operate all its material property, to lease the material property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified to conduct business and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.                  Section 3.4     Corporate Power; Authorization; Enforceable Obligations; No Consents.                 Each of the Borrower and the other Credit Parties has full power and authority and the legal right to make, deliver and perform the Credit Documents to which it is party and has taken all necessary limited liability company or corporate action to authorize the execution, delivery and performance by it of the Credit Documents to which it is party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of any Credit Document by the Borrower or the other Credit Parties (other than those which have been obtained) or with the validity or enforceability of any Credit Document against the Borrower or the other Credit Parties. Each Credit Document to which it is a party has been duly executed and delivered on behalf of the Borrower or the other Credit Parties, as the case may be. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of the Borrower or the other Credit Parties, as the case may be, enforceable against the Borrower or such other Credit Party, as the case may be, in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).                           35 -120-                          Section 3.5     No Legal Bar; No Default.                 The execution, delivery and performance of the Credit Documents, the borrowings thereunder and the use of the proceeds of the Loans will not violate any Requirement of Law, any organizational document or any material Contractual Obligation of the Borrower or its Subsidiaries (except those as to which waivers or consents have been obtained), and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.                  Section 3.6     No Material Litigation.                 No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to the Credit Documents or any Loan or any of the transactions contemplated hereby, or (b) which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.                  Section 3.7     Investment Company Act.                 Neither the Borrower nor any Credit Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.                  Section 3.8     Margin Regulations.                 No part of the proceeds of any Loan hereunder will be used directly or indirectly for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Borrower and its Subsidiaries taken as a group do not own "margin stock" except as identified in the financial statements referred to in Section 3.1 and the aggregate value of all "margin stock" owned by the Credit Parties taken as a group does not exceed 25% of the value of their assets.                  Section 3.9     ERISA.                 Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan is in compliance in all material respects with the applicable provisions of ERISA and the Code, except to the extent that any such occurrence or failure to comply would not reasonably be expected to have a Material Adverse Effect. No termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded,                 36 -121-           and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period which could reasonably be expected to have a Material Adverse Effect. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which, as determined in accordance with GAAP, could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect.                  Section 3.10     Environmental Matters.                 (a) The on-going operations of the Borrower and each of its Subsidiaries comply in all respects with all Environmental Laws, except such non-compliance which would not (if enforced in accordance with applicable law) result in liability in excess of $2,000,000 in the aggregate.                 (b) Except as specifically disclosed in Schedule 3.10, the Borrower and each of its Subsidiaries have obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for their respective ordinary course operations, no Governmental Authority responsible for such Environmental Permits has threatened to revoke, refuse to reissue or materially limit such Environmental Permits, and the Borrower and each of its Subsidiaries are in compliance with all material terms and conditions of such Environmental Permits.                 (c) Except as specifically disclosed in Schedule 3.10, none of the Borrower, any of its Subsidiaries or any of their respective present assets or operations, is subject to, any outstanding written order from, or agreement with, any Governmental Authority, nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material.                 (d) Except as specifically disclosed in Schedule 3.10, there are no Hazardous Materials or other conditions or circumstances existing with respect to any assets, or arising from operations prior to the Closing Date, of the Borrower, any of its Subsidiaries or any of their respective predecessors that would reasonably be expected to give rise to Environmental Claims with a potential liability to the Borrower and its Subsidiaries in excess of $1,000,000 in the aggregate for any such condition, circumstance or assets. In addition, (i) to the knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries has any underground storage tanks (x) that are not properly registered or permitted under applicable Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials, and (ii) to the extent required by applicable Environmental Law, the Borrower and its Subsidiaries have notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all material notification requirements under all Environmental Laws.                     37 -122-                            Section 3.11     Use of Proceeds.                 The proceeds of the Loans hereunder shall be used solely by the Borrower to (i) refinance certain existing Indebtedness of the Credit Parties and (ii) provide for working capital, capital expenditures and other general corporate purposes.                  Section 3.12     Subsidiaries.                 Set forth on Schedule 3.12 is a complete and accurate list of all Subsidiaries of the Borrower and the percentage of ownership of the Borrower with respect to each such entity.                  Section 3.13     Ownership.                 Each of the Credit Parties is the owner of, and has good and marketable title to, all of its respective assets, except as may be permitted pursuant Section 6.13 hereof, and none of such assets is subject to any Lien other than Permitted Liens.                  Section 3.14     Indebtedness.                 Except as otherwise permitted under Section 6.1, the Credit Parties have no Indebtedness. Set forth on Schedule 3.14 is a listing of all Indebtedness of the Credit Parties in an amount in excess of $1,000,000 outstanding as of the date hereof.                  Section 3.15     Taxes.                 Each of the Credit Parties has filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. Neither the Borrower nor any of its Subsidiaries is aware as of the Closing Date of any proposed tax assessments against them or any of their Subsidiaries which could reasonably be expected to have a Material Adverse Effect.                  Section 3.16     Intellectual Property.                 Each of the Credit Parties owns, or has the legal right to use, all patents, trademarks, tradenames, copyrights, technology, know-how and processes necessary for each of them to conduct its business as currently conducted. No claim has been asserted and is pending by any Person challenging or questioning the use of any such intellectual property or the validity or effectiveness of any such intellectual property, nor does the Borrower or any of its Subsidiaries know of any such claim, and, to the knowledge of the Borrower or any of its Subsidiaries, the use of such intellectual property by the Borrower or any of its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that in the aggregate, could not reasonably be expected to have a Material Adverse Effect.         38 -123-                              Section 3.17     Solvency.                 The fair saleable value of each Credit Party's assets, measured on a going concern basis, exceeds all probable liabilities, including those to be incurred pursuant to this Agreement. None of the Credit Parties (a) has unreasonably small capital in relation to the business in which it is or proposes to be engaged or (b) has incurred, or believes that it will incur after giving effect to the transactions contemplated by this Agreement, debts beyond its ability to pay such debts as they become due.                  Section 3.18     Investments.                 All Investments of each of the Credit Parties are Permitted Investments.                  Section 3.19     No Burdensome Restrictions.                 None of the Borrower or any of its Subsidiaries is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.                  Section 3.20     Brokers' Fees.                 None of the Borrower or any of its Subsidiaries has any obligation to any Person in respect of any finder's, broker's, investment banking or other similar fee in connection with any of the transactions contemplated under the Credit Documents other than the closing and other fees payable pursuant to this Agreement.                  Section 3.21     Labor Matters.                 There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date, other than as set forth in Schedule 3.21 hereto, and none of the Borrower or any of its Subsidiaries (i) has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years, other than as set forth in Schedule 3.21 hereto or (ii) has knowledge of any potential or pending strike, walkout or work stoppage.                  Section 3.22     Accuracy and Completeness of Information.                 All factual information heretofore, contemporaneously or hereafter furnished by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any other Credit Document, or any transaction contemplated hereby or thereby, is or will be true and accurate in all material respects and not incomplete by omitting to state any material fact necessary to make such information not misleading. There is no fact now known to any Credit Party which           39 -124-             has, or could reasonably be expected to have, a Material Adverse Effect which fact has not been set forth herein, in the financial statements of the Credit Parties furnished to the Administrative Agent and/or the Lenders, or in any certificate, opinion or other written statement made or furnished by the Borrower to the Administrative Agent and/or the Lenders.                  Section 3.23     Material Contracts.                 Schedule 3.23 sets forth a true, correct and complete list of all Material Contracts currently in effect. All of the Material Contracts are in full force and effect, and no material defaults currently exist thereunder.   ARTICLE IV CONDITIONS PRECEDENT                  Section 4.1     Conditions to Closing Date and Initial Loans.                 This Agreement shall become effective upon, and the obligation of each Lender to make the initial Loans on the Closing Date is subject to, the satisfaction of the following conditions precedent:                 (a) Execution of Agreement. The Administrative Agent shall have received (i) counterparts of this Agreement, executed by a duly authorized officer of each party hereto, (ii) Notes for the account of each Lender and (iii) all other Credit Documents, each in form and substance reasonably acceptable to the Administrative Agent and First Union Securities, Inc. in their sole discretion, in each case executed by a duly authorized officer of each party thereto.                 (b) Authority Documents. The Administrative Agent shall have received the following:                                 (i)  Organizational Documents. Copies of the articles of incorporation or other organizational documents, as applicable, of each Credit Party certified to be true and complete as of a recent date by the appropriate governmental authority of the state of its organization.                                 (ii)  Resolutions. Copies of resolutions of the board of directors of each Credit Party approving and adopting the Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by an officer of such Credit Party as of the Closing Date to be true and correct and in force and effect as of such date.                                 (iii)  Bylaws. A copy of the bylaws of each Credit Party, if applicable, certified by an officer of such Credit Party as of the Closing Date to be true and correct and in force and effect as of such date.               40 -125-                                           (iv)  Good Standing. Copies of (i) certificates of good standing, existence or its equivalent with respect to the each Credit Party certified as of a recent date by the appropriate governmental authorities of the state of incorporation and each other state in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect on the business or operations of the Credit Parties in such state and (ii) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities.                                 (v)  Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary to be true and correct as of the Closing Date.                 (c) Legal Opinions of Counsel.   The Administrative Agent shall have received an opinion of Hunton & Williams, counsel for the Credit Parties, dated the Closing Date and addressed to the Administrative Agent and the Lenders, in form and substance acceptable to the Administrative Agent (including, without limitation, a satisfactory no-conflicts opinion with respect to the Senior Debt Securities, the Subordinated Debt Securities and each Material Contract).                 (d) Fees. The Administrative Agent shall have received all fees, if any, owing pursuant to the Fee Letter and Section 2.2.                 (e) Litigation. There shall not exist any pending litigation, investigation, injunction, order or claim affecting or relating to the Borrower or any of its Subsidiaries, this Agreement or the other Credit Documents that in the reasonable judgment of the Administrative Agent could materially adversely affect such Person, this Agreement or the other Credit Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date.                 (f) [Intentionally Omitted].                 (g) Account Designation Letter. The Administrative Agent shall have received the executed Account Designation Letter in the form of Schedule 1.1(a) hereto.                 (h) [Intentionally Omitted].                                 (i)  Consents. The Administrative Agent shall have received evidence that all governmental, shareholder and material third party consents and approvals necessary in connection with the financings and other transactions contemplated hereby have been obtained and all applicable waiting periods have expired without any action being taken by any authority or third party that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of the foregoing.                       41 -126-                         (j) Compliance with Laws. The financings and other transactions contemplated hereby shall be in compliance with all applicable laws and regulations (including all applicable securities and banking laws, rules and regulations).                 (k) Bankruptcy. There shall be no bankruptcy or insolvency proceedings with respect to the Borrower or any of its Subsidiaries.                 (l) Material Adverse Effect. No material adverse change shall have occurred since June 30, 1999 in the business, assets, liabilities (financial or otherwise) or prospects of the Credit Parties taken as a whole.                 (m) Financial Statements. The Administrative Agent shall have received copies of all of the financial statements requested by the Administrative Agent (including, without limitation, (i) final audited annual financial statements for the Borrower's fiscal years 1997, 1998 and 1999 and (ii) unaudited quarterly financial statements from January 1, 2000 through the quarter ending immediately prior to the Closing Date).                 (n) [Intentionally Omitted].                 (o) Officer's Certificates. The Administrative Agent shall have received a certificate or certificates executed by a responsible officer of the Borrower as of the Closing Date stating that (i) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect the Borrower or any Subsidiary or any transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding could reasonably be expected to have a Material Adverse Effect and (ii) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated therein to occur on such date, (A) each of the Credit Parties is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, and (D) the Credit Parties are in compliance with each of the financial covenants set forth in Section 5.9.                 (p) Projections. The Administrative Agent shall have received the two-year financial and operational projections for the Borrower and its Subsidiaries for the fiscal years 2001 and 2002, together with a detailed explanation of all management assumptions contained therein, which projections shall be in form and substance satisfactory to the Administrative Agent and the Lenders.                 (q) Termination of Existing Indebtedness. All existing Indebtedness pursuant to that certain Credit Agreement dated as of June 29, 1999, as amended, among the Borrower, the Lenders party thereto, NationsBank, N.A., as Administrative Agent, First Union National Bank, as Syndication Agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International," New York Branch, as Managing Agent, shall have been repaid in full and terminated or shall be paid in full and terminated simultaneously with the effectiveness of this Agreement.                   42 -127-                           (r) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel.                  Section 4.2     Conditions to All Extensions of Credit.                 The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit:                 (a) Representations and Warranties. The representations and warranties made by the Credit Parties herein or which are contained in any certificate furnished at any time under or in connection herewith, except as such relate explicitly to an earlier date, shall be true and correct in all material respects on and as of the date of such Extension of Credit as if made on and as of such date.                 (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement.                 (c) Senior Indenture. At any time that the aggregate principal amount of all outstanding Loans shall exceed $240,000,000, the Borrower shall have provided detailed calculations (in form and substance reasonably satisfactory to the Administrative Agent) evidencing compliance with Section 4.11(a) of the Senior Indenture.                 Each request for an Extension of Credit and each acceptance by the Borrower of any such Extension of Credit shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Extension of Credit that the applicable conditions in paragraphs (a) and (b) of this Section have been satisfied.     ARTICLE V AFFIRMATIVE COVENANTS                 The Credit Parties hereby covenant and agree that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note remains outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full, the Borrower shall, and shall cause each of its Material Domestic Subsidiaries (other than in the case of Sections 5.1, 5.2 or 5.7 hereof), to:                     43 -128-                            Section 5.1     Financial Statements.                 Furnish to the Administrative Agent and each of the Lenders:                 (a) Annual Reports.                                 (i)  As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statement of cash flows and the consolidated statements of income and stockholders' equity for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion on such consolidated statements by an Approved Accounting Firm which opinion shall state that such consolidated financial statements present fairly the consolidated financial position of the Borrower and its Subsidiaries as of the date of such financial statements and their consolidated results of their operations and cash flows for the period covered by such financial statements in conformity with GAAP applied on a consistent basis (except for changes in the application of which such accountants concur) and shall not contain any "going concern" or like qualification or exception or qualifications arising out of the scope of the consolidated audit;                                 (ii)  As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries and the related consolidated and consolidating statements of income, cash flows and stockholders' equity for such fiscal year, setting forth (in the case of consolidated statements) the consolidated figures in comparative form for the Borrower's previous fiscal year, all certified (subject to normal year-end audit adjustments) as complete and correct in all material respects by the Borrower's chief financial officer, treasurer or chief accounting officer;                 (b) Quarterly Reports. As soon as available and in any event within 45 days after the end of each of the first three fiscal quarters, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries and the related consolidated and consolidating statements of income, cash flows and stockholders' equity for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth (in the case of consolidated statements) the consolidated figures in comparative form for the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end audit adjustments) as complete and correct in all material respects by the Borrower's chief financial officer, treasurer or chief accounting officer;                 (c) Annual Budget Plan. As soon as available, but in any event within sixty (60) days after the end of each fiscal year, a copy of the detailed annual operating budget or plan of the Borrower for such fiscal year on a quarter-by-quarter basis, in form and detail reasonably acceptable to the Administrative Agent and the Required Lenders, together with a summary of the material assumptions made in the preparation of such annual budget or plan;                     44 -129-             all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and to be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change, if any, in the application of accounting principles as provided in Section 1.3.                  Section 5.2     Certificates; Other Information.                 Furnish to the Administrative Agent and each of the Lenders:                 (a) concurrently with the delivery of the financial statements referred to in Section 5.1(a) above, a statement of the Approved Accounting Firm that reported on such statements (i) stating that their audit examination has included the reading of this Agreement and the Notes as they relate to financial or accounting matters, (ii) whether anything has come to their attention to cause them to believe that there existed on the date of such statements any Default or Event of Default and (iii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to subsection (b) below;                 (b) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(b) above, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, each of the Credit Parties during such period observed or performed in all material respects all of its covenants and other agreements, and satisfied in all material respects every condition, contained in this Agreement to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and such certificate shall include the calculations in reasonable detail required to indicate compliance with Section 5.9 as of the last day of such period and a certification as to the Borrower's Debt Rating as of the last day of such period;                 (c) within 45 days after the end of each fiscal quarter, a certificate as of the end of the immediately preceding fiscal quarter, substantially in the form of Exhibit 5.2(c) and certified by a Responsible Officer of the Borrower to be true and correct as of the date thereof (a "Borrowing Base Certificate");                 (d) promptly upon mailing thereof, copies of all reports (other than those otherwise provided pursuant to Section 5.1 and those which are of a promotional nature) and other financial information which the Borrower sends to its shareholders, and promptly upon the filing thereof, copies of all financial statements and non-confidential reports which the Borrower may make to, or file with the Securities and Exchange Commission or any successor or analogous Governmental Authority;                 (e) promptly upon issuance thereof, copies of all press releases and other statements made available generally by the Borrower or its Subsidiaries to the public concerning material developments in the results of                 45 -130-           operations, financial condition, business or prospects of the Borrower or its Subsidiaries;                 (f) promptly upon receipt thereof, a copy of any "material weakness letter" submitted by independent accountants to the Borrower or any of its Subsidiaries in connection with any annual, interim or special audit of the books of such Person;                 (g) promptly, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request; and                 (h) promptly, but in no event later than three Business Days, after any change in the Debt Rating, notice of the new Debt Rating.                  Section 5.3     Payment of Obligations.                 Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, in accordance with industry and historical company practice (subject, where applicable, to specified grace periods) all its material obligations (including, without limitation, all material taxes) of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, except when the amount or validity of such obligations and costs is currently being contested in good faith by appropriate proceedings and reserves, if applicable, in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be.                  Section 5.4     Conduct of Business and Maintenance of Existence.                 Continue to engage in business of the same general type as now conducted by it on the Closing Date and preserve, renew and keep in full force and effect its existence as a corporation or limited liability company, as applicable, and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law (including, without limitation, ERISA and rules and regulations thereunder and Environmental Laws) applicable to it except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.                  Section 5.5     Maintenance of Property; Insurance.                 (a) Keep all material property useful and necessary in its business in good working order and condition (ordinary wear and tear and obsolescence excepted); and                 (b) Maintain with financially sound and reputable insurance companies insurance on all its material property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried.               46 -131-                            Section 5.6     Inspection of Property; Books and Records; Discussions.                 Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent or any Lender, the Administrative Agent or any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Borrower may not disclose without violation of a confidentiality obligation binding upon it) at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Credit Parties with officers and employees of the Credit Parties and with their independent certified public accountants. The Borrower shall maintain its fiscal reporting period on a June 30 fiscal year, and each Domestic Subsidiary shall maintain its respective fiscal reporting period on the present basis.                  Section 5.7     Notices.                 Give notice in writing to the Administrative Agent (which shall promptly transmit such notice to each Lender) of:                 (a) promptly, but in any event within two (2) Business Days, after the Borrower knows of the occurrence of any Default or Event of Default;                 (b) promptly, any default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect;                 (c) promptly, any litigation, or any investigation or proceeding (including, without limitation, any governmental or environmental proceeding) known to the Borrower, affecting the Borrower or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a Material Adverse Effect or which in any manner questions the validity of this Agreement, the Notes or any of the other transactions contemplated hereby or thereby, and give notice setting forth the nature of such pending or threatened action, suit or proceeding and such additional information as the Administrative Agent, at the request of any Lender, may reasonably request;                 (d) as soon as possible and in any event within thirty (30) days after the Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC (other than a Permitted Lien) or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan;                 47 -132-                           (e) concurrently with the delivery thereof, copies of all written notices as the Borrower shall send to the holders of the Senior Debt Securities; and                 (f) promptly, any other development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. In the case of any notice of a Default or Event of Default, the Borrower shall specify that such notice is a Default or Event of Default notice on the face thereof.                  Section 5.8     Environmental Laws.                 (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;                 (b) Conduct and complete all investigations, studies, sampling and testing, and all remediation, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect; and                 (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower or any of its Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Notes and all other amounts payable hereunder.                         48 -133-                            Section 5.9     Financial Covenants.                 Commencing on the day immediately following the Closing Date, the Borrower shall comply with the following financial covenants:                 (a) Consolidated Working Capital. Maintain Consolidated Working Capital, calculated on the last day of each fiscal quarter, of not less than $350,000,000.                 (b) Minimum Consolidated Tangible Net Worth. Maintain Consolidated Tangible Net Worth, calculated on the last day of each fiscal quarter beginning on the date on which the Administrative Agent first receives the officer's certificate to be furnished by the Borrower pursuant to Section 5.2(b) of this Agreement, greater than or equal to the "Minimum Compliance Level". The "Minimum Compliance Level" shall equal the sum of (a) $165,000,000 plus (b) upon the conversion of any Subordinated Debt Securities into stock of the Borrower, an amount equal to the aggregate principal amount of Subordinated Debt Securities so converted plus (c) as of the last day of each fiscal year, from and including the fiscal year ending June 30, 2000, by an amount equal to 55% of Consolidated Net Income (inclusive of extraordinary gains and without reduction for extraordinary losses) for such fiscal year. The foregoing increases in the Minimum Compliance Level shall be cumulative, and no reduction shall be made on account of any Consolidated Net Income of less than zero for any fiscal year.                 (c) Consolidated Fixed Charge Coverage Ratio. Maintain a Consolidated Fixed Charge Coverage Ratio, calculated on the last day of each fiscal quarter, of not less than 1.10 to 1.00.                 (d) Consolidated Leverage Ratio. Maintain a Consolidated Leverage Ratio, calculated on the last day of each fiscal quarter, of not more than 0.70 to 1.00.                 (e) Consolidated Total Senior Debt to Borrowing Base Ratio. Maintain a Consolidated Total Senior Debt to Borrowing Base Ratio, calculated on the last day of each fiscal quarter, of not more than 1.20 to 1.00.                  Section 5.10 Additional Guarantors.                 (a) The Credit Parties will cause each of their Material Domestic Subsidiaries, whether newly formed, after acquired or otherwise existing, to promptly become a Guarantor hereunder by way of execution of a Joinder Agreement.                 (b) At such time as the value of the total assets (as determined in accordance with GAAP) of all Domestic Subsidiaries (other than the Material Domestic Subsidiaries which are Guarantors hereunder) exceeds 10% of Consolidated Total Assets, the Borrower shall, upon the request of the Administrative Agent, cause one or more Domestic Subsidiaries, as requested by the Administrative Agent, to promptly become a Guarantor hereunder by way of execution of a Joinder Agreement.             49 -134-               ARTICLE VI NEGATIVE COVENANTS                 The Credit Parties hereby covenant and agree that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note remains outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full that:                  Section 6.1     Indebtedness.                 (a) The Borrower shall not create, assume or suffer to exist any Indebtedness (i) that is secured by any Lien that is not permitted by Section 6.2 or (ii) in the case of any Indebtedness for borrowed money incurred or assumed after the Closing Date, if on the date of incurrence or assumption of such Indebtedness after giving effect on a Pro Forma Basis to the incurrence or assumption of such Indebtedness and to the concurrent retirement of any other Indebtedness of the Borrower or any of its Subsidiaries, a Default or Event of Default would exist hereunder; provided, however, that the Borrower may renew, refinance or extend any Indebtedness originally permitted to be incurred pursuant to this subsection (a) so long as such renewed, refinanced or extended Indebtedness is on terms and conditions no less favorable to the Borrower than the Indebtedness originally issued (including, without limitation, any shortening of the final maturity or average life to maturity or requiring any payment to be made sooner than originally scheduled or any increase in the interest rate applicable thereto or any change to any subordination provision thereof).                 (b) The Borrower shall not permit any Subsidiary to create, assume or suffer to exist any Indebtedness other than (i) purchase money Indebtedness to the extent secured by Liens permitted by Section 6.2 and (ii) additional Indebtedness, including Indebtedness arising under any Guaranty Obligations permitted by Section 6.3, which in the aggregate does not exceed (A) $60,000,000 for Domestic Subsidiaries, and (B) $600,000,000 for Foreign Subsidiaries; provided, however, that this Section 6.1(b) shall not permit the incurrence or assumption of any Indebtedness if on the date of incurrence or assumption of such Indebtedness after giving effect on a Pro Forma Basis to the incurrence or assumption of such Indebtedness and to the concurrent retirement of any other Indebtedness of the Borrower or any of its Subsidiaries, a Default or Event of Default would exist hereunder.                  Section 6.2     Liens.                 The Borrower will not, nor will it permit any Subsidiary to, contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for the following (each a "Permitted Lien"):                 50 -135-                           (a) Liens existing on the Closing Date and set forth on Schedule 6.2, which Liens secure Indebtedness outstanding on the Closing Date in an aggregate principal amount not exceeding $50,000,000;                 (b) purchase money Liens on any capital asset of the Borrower or a Subsidiary if such purchase money Lien attaches to such capital asset concurrently with the acquisition thereof and if the Indebtedness secured thereby does not exceed the lesser of the cost or fair market value as of the time of acquisition of the asset covered thereby by the Borrower or such Subsidiary; provided, that the aggregate amount of indebtedness (excluding any Indebtedness permitted under clause (a) above), secured by all such Liens does not exceed $15,000,000 in the aggregate at any one time outstanding; and provided further, that no such Lien shall extend to or cover any property or asset of the Borrower or such Subsidiary other than the related property or asset (including accessions thereto and proceeds thereof, to the extent provided in the security agreement creating such Lien);                 (c) Liens not securing Indebtedness which are incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance, old-age pensions, social security and public liability laws and similar legislation;                 (d) Liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of Indebtedness), statutory obligations, and other obligations of like nature, incurred as an incident to and in the ordinary course of business;                 (e) Liens securing taxes, assessments or charges or levies of any Governmental Authority or the claims of growers, materialmen, mechanics, carriers, warehousemen, landlords and other like Persons; provided, that (i) with respect to Liens securing taxes, such taxes are not yet due and payable, (ii) with respect to Liens securing claims or demands of growers, materialmen, mechanics, carriers, warehousemen, landlords and the like, such Liens are inchoate and unfiled and no other action has been taken to enforce the same and (iii) with respect to taxes, assessments or charges or levies of any Governmental Authority secured by such Liens, payment thereof is not at the time required by Section 5.3;                 (f) zoning restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor encumbrances or irregularities of title which do not materially impair the use of any material property in the operation of the business of the Borrower or any Subsidiary or the value of such property for the purpose of such businesses or which are being contested in good faith by appropriate proceedings;                 (g) attachment, judgment or similar Liens arising in connection with court proceedings; provided, that the execution or other enforcement of such Liens is effectively stayed, the claims secured thereby are being actively contested in good faith by appropriate proceedings and the Borrower or such Subsidiary shall have set aside on its books, if required by GAAP, appropriate reserves for such Liens;                   51 -136-                           (h) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event;                 (i) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event;                 (j) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such event;                 (k) Liens given to secure Indebtedness owing to life insurance companies (or affiliates thereof) issuing life insurance policies in connection with Split-Dollar Programs, incurred to finance non-scheduled premiums paid by the Borrower or its Subsidiaries under such policies pursuant to Split-Dollar Agreements executed in connection with the Split-Dollar Program which Indebtedness does not exceed $50,000,000 in the aggregate, provided that in connection with any Split-Dollar Program such Liens shall be limited to the Borrower's right, title and interest in and to (i) the Split-Dollar Agreement and the Split-Dollar Assignment executed in connection with such Split-Dollar Program and (ii) the policy of life insurance assigned to the Borrower as collateral pursuant to such Split-Dollar Assignment;                 (l) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing paragraphs of this Section 6.2; provided, that the principal amount of such Indebtedness is not increased and such Indebtedness is not secured by any additional assets; and                 (m) Liens not otherwise permitted by the foregoing paragraphs of this Section 6.2 securing Indebtedness in an aggregate principal amount at any time outstanding not to exceed $500,000.                  Section 6.3     Guaranty Obligations.                 The Borrower shall not, and shall not permit any Subsidiary to, create, assume or suffer to exist any Guaranty Obligation, other than (i) Guaranty Obligations which are incurred in the ordinary course of business for the purpose of carrying unsold tobacco inventories held against Confirmed Orders, (ii) other Guaranty Obligations incurred in the ordinary course of business so long as the aggregate outstanding amount of all Guaranty Obligations under this clause (ii) does not at any time exceed $200,000,000, (iii) Guaranty Obligations of the Guarantors pursuant to this Agreement and (iv) Guaranty Obligations of the Guarantors of the Borrower's obligations under the Senior Indenture and the Senior Debt Securities.                  Section 6.4      [Intentionally Omitted].                       52 -137-                            Section 6.5     Consolidation, Merger, Sale or Purchase of Assets, etc.                 The Borrower will not, nor will it permit any Subsidiary to,                 (a) dissolve, liquidate or wind up its affairs, sell, transfer, lease or otherwise dispose of its property or assets or agree to do so at a future time except the following, without duplication, shall be expressly permitted:                              (i)  Specified Sales;                              (ii)  the sale, transfer, lease or other disposition of property or assets (A) to an unrelated party not in the ordinary course of business (other than Specified Sales), where and to the extent that they are the result of a Recovery Event or (B) the sale, lease, transfer or other disposition of machinery, parts and equipment no longer used or useful in the conduct of the business of the Borrower or any of its Subsidiaries, as appropriate, in its reasonable discretion, so long as the net proceeds therefrom are used to repair or replace damaged property or to purchase or otherwise acquire new assets or property, provided that such purchase or acquisition is committed to within 180 days of receipt of the net proceeds and such purchase or acquisition is consummated within 270 days of receipt of such proceeds;                              (iii)  the sale, lease or transfer of property or assets (at fair value) from any Subsidiary other than a Material Domestic Subsidiary to the Borrower or another Subsidiary;                              (iv)  the sale, lease or transfer of property or assets (at fair value) between the Borrower and any Guarantor;                              (v)  the sale, lease or transfer of property or assets (at fair value) from a Credit Party other than the Borrower to another Credit Party;                              (vi)  the dissolution, liquidation or winding up of a Foreign Subsidiary or a Domestic Subsidiary other than a Material Domestic Subsidiary; and                              (vii)  the sale, lease or transfer of property or assets not to exceed $15,000,000 in the aggregate in any fiscal year.                 (b) purchase, lease or otherwise acquire (in a single transaction or a series of related transactions) the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials, property and equipment in the ordinary course of business), except as permitted pursuant to Section 6.5(a), 6.5(b) and 6.6.                 (c) Notwithstanding the provisions in Section 6.5(a) and 6.5(b), merge with or into any other Person, except that the following shall be permitted:               53 -138-                                          (i)  the Borrower may merge with another Person if (A) the Borrower is the corporation surviving such merger and (B) immediately after giving effect to such merger on a Pro Forma Basis, no Default or Event of Default shall have occurred and be continuing;                              (ii)  any Material Domestic Subsidiary may merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to the Borrower or to a Material Domestic Subsidiary (determined immediately thereafter) if, in connection with any such merger (A) either the Borrower or such Material Domestic Subsidiary is the surviving corporation and (B) immediately after giving effect to such merger, sale, lease or other transfer on a Pro Forma Basis, no Default or Event of Default shall have occurred and be continuing;                              (iii)  any Subsidiary other than a Material Domestic Subsidiary may merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to the Borrower or another Subsidiary; and                              (iv)  any Material Domestic Subsidiary may merge with another Person in connection with an Acquisition permitted by Section 6.6 if (A) such Material Domestic Subsidiary is the surviving corporation and (B) following such Acquisition, the Borrower shall retain, directly or indirectly, a proportionate equity interest in such Material Domestic Subsidiary equal to or greater than the Borrower's equity interest immediately prior to such Acquisition.                  Section 6.6     Acquisitions, Advances, Investments and Loans.                 The Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly, make any Acquisition or Investment, or enter into any agreement to make any Acquisition or Investment, except for (each of the following, a "Permitted Investment"):                 (a) any Acquisition (other than a Hostile Acquisition) or Investment for consideration consisting of cash or cash equivalents, common stock of the Borrower (valued at the market value thereof as of the date of the issuance thereof), other securities or properties of the Borrower or any Subsidiary (valued in good faith by the Board of Directors of the Borrower), the assumption of any Indebtedness (valued at the principal amount thereof), any other consideration (valued in good faith by the board of directors of the Borrower) or any combination of the foregoing; provided that the aggregate value of all such consideration for all Acquisitions and Investments of the Borrower and its Subsidiaries made during any fiscal year shall not exceed 10% of Consolidated Tangible Net Worth as of the most recent fiscal year end with respect to which the Administrative Agent and the Lenders shall have received the financial statements referred to in Section 5.1(a)(i); provided further that in the case of any Acquisition involving an aggregate purchase price (including cash and non-cash consideration) in excess of $10,000,000, the Borrower shall have delivered to the Administrative Agent a certificate of the Borrower's chief financial officer, treasurer or chief accounting officer containing calculations                 54 -139-           that demonstrate that after giving effect to such Acquisition on a Pro Forma Basis, the Borrower is in compliance with the financial covenants set forth in Section 5.9;                 (b) Investments in direct obligations of, or obligations guaranteed as to principal and interest by, the United States government or any agency or instrumentality thereof maturing in one year or less from the date of acquisition thereof;                 (c) Investments in deposits in (including money market funds of), or certificates of deposits or bankers' acceptances of, (i) any bank or trust company organized under the laws of the United States or any state thereof having capital and surplus in excess of $100,000,000, (ii) any international bank organized under the laws of any country which is a member of the OECD or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, or (iii) leading banks in a country where the Borrower or the Subsidiary making such Investment does business; provided, that all such Investments mature within 270 days of the date of such Investment; and provided, further, that all Investments pursuant to clause (iii) above are (A) solely of funds generated in the ordinary course of business by operations of the relevant investor in the country where such Investment is made, and (B) denominated in the currency of the country in which such Investment is made or in Dollars;                 (d) Investments in commercial paper maturing within 270 days and having one of the two highest ratings of either S&P, Moody's or Fitch Investors' Service, Inc.;                 (e) Investments in money market funds (other than those referred to in paragraph (c) above) that have assets in excess of $2,000,000,000, are managed by recognized and responsible institutions and invest solely in obligations of the types referred to in subsections (b), (c)(i) and (ii) and (d) above;                 (f) Investments in Persons evidencing the deferred purchase price receivable of assets sold, leased or otherwise transferred in accordance with Section 6.5;                 (g) Investments in the Borrower and any Subsidiary (determined immediately after such Investment);                 (h) loans and advances in the ordinary course of its business to officers and employees of the Borrower or any Subsidiary of the Borrower in an aggregate outstanding principal amount not to exceed $3,000,000;                 (i) loans and advances to growers and other suppliers of tobacco (including Affiliates) in the ordinary course of its business in an aggregate outstanding principal amount consistent with past practice of the Borrower;                 (j) Guaranty Obligations permitted by Sections 6.1 and 6.3;                 (k) Investments in (i) direct noncallable obligations of, or obligations guaranteed as to principal and interest by the United States government or any agency or instrumentality thereof, without regard to the           55 -140-         maturity of such obligations, and (ii) depository receipts issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933) as custodian with respect to any obligation of the United States government referred to in clause (i) above and held by such bank for the account of the holder of such depository receipt, or with respect to any specific payment of principal or interest on any obligation of the United States government which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipts from any amount received by the custodian in respect of the United States government obligations or the specific payment of principal or interest of the United States government obligations evidenced by such depository receipts, where the sole purpose of such Investments is either the Legal Defeasance or the Covenant Defeasance of the outstanding Senior Debt Securities, as provided in the Senior Indenture;                 (l) Investments made by any Foreign Subsidiary in the ordinary course of such Person's business, in connection with the financing of international trading transactions, in export notes, trade credit assignments, bankers' acceptances, guarantees and instruments of a similar nature issued by (i) any commercial bank or trust company (or any Affiliate thereof) organized under the laws of the United States or any state having capital and surplus in excess of $100,000,000 or (ii) any international bank organized under the laws of any country which is a member of the OECD or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000;                 (m) Investments by the Borrower in the Senior Debt Securities in connection with any purchase of the Senior Debt Securities by the Borrower, as required or permitted by the Senior Indenture, and otherwise permitted under this Agreement;                 (n) Investments by the Borrower in the Subordinated Debt Securities in connection with any conversion or purchase of the Subordinated Debt Securities by the Borrower, as required or permitted by the Subordinated Indenture, and otherwise permitted under this Agreement; provided that the Borrower shall make no such Investment (other than a conversion of the Subordinated Debt Securities into stock of the Borrower) unless immediately after giving effect thereto on a Pro Forma Basis, no Default or Event of Default shall have occurred and be continuing;                 (o) Transfers of interests in Foreign Subsidiaries to the extent permitted under Section 6.5; and                 (p) Investments by a Foreign Subsidiary in any other Foreign Subsidiary.                  Section 6.7     Transactions with Affiliates.                 Except as permitted in Section 6.6(h), the Borrower will not, nor will it permit any Subsidiary to, enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any officer, director, shareholder or Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an officer, director, shareholder or Affiliate.                 56 -141-                            Section 6.8      Ownership of Subsidiaries; Restrictions.                 Except as expressly permitted by this Agreement and subject to Section 5.10, the Borrower shall not, and shall not permit any Material Domestic Subsidiary to, make any changes in its equity capital structure (including in the terms of its outstanding stock) that would reduce or impair the consolidated equity capital of the Borrower and its Material Domestic Subsidiaries immediately thereafter, or amend its certificate of incorporation or by-laws in any respect which is adverse to the interests of the Lenders, provided that, nothing herein shall limit or impair the right or ability of the Borrower or any of its Subsidiaries to issue stock.                  Section 6.9      Fiscal Year; Changes in Capital Structure Organizational Documents;                                             Material Contracts.                 The Borrower will not, nor will it permit any of its Subsidiaries to, change its fiscal year. Except as expressly permitted by this Agreement, the Borrower will not, and will not permit any Subsidiary to, make any material changes in its equity capital structure (including in the terms of its outstanding stock but excluding the conversion of Subordinated Debt Securities into common stock of the Borrower) that would reduce or impair the consolidated equity capital of the Borrower and its Subsidiaries immediately thereafter and the Borrower will not, nor will it permit any Subsidiary to, materially amend, modify or change its articles of incorporation or limited liability company operating agreement, as applicable (or corporate charter or other similar organizational document) or bylaws (or other similar document) without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld. The Borrower will not, nor will it permit any of its Subsidiaries to, without the prior written consent of the Administrative Agent, amend, modify, cancel or terminate or extend or permit the amendment, modification, cancellation or termination of any of the Material Contracts, except in the event that such amendments, modifications, cancellations or terminations could not reasonably be expected to have a Material Adverse Effect.                  Section 6.10     Limitation on Restricted Actions.                 The Borrower will not, nor will it permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions to the Borrower or any Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to the Borrower or any Subsidiary, (c) make loans or advances to the Borrower or any Subsidiary, (d) sell, lease or transfer any of its properties or assets to the Borrower or any Subsidiary, or (e) act as a Guarantor and pledge its assets pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Agreement and the other Credit Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 6.1(b)(i), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (iv) the Senior Indenture and the Subordinated                 57 -142-           Indenture, as each of the foregoing are in effect on the Closing Date or (v) any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien.                  Section 6.11     Restricted Payments.                 The Borrower will not, nor will it permit any Subsidiary to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (a) to make dividends payable solely in the same class of Capital Stock of such Person, (b) to make dividends or other distributions payable to the Borrower or any Subsidiary (directly or indirectly through Subsidiaries), (c) to convert Subordinated Debt Securities into common stock of the Borrower and (d) so long as no Default or Event of Default shall have occurred or be continuing or would result therefrom, other Restricted Payments; provided, however, that notwithstanding the foregoing, no Restricted Payments shall be permitted hereunder which voluntarily prepay any principal amounts outstanding under the Subordinated Debt Securities prior to the stated maturity date thereof.                  Section 6.12     Prepayments of Indebtedness, etc.                 The Borrower will not, nor will it permit any Subsidiary to, after the issuance thereof, amend or modify (or permit the amendment or modification of) any of the terms of any Indebtedness if such amendment or modification would add or change any terms in a manner adverse to the issuer of such Indebtedness, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto or change any subordination provision thereof.                  Section 6.13     Sale Leasebacks.                 The Borrower will not, nor will it permit any Subsidiary to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired in excess of $10,000,000 in the aggregate on an annual basis, (a) which the Borrower or any Subsidiary has sold or transferred or is to sell or transfer to a Person which is not the Borrower or any Subsidiary or (b) which the Borrower or any Subsidiary intends to use for substantially the same purpose as any other property which has been sold or is to be sold or transferred by the Borrower or any Subsidiary to another Person which is not the Borrower or any Subsidiary in connection with such lease.                  Section 6.14     No Further Negative Pledges.                 The Borrower will not, nor will it permit any Material Domestic Subsidiary to, enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (a) pursuant to this Agreement and the other Credit Documents, (b) pursuant to any document or instrument governing Indebtedness incurred pursuant to Section 6.1(b)(i), provided that any such restriction contained therein relates only to the asset or assets           58 -143-         constructed or acquired in connection therewith, (c) pursuant to the Senior Indenture and the Subordinated Indenture, as each of the foregoing are in effect on the Closing Date and (d) in connection with any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien.                  Section 6.15     Maximum Uncommitted Inventories.                 The Borrower shall not permit the Uncommitted Inventories to exceed $150,000,000.   ARTICLE VII EVENTS OF DEFAULT                  Section 7.1     Events of Default.                 An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"):                 (a) The Borrower shall fail to pay any principal on any Note when due in accordance with the terms thereof or hereof; or the Borrower shall fail to pay any interest on any Note or any fee or other amount payable hereunder when due in accordance with the terms thereof or hereof and such failure shall continue unremedied for three (3) Business Days (or any Guarantor shall fail to pay on the Guaranty in respect of any of the foregoing or in respect of any other Guaranty Obligations thereunder); or                 (b) Any representation or warranty made or deemed made herein or in any of the other Credit Documents or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or                 (c) (i) Any Credit Party shall fail to perform, comply with or observe any term, covenant or agreement applicable to it contained in Section 5.7(a), Section 5.9 or Article VI hereof ; or (ii) any Credit Party shall fail to comply with any other covenant, contained in this Credit Agreement or the other Credit Documents or any other agreement, document or instrument among any Credit Party, the Administrative Agent and the Lenders or executed by any Credit Party in favor of the Administrative Agent or the Lenders (other than as described in Sections 7.1(a) or 7.1(c)(i) above), and in the event such breach or failure to comply is capable of cure, is not cured within thirty (30) days of its occurrence; or                 (d) The Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in a principal amount outstanding of at least $10,000,000 in                   59 -144-           the aggregate for the Borrower and any of its Subsidiaries beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness in a principal amount outstanding of at least $10,000,000 in the aggregate for the Borrower or any of its Subsidiaries or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or                 (e) (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or                 (f) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (to the extent not paid when due or covered by insurance) of $10,000,000 or more and all such judgments or decrees shall not have been paid and satisfied, vacated, discharged, stayed or bonded pending appeal within 10 days from the entry thereof; or                 (g) (i) The Borrower or any of its Subsidiaries shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan (other than a Permitted Lien) shall arise on the assets of                     60 -145-           the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a Trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower, any of its Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or                 (h) There shall occur (i) a Change of Control under this Agreement, (ii) a Change of Control (as defined in the Senior Indenture) under the Senior Indenture or (iii) a Change of Control (as defined in the Subordinated Indenture) under the Subordinated Indenture; or                 (i) The Guaranty or any provision thereof shall cease to be in full force and effect or any Guarantor or any Person acting by or on behalf of any Guarantor shall deny or disaffirm any Guarantor's obligations under the Guaranty; or                 (j) Any other Credit Document shall fail to be in full force and effect or to give the Administrative Agent and/or the Lenders the rights, powers and privileges purported to be created thereby (except as such documents may be terminated or no longer in force and effect in accordance with the terms thereof, other than those indemnities and provisions which by their terms shall survive); or                 (k) The occurrence and continuation of any Event of Default under and as defined in the Senior Indenture; or                 (l) The occurrence and continuation of any Event of Default under and as defined in the Subordinated Indenture.                  Section 7.2     Acceleration; Remedies.                 Upon the occurrence of an Event of Default, then, and in any such event, (a) if such event is an Event of Default specified in Section 7.1(e) above, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts under the Credit Documents shall immediately become due and payable, and (b) if such event is any other Event of Default, either or both of the following actions may be taken: (i) the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) the Administrative Agent may, or                 61 -146-         upon the written request of the Required Lenders, the Administrative Agent shall, by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith.   ARTICLE VIII THE AGENT                  Section 8.1     Appointment.                 Each Lender hereby irrevocably designates and appoints First Union National Bank as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes First Union National Bank, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent.                  Section 8.2     Delegation of Duties.                 The Administrative 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 Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Without limiting the foregoing, the Administrative Agent may appoint one of its affiliates as its agent to perform the functions of the Administrative Agent hereunder relating to the advancing of funds to the Borrower and distribution of funds to the Lenders and to perform such other related functions of the Administrative Agent hereunder as are reasonably incidental to such functions.                  Section 8.3     Exculpatory Provisions.                 Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its 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 the Borrower or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the Credit Documents or for any failure of the Borrower to perform its                 62 -147-           obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Borrower of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower.                  Section 8.4     Reliance by Administrative Agent.                 The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith 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 Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent and (b) the Administrative Agent shall have received the written agreement of such assignee to be bound hereby as fully and to the same extent as if such assignee were an original Lender party hereto, in each case in form satisfactory to the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under any of the Credit Documents in accordance with a request of the Required Lenders or all of the Lenders, as may be required under this Agreement, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes.                  Section 8.5     Notice of Default.                 The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating on the face thereof that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders except to the extent that this Credit Agreement expressly requires that such action be taken, or not taken, only with the consent or upon the authorization of the Required Lenders, or all of the Lenders, as the case may be.                   63 -148-                          Section 8.6     Non-Reliance on Administrative Agent and Other Lenders.                 Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, 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, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.                  Section 8.7     Indemnification.                 The Lenders agree to indemnify the Administrative Agent in its capacity hereunder (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of any Credit Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Administrative Agent's gross negligence or willful misconduct, as determined by a court of competent jurisdiction. The agreements in this Section 8.7 shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder.                         64 -149-                            Section 8.8     Administrative Agent in Its Individual Capacity.                 The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.                  Section 8.9     Successor Administrative Agent.                 The Administrative Agent may resign as Administrative Agent upon 30 days' prior notice to the Borrower and the Lenders. The Administrative Agent may be compelled to resign as Administrative Agent at the request of the Required Lenders upon 30 days' prior notice to the Administrative Agent and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the Notes, or if the Administrative Agent shall receive notice of the request of the Required Lenders that the Administrative Agent resign as Administrative Agent under this Agreement and the Notes, then (i) within 30 days after delivery of such notice by the Administrative Agent or the Required Lenders, as appropriate, the Required Lenders shall appoint a successor agent for the Lenders, or (ii) if the Required Lenders fail to appoint a successor agent within such 30 day period, the Administrative Agent being replaced shall be entitled to appoint a successor agent, which successor agent, in either case, shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 8.9 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.   ARTICLE IX MISCELLANEOUS                  Section 9.1     Amendments and Waivers.                 Neither this Agreement, nor any of the Notes, nor any of the other Credit Documents, nor any terms hereof or thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this Section 9.1 nor may be released except as specifically provided herein or in accordance with the provisions of this Section 9.1. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the Borrower written               65 -150-         amendments, supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; provided, however, that no such amendment, waiver, supplement, modification or release shall:                                 (i)  reduce the amount or extend the scheduled date of maturity of any Loan or Note or any installment thereon, or reduce the stated rate of any interest or fee payable hereunder (other than interest at the increased post-default rate) or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment or Commitment Percentage, in each case without the written consent of each Lender directly affected thereby, or                                 (ii)  amend, modify or waive any provision of this Section 9.1 or reduce the percentage specified in the definition of Required Lenders, without the written consent of all the Lenders, or                                 (iii)  amend, modify or waive any provision of Article VIII without the written consent of the then Administrative Agent, or                                 (iv)  release any of the Guarantors from their obligations under the Guaranty, without the written consent of all of the Lenders, or                                 (v)  amend, modify or waive any provision of the Credit Documents requiring consent, approval or request of the Required Lenders or all Lenders, without the written consent of all of the Required Lenders or Lenders as appropriate and, provided, further, that no amendment, waiver or consent affecting the rights or duties of the Administrative Agent under any Credit Document shall in any event be effective, unless in writing and signed by the Administrative Agent, in addition to the Lenders required hereinabove to take such action.                 Any such waiver, any such amendment, supplement or modification and any such release shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Credit Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Credit Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans and Notes and other Credit Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.                 Notwithstanding any of the foregoing to the contrary, the consent of the Borrower shall not be required for any amendment, modification or waiver of the provisions of Article VIII (other than the provisions of Section 8.9); provided, however, that the Administrative Agent will provide written notice to the Borrower                   66 -151-           of any such amendment, modification or waiver. In addition, the Borrower and the Lenders hereby authorize the Administrative Agent to modify this Credit Agreement by unilaterally amending or supplementing Schedule 2.1(a) from time to time in the manner requested by the Borrower, the Administrative Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; provided, however, that the Administrative Agent shall promptly deliver a copy of any such modification to the Borrower and each Lender.                 Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersede the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding.                  Section 9.2     Notices.                 Except as otherwise provided in Article II, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand, (b) when transmitted via telecopy (or other facsimile device) to the number set out herein, (c) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case, addressed to each such party at the address set forth on Schedule 9.2, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes.                  Section 9.3     No Waiver; Cumulative Remedies.                 No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.                  Section 9.4     Survival of Representations and Warranties.                 All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans, provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated and all amounts owing hereunder and under any Notes have been paid in full.               67 -152-                            Section 9.5     Payment of Expenses and Taxes.                 The Borrower agrees (a) to pay or reimburse the Administrative Agent and First Union Securities, Inc. for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, negotiation, printing and execution of, and any amendment, supplement or modification to, this Agreement and the other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby (including, without limitation, reasonable field examination expenses and charges), together with the reasonable fees and disbursements of counsel to the Administrative Agent and First Union Securities, Inc., (b) to pay or reimburse the Administrative Agent and First Union Securities, Inc. for all their reasonable out-of-pocket expenses incurred in connection with the arrangement and syndication of the facilities established by this Agreement, (c) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under, or defense against any actions arising out of, this Agreement, the Notes and any such other documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and to the Lenders (including reasonable allocated costs of in-house legal counsel), (d) on demand, to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Credit Documents and any such other documents, and (e) to pay, indemnify, and hold each Lender, the Administrative Agent, First Union Securities, Inc. and their Affiliates harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever including, without limitation, reasonable fees and disbursements of counsel to the Administrative Agent, the Lenders and First Union Securities, Inc. (including reasonable allocated costs of in-house legal counsel) and settlement costs, with respect to the enforcement of the Credit Documents and the use, or proposed use, of proceeds of the Loans (all of the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Borrower shall not have any obligation hereunder to the Administrative Agent or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent or any such Lender, as determined by a court of competent jurisdiction. The agreements in this Section 9.5 shall survive repayment of the Loans, Notes and all other amounts payable hereunder.                  Section 9.6     Successors and Assigns; Participations; Purchasing Lenders.                 (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement or the other Credit Documents without the prior written consent of each Lender.                   68 -153-                       (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender, or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. No Lender shall transfer or grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the scheduled maturity of any Loan or Note or any installment thereon in which such Participant is participating, or reduce the stated rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of interest at the increased post-default rate) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without consent of any participant if the Participant's participation is not increased as a result thereof), (ii) release any of the Guarantors from their obligations under the Guaranty or (iii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. In the case of any such participation, the Participant shall not have any rights under this Agreement or any of the other Credit Documents (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that each Participant shall be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, that (a) no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred and (b) such Participant shall be subject to the limitations and obligations set forth in Sections 2.13, 2.14, 2.15 and 9.5 as if such Participant was a Lender hereunder.                 (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time, sell or assign to any Lender or any affiliate thereof and with the consent of the Administrative Agent and, so long as no Default or Event of Default has occurred and is continuing, the Borrower (in each case, which consent shall not be unreasonably withheld), to one or more additional banks or financial institutions ("Purchasing Lenders"), a constant, and not a varying, percentage of all or any part of its rights and obligations under this Agreement and the Notes in minimum amounts of $5,000,000 with respect to its Commitment and its Loans (or, if less, the entire amount of such Lender's obligations), pursuant to a                     69 -154-           Commitment Transfer Supplement, executed by such Purchasing Lender and such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, the Administrative Agent and, so long as no Default or Event of Default has occurred and is continuing, the Borrower), and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, however, that any sale or assignment to an existing Lender shall not require the consent of the Administrative Agent or the Borrower nor shall any such sale or assignment be subject to the minimum assignment amounts specified herein. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date specified in such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Notes. On or prior to the Transfer Effective Date specified in such Commitment Transfer Supplement, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the Notes delivered to the Administrative Agent pursuant to such Commitment Transfer Supplement new Notes to the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and, unless the transferor Lender has not retained a Commitment hereunder, new Notes to the order of the transferor Lender in an amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Lender shall be returned by the Administrative Agent to the Borrower marked "canceled".                 (d) The Administrative Agent shall maintain at its address referred to in Section 9.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all 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) Upon its receipt of a duly executed Commitment Transfer Supplement, together with payment to the Administrative Agent by the transferor Lender or the Purchasing Lender, as agreed between them, of a                       70 -155-           registration and processing fee of $3,500 for each Purchasing Lender listed in such Commitment Transfer Supplement and the Notes subject to such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Borrower.                 (f) The Borrower authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement, in each case subject to Section 9.16.                 (g) At the time of each assignment pursuant to this Section 9.6 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a 2.15 Certificate) described in Section 2.15 and shall be subject to the provisions of Section 2.15.                 (h) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under this Agreement (including, without limitation, any right to payment of principal and interest under any Note) to any Federal Reserve Bank in accordance with applicable laws.                  Section 9.7     Adjustments; Set-off.                 (a) Each Lender agrees that if any Lender (a "benefited Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7.1(e), or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment                         71 -156-           (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.                 (b) In addition to any rights and remedies of the Lenders provided by law (including, without limitation, other rights of set-off), each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon the occurrence of any Event of Default, to setoff and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of the Borrower to such Lender hereunder and claims of every nature and description of such Lender against the Borrower, in any currency, whether arising hereunder, under the Notes or under any documents contemplated by or referred to herein or therein, as such Lender may elect, whether or not such Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The aforesaid right of set-off may be exercised by such Lender against the Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against the Borrower or any 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 set-off shall not have been exercised by such Lender prior to the occurrence of any Event of Default. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.                  Section 9.8     Table of Contents and Section Headings.                 The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement.                  Section 9.9     Counterparts.                 This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.                  Section 9.10     Effectiveness.                 This Credit Agreement shall become effective on the date on which all of the parties have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative               72 -157-           Agent pursuant to Section 9.2 or, in the case of the Lenders, shall have given to the Administrative Agent written, telecopied or telex notice (actually received) at such office that the same has been signed and mailed to it.                  Section 9.11     Severability.                 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.                  Section 9.12     Integration.                 This Agreement and the Notes represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Borrower or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the Notes.                  Section 9.13     Governing Law.                 This Agreement and the Notes and the rights and obligations of the parties under this Agreement and the Notes shall be governed by, and construed and interpreted in accordance with, the law of the State of North Carolina.                  Section 9.14     Consent to Jurisdiction and Service of Process.                 All judicial proceedings brought against the Borrower and/or any other Credit Party with respect to this Agreement, any Note or any of the other Credit Documents may be brought in any state or federal court of competent jurisdiction in the State of North Carolina, and, by execution and delivery of this Agreement, each of the Borrower and the other Credit Parties accepts, for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement from which no appeal has been taken or is available. Each of the Borrower and the other Credit Parties irrevocably agrees that all service of process in any such proceedings in any such court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto, such service being hereby acknowledged by each of the Borrower and the other Credit Parties to be effective and binding service in every respect. Each of the Borrower, the other Credit Parties, the Administrative Agent and the Lenders irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Nothing herein shall affect the right to serve process in any other               73 -158-           manner permitted by law or shall limit the right of any Lender to bring proceedings against the Borrower or the other Credit Parties in the court of any other jurisdiction.                  Section 9.15     Arbitration.                 (a) Notwithstanding the provisions of Section 9.14 to the contrary, upon demand of any party hereto, whether made before or within three (3) months after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Agreement and other Credit Documents ("Disputes") between or among parties to this Agreement shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from Credit Documents executed in the future, or claims arising out of or connected with the transaction reflected by this Agreement.                 Arbitration shall be conducted under and governed by the Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. A hearing shall begin within 90 days of demand for arbitration and all hearings shall be concluded within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then no more than a total extension of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties hereto do not waive applicable Federal or state substantive law except as provided herein.                 (b) Notwithstanding the preceding binding arbitration provisions, the Administrative Agent, the Lenders, the Borrower and the other Credit Parties agree to preserve, without diminution, certain remedies that the Administrative Agent on behalf of the Lenders may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought. The Administrative Agent on behalf of the Lenders shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as and if applicable (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under Credit Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv)                       74 -159-           when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute.                 (c) The parties hereto agree that they shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially.                 (d) By execution and delivery of this Agreement, each of the parties hereto accepts, for itself and in connection with its properties, generally and uncondition-ally, the non-exclusive jurisdiction relating to any arbitration proceedings conducted under the Arbitration Rules in Charlotte, North Carolina and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement from which no appeal has been taken or is available.                  Section 9.16     Confidentiality.                 The Administrative Agent and each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, affiliates, auditors or counsel or to another Lender) any information with respect to the Credit Parties which is furnished pursuant to this Agreement, any other Credit Document or any documents contemplated by or referred to herein or therein and which is designated by the Borrower to the Lenders in writing as confidential or as to which it is otherwise reasonably clear such information is not public, except that any Lender may disclose any such information (a) as has become generally available to the public other than by a breach of this Section 9.16, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or the OCC or the NAIC or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or any law, order, regulation or ruling applicable to such Lender, (d) to any prospective Participant or assignee in connection with any contemplated transfer pursuant to Section 9.6, provided that such prospective transferee shall have been made aware of this Section 9.16 and shall have agreed to be bound by its provisions as if it were a party to this Agreement or (e) to Gold Sheets and other similar bank trade publications, such information to consist of deal terms and other information regarding the credit facilities evidenced by this Credit Agreement customarily found in such publications.                  Section 9.17     Acknowledgments.                 The Borrower and the other Credit Parties each hereby acknowledges that:                 (a) it has been advised by counsel in the negotiation, execution and delivery of each Credit Document;                 (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any other Credit Party arising out of or in connection with this Agreement and the relationship           75 -160-           between Administrative Agent and Lenders, on one hand, and the Borrower and the other Credit Parties, on the other hand, in connection herewith is solely that of debtor and creditor; and                 (c) no joint venture exists among the Lenders or among the Borrower or the other Credit Parties and the Lenders.                  Section 9.18     Waivers of Jury Trial.                 TO THE EXTENT PERMITTED BY LAW, THE BORROWER, THE OTHER CREDIT PARTIES, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.   ARTICLE X GUARANTY                  Section 10.1     The Guaranty.                 In order to induce the Lenders to enter into this Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by the Guarantors from the Extensions of Credit hereunder, each of the Guarantors hereby agrees with the Administrative Agent and the Lenders as follows: each Guarantor hereby unconditionally and irrevocably jointly and severally guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all indebtedness of the Borrower to the Administrative Agent and the Lenders. If any or all of the indebtedness of the Borrower to the Administrative Agent and the Lenders becomes due and payable hereunder, each Guarantor unconditionally promises to pay such indebtedness to the Administrative Agent and the Lenders, or order, on demand, together with any and all reasonable expenses which may be incurred by the Administrative Agent or the Lenders in collecting any of the indebtedness. The word "indebtedness" is used in this Article X in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of the Borrower arising in connection with this Agreement, in each case, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involuntarily, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such indebtedness is from time to time reduced, or extinguished and thereafter increased or incurred, whether the Borrower may be liable individually or jointly with others, whether or not recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether or not such indebtedness may be or hereafter become otherwise unenforceable. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for               76 -161-           any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code).                  Section 10.2     Bankruptcy.                 Additionally, each of the Guarantors unconditionally and irrevocably guarantees jointly and severally the payment of any and all indebtedness of the Borrower to the Lenders whether or not due or payable by the Borrower upon the occurrence of any of the events specified in Section 7.1(e), and unconditionally promises to pay such indebtedness to the Administrative Agent for the account of the Lenders, or order, on demand, in lawful money of the United States. Each of the Guarantors further agrees that to the extent that the Borrower or a Guarantor shall make a payment or a transfer of an interest in any property to the Administrative Agent or any Lender, which payment or transfer or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise is avoided, and/or required to be repaid to the Borrower or a Guarantor, the estate of the Borrower or a Guarantor, 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 avoidance or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made.                  Section 10.3     Nature of Liability.                 The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the indebtedness of the Borrower whether executed by any such Guarantor, any other guarantor or by any other party, and no Guarantor's liability hereunder shall be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Administrative Agent or the Lenders on the indebtedness which the Administrative Agent or such Lenders repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each of the Guarantors waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding.                  Section 10.4     Independent Obligation.                 The obligations of each Guarantor hereunder are independent of the obligations of any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other guarantor or the Borrower and whether or not any other Guarantor or the Borrower is joined in any such action or actions.                 77 -162-                            Section 10.5     Authorization.                 Each of the Guarantors authorizes the Administrative Agent and each Lender without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof in accordance with this Agreement, including any increase or decrease of the rate of interest thereon, (b) take and hold security from any guarantor or any other party for the payment of the Guaranty or the indebtedness and exchange, enforce waive and release any such security, (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the Lenders in their discretion may determine and (d) release or substitute any one or more endorsers, guarantors, the Borrower or other obligors.                  Section 10.6     Reliance.                 It is not necessary for the Administrative Agent or the Lenders to inquire into the capacity or powers of the Borrower or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.                  Section 10.7     Waiver.                 (a) Each of the Guarantors waives any right (except as shall be required by applicable statute and cannot be waived) to require the Administrative Agent or any Lender to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from the Borrower, any other guarantor or any other party, or (iii) pursue any other remedy in the Administrative Agent's or any Lender's power whatsoever. Each of the Guarantors waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of the indebtedness, including without limitation any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the indebtedness or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the indebtedness. Without limiting the generality of the provisions of this Article X, each of the Guarantors hereby specifically waives the benefits of N.C. Gen. Stat. Section 26-7 through 26-9, inclusive. The Administrative Agent or any of the Lenders may, at their election, exercise any right or remedy the Administrative Agent and any Lender may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the indebtedness has been paid. Each of the Guarantors waives any defense arising out of any such election by the Administrative right of Agent and each of the Lenders, even though such election operates to impair or extinguish any reimbursement or subrogation or other right or remedy of the Guarantors against the Borrower or any other party.                     78 -163-                           (b) Each of the Guarantors waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notice of protest, notices of dishonor, notices of acceptance of the Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the indebtedness and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that neither the Administrative Agent nor any Lender shall have any duty to advise such Guarantor of information known to it regarding such circumstances or risks.                 (c) Each of the Guarantors hereby agrees it will not exercise any rights of subrogation which it may at any time otherwise have as a result of the Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders against the Borrower or any other guarantor of the indebtedness of the Borrower owing to the Lenders (collectively, the "Other Parties") and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any time otherwise have as a result of the Guaranty until such time as the Loans hereunder shall have been paid and the Commitments have been terminated. Each of the Guarantors hereby further agrees not to exercise any right to enforce any other remedy which the Administrative Agent and the Lenders now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the indebtedness of the Borrower and any benefit of, and any right to participate in, any security or collateral given to or for the benefit of the Lenders to secure payment of the indebtedness of the Borrower until such time as the Loans hereunder shall have been paid and the Commitments have been terminated.                  Section 10.8     Limitation on Enforcement.                 The Lenders agree that the Guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders and that no Lender shall have any right individually to seek to enforce or to enforce the Guaranty, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Lenders under the terms of this Agreement. The Lenders further agree that this Guaranty may not be enforced against any director, officer, employee or stockholder of the Guarantors.                  Section 10.9     Confirmation of Payment.                 The Administrative Agent and the Lenders will, upon request after payment of the indebtedness and obligations which are the subject of the Guaranty and termination of the Commitments relating thereto, confirm to the Borrower, the Guarantors or any other Person that such indebtedness and obligations have been paid and the Commitments relating thereto terminated, subject to the provisions of Section 10.2.                       79 -164-                           IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written.   BORROWER:                                                        DIMON INCORPORATED                                                                                                    /s/   Ritchie L. Bond                                                                                    B y:        ______________________________                                                                                                            Ritchie L. Bond                                                                                    N ame:   ______________________________                                                                                                            Senior Vice President and Treasurer                                                                                    T itle:     ______________________________                                                                                                      /s/   James A. Cooley                                                                                    B y:        ______________________________                                                                                                            James A. Cooley                                                                                    N ame:   ______________________________                                                                                                            Senior Vice President-                                                                                                            Chief Financial Officer                                                                                    T itle:     ______________________________                                                     -165-         AGENT AND LENDERS:                                                                                    F IRST UNION NATIONAL BANK,                                                                                    a s Administrative Agent and as a Lender                                                                                                    /s/   Joel Thomas                                                                                    B y:        ______________________________                                                                                                            Joel Thomas                                                                                    N ame:   ______________________________                                                                                                            Vice President                                                                             -166-                                                                                                < B>ABN AMRO BANK, N.V., as a Lender                                                                                                     / s/  Ronald C. Spurga                                                                                    B y:        ______________________________                                                                                                            Ronald C. Spurga                                                                                    N ame:   ______________________________                                                                                                      &bsp;     Vice President                                                                                                      /s/   Milagros Diaz                                                                                    B y:        ______________________________                                                                                                            Milagros Diaz                                                                                    N ame:   ______________________________                                                                                                            Commercial Banking Officer                                                           -167-                                                                                              B HF-BANK AKTIENGESELLSCHAFT,                                                                                    a s a Lender                                                                                                     / s/  S. Kingham                                                                                    B y:        ______________________________                                                                                                            S. Kingham                                                                                    N ame:   ______________________________                                                                                                            Manager                                                                                                       / s/  R. King                                                                                    B y:        ______________________________                                                                                                            R. King                                                                                    N ame:    ______________________________                                                                                                            Assistant Director                                                           -168-                                                                                              N ATEXIS BANQUE, as a Lender                                                                                                     / s/  Guillaume de Parscau                                                                                    B y:        ______________________________                                                                                                            Guillaume de Parscau                                                                                    N ame:   ______________________________                                                                                                            First Vice President & Manager                                                                                                            Commodities Finance Group                                                                                                       / s/   Stephen A. Jendras                                                                                    B y:        ______________________________                                                                                           Stephen A. Jendras                                                                                    N ame:   ______________________________                                                                                                            Vice President                                                                 -169-                                                                                              < B>DEUTSCHE BANK AG - Amsterdam Branch,                                                                                      as a Lender                                                                                                     / s/  Mr. J. J. van Helden                                                                                    B y:        ______________________________                                                                                                            J. J. van Helden                                                                                    N ame:   ______________________________                                                                                                            No Title                                                                                                       / s/  Guy R. Fransen                                                                                    B y:        ______________________________                                                                                                            Guy R. Fransen                                                                                    N ame:   ______________________________                                                                                                            No Title                                                                 -170-                                                                                          < B>COOPERATIEVE CENTRALE RAIFFEISEN                                                                                      -BOERENLEENBANK B.A., "RABOBANK                                                                                      NEDERLAND", NEW YORK BRANCH,                                                                                      as a Lender                                                                                                       / s/  Theodore W. Cox                                                                                    B y:        ______________________________                                                                                                            Theodore W. Cox                                                                                    N ame:   ______________________________                                                                                                            Vice President                                                                                                       / s/  Edward Peyser                                                                                    B y:        ______________________________                                                                                                            Edward Peyser                                                                                    N ame:   ______________________________                                                                                                            Executive Director                                                           -171-                                                                                          < B>BANK OF AMERICA, N.A., as a Lender                                                                                                     / s/  William F. Sweeney                                                                                    B y:        ______________________________                                                                                                            William F. Sweeney                                                                                    N ame:   ______________________________                                                                                                            Principal                                                                                 -172-                                                                                          < B>SUNTRUST BANK, as a Lender                                                                                                     / s/  C. Gray Key                                                                                    B y:        ______________________________                                                                                                            C. Gray Key                                                                                    N ame:   ______________________________                                                                                                            Vice President                                                                                 -173-  

EXHIBIT 10.08 CAPACITY AGREEMENT BETWEEN GLOBAL CROSSING BANDWIDTH, INC. AND EXODUS COMMUNICATIONS, INC. [***] Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION PAGE 1. Services 1 2. Term of the Agreement 2 3. Billing and Payment; Segment/Circuit Acceptance 2 4. Termination Rights 4 5. Representations; Warranties and Limitation of Liability 4 6. Indemnification 5 7. Representation 6 8. Force Majeure 6 9. Waivers 6 10. Assignment and Transfer Restrictions 6 11. Confidentiality; Intellectual Property; Publication 7 12. Integration 8 13. Governing Law 8 14. Notices 8 15. Compliance with Laws 9 16. Survival of Provisions 9 17. Counterparts 9 18. Insurance 9   Exhibit A Domestic City Pairs Exhibit B Colocation Service Exhibit C Technical Specifications Exhibit D Take Down Schedule and Conversion Matrix Exhibit E Service Level Agreement Exhibit F IRU Agreement Exhibit G Existing Capacity -------------------------------------------------------------------------------- CAPACITY AGREEMENT         This Capacity Agreement (the “Agreement”) is entered into on September, 28, 2000 (the “Effective Date”) between Global Crossing Bandwidth, Inc., on behalf of itself and its Affiliates, as defined herein, that may provide a portion of the services hereunder (“Global Crossing”), a California corporation located at 90 Castilian Drive, Goleta, California 93117 and Exodus Communications, Inc. (collectively, “Exodus” or “Purchaser”), a California corporation with its principal place of business located at 2831 Mission College Blvd., Santa Clara, CA 95054 (hereinafter, Global Crossing and Exodus may be referred to in the aggregate as “Parties”, and each singularly as a “Party”.) PURPOSE         Exodus desires to purchase (1) telecommunications services in the form of dedicated circuit capacity from Global Crossing for the transport of Exodus’ telecommunications traffic and (2) rights with respect to international capacity on an indefeasible right of use basis. The Parties agree as follows: 1.   SERVICES         (a)  Global Crossing shall, in accordance with this Agreement, provide Exodus with telecommunications capacity, comprising [***] DS-0 channel miles (the “Total Initial Channel Miles”). Such capacity will include 9.953 Gbps Linear Wavelength Services (as such services become available) and 2.488 Gbps Linear Wavelength Services (the “Wavelength Services”) and OC-12 and OC-3 SONET services (the “SONET Services”) between the city pairs defined in Exhibit A attached hereto and made part hereof (“City Pairs”). As circuits are accepted, the DS-0 miles associated with such circuit will be deducted against the Total Initial Channel Miles. Within sixty (60) days after execution of this Agreement, the parties will establish procedures for auditing the Total Initial Channel Miles. The minimum term for all circuits shall be [***]. Global Crossing will provide SONET Services and Wavelength Services in accordance with the Technical Specifications set forth in Exhibit C. Exodus may order additional capacity pursuant to such other exhibits as the Parties may from time to time execute and attach hereto (the “Exhibits”), upon the same terms as to pricing, payment arrangements and term of Agreement as set forth in Article 2. All capacity under the Exhibits is collectively referred to as the “Services”. All rights of ownership in the Global Crossing network, the fiber and the related electronics used in providing the Services remain with Global Crossing. This Agreement is not intended to lease or sell any interest in the Global Crossing network to Exodus.         (b)  For all 9.953 Gbps Linear Wavelength Services, 2.488 Gbps Linear Wavelength Services, OC-12 and OC-3 SONET Services between any City Pair, the conversion rates as set forth in the Mileage Conversion Matrix in Exhibit D shall apply.         (c)  During the Initial Term of this Agreement (as defined in Section 2 below), Exodus shall have the right to replace any previously installed circuit between any City Pair with a circuit between any other City Pair, subject to availability, at no additional charge except as set forth below. If the new circuit is for a greater number of DS-0 channel miles, upon Acceptance (as defined below) of the new circuit, the higher number of DS-0 channel miles will begin to be deducted against the Total Initial Channel Miles. If the new circuit is for a lower number of DS-0 channel miles, and the existing circuit has been in service less than [***], the number of DS-0 miles associated with the existing circuit will continue to be deducted from the Total Initial Channel Miles for the remainder of such [***] period in addition to the applicable deduction for the new circuit. Notwithstanding the foregoing, in no event may the capacity level for any physical route exceed the equivalent of (2) 9.953 Gbps circuits, without Global Crossing’s consent, which shall not unreasonably be withheld. If Exodus orders additional capacity under this Agreement then for each subsequent billion DS-0 channel miles ordered, the capacity level for any physical route will not exceed the equivalent of (2) 9.953 Gbps circuits, without Global Crossing’s consent, such consent not to be unreasonably withheld.         (d)  Exodus shall have the right at any time to replace any previously installed circuit between any City Pair with a circuit of greater DS-0 miles between the same City Pair at no additional charge except for as set forth below. Upon Acceptance of the new circuit, the increased number of DS-0 miles will begin to be deducted against the Total Initial Miles. Notwithstanding the foregoing, in no event may the capacity level for any physical route exceed the equivalent of (2) 9.953 Gbps circuits, without Global Crossing’s consent, which shall not unreasonably be withheld. If Exodus orders additional capacity under this Agreement then for each subsequent billion DS-0 1 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- channel miles ordered, the capacity level for any physical route will not exceed the equivalent of (2) 9.953 Gbps circuits, without Global Crossing’s consent, such consent not to be unreasonably withheld.         (e)  Global Crossing will deliver and Exodus will take the Services in accordance with the Take Down Schedule set forth in Exhibit D.         (f)  Colocation will be provided in accordance with Exhibit B.         (g)  The parties hereby agree to the provisions of Exhibit F which sets out the terms and conditions upon which Global Crossing shall grant and Exodus shall acquire rights to certain international capacity on an indefeasible right of use basis. Save for this provision and save where expressly stated otherwise in Exhibit F the provisions of this Agreement will not apply to Exhibit F. 2.  TERM OF THE AGREEMENT:         This Agreement shall, subject to the termination provisions set out in Section 4 of this Agreement, remain in effect for a period of ten (10) years from the date that the first circuit is made available to Exodus under this Agreement (“Initial Term”). Within six months of the end of the Initial Term the parties, will negotiate in good faith to determine whether and upon what terms this Agreement will renew for an additional term. If the parties fail to reach agreement as to the terms of any renewal, this Agreement will terminate at the end of the Initial Term. 3.  BILLING AND PAYMENT; SEGMENT/CIRCUIT ACCEPTANCE         (a)  Exodus shall pay Global Crossing $ [***] as a non-recurring, non-refundable charge (the “Initial Total Non-Recurring Charge”) for the Total Initial Channel Miles. Exodus shall pay Global Crossing the Initial Total Non-Recurring Charge by wire transfer to the designated Global Crossing account on 29 September 2000. Exodus is also liable for applicable taxes and governmental assessments with respect to its use or purchase of the Services. Notwithstanding the foregoing, Exodus shall have no obligation to pay or be liable to pay any taxes on the gross income or net receipts of Global Crossing levied or assessed on or related to any payments made by Exodus to Global Crossing under this Agreement.         (b)  Payments to Global Crossing shall be made via wire transfer in immediately available U.S. funds to the following account (subject to change by Global Crossing): Firstar Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45201 ABA# 042000013 For credit to: Global Crossing Bandwidth, Inc. Account #: 805-8521         (c)  “Acceptance” of a segment/circuit shall be determined as follows; Global Crossing will provide Exodus with notice (including segment test results) when a segment is ready from Global Crossing POP to POP and , if such segment/circuit consists of 9.953 Gbps Linear Wavelength Services, Global Crossing will supply Exodus with the technical specifications relating thereto which will be deemed to form part of Exhibit C for the purposes of “Acceptance” of that segment/circuit. Exodus shall have (5) five business days to confirm that the segment meets the technical specifications set out in Exhibit C. If Exodus does not accept or provide detailed written documentation as to any failure to comply with the technical specifications within said five business day period, then the segment/circuit shall be deemed accepted. In the event of any good faith rejection by Exodus, Global Crossing shall take such action as reasonably necessary, and as expeditiously as practicable, to correct or cure such defect or failure in accordance with the applicable specifications set forth in Exhibit C. 2 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. --------------------------------------------------------------------------------         (d)  Exodus will from time to time submit circuit orders for additional telecommunications capacity to be delivered by Global Crossing. Global Crossing will be bound to deliver such capacity in accordance with the delivery periods set out in Exhibit D provided the relevant circuit(s) are included in Exodus’ forecast to be provided pursuant to Exhibit D. In the event of failure by Global Crossing to provide any such capacity Exodus’ sole remedies shall be as set out in Exhibit E.         (e)  Payment terms for any invoices hereunder (other than the Initial Total Non-Recurring Charge) are net 45 days from the invoice date. Any invoice not paid by its due date shall bear late payment fees at the rate of 1% per month (or such lower amount as maybe required by law) until paid. If Exodus is delinquent in payment of an undisputed invoice and does not cure such delinquency within (15) fifteen days of receipt of written notice from Global Crossing, Global Crossing may terminate this Agreement and deny Purchaser, its personnel and its third party vendors access to the colocation premises until paid. If Exodus disputes any invoice it will notify Global Crossing of such dispute and provided Exodus provides sufficient detail for investigation of the dispute, Global Crossing will use all reasonable efforts to resolve and communicate its resolution of the dispute to Exodus within thirty (30) business days of its receipt of notice of such dispute. Notwithstanding the foregoing, no interest shall accrue on any payment that is disputed in good faith by Exodus, unless the dispute is resolved in Global Crossing’s favor.           (f)  Except as otherwise specifically provided in this Agreement or an Exhibit, Exodus is responsible for ordering all facilities and equipment necessary for its interconnection to Global Crossing’s network for use of the Services. Global Crossing agrees to provide Exodus or Exodus - selected local carrier access to Global Crossing’s demarcation and to use all reasonable endeavors to cooperate with Exodus or its selected local carrier to interconnect with the Global Crossing Network. Exodus shall be liable for all costs and expenses of such interconnection, including without limitation, the installation, testing, maintenance and operation of equipment and facilities. 4.  TERMINATION RIGHTS:         (a)  Either Party may terminate this Agreement upon the other Party’s insolvency, dissolution or cessation of business operations.         (b)  In the event of a breach of any material term or condition of this Agreement by a Party, after receipt of written notice and a thirty (30) day period to cure such breach, the other Party may take such actions as it determines, in its sole discretion, to correct the default, and pursue any legal remedies it may have under applicable law or principles or equity, including specific performance.         (c)  Exodus’ exclusive remedies for any failure by Global Crossing to deliver the capacity in respect of an accepted circuit order in accordance to this Agreement or on time are contained in the Service Level Agreement as set forth in Exhibit E. 5.  REPRESENTATIONS, WARRANTIES AND LIMITATION OF LIABILITY         (a)  The Services shall be provided by Global Crossing in accordance with the applicable technical standards established for dedicated circuit capacity by the telecommunications industry for a digital fiber optic network and in accordance with Exhibit C with respect to the Wavelength Services. GLOBAL CROSSING MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO TRANSMISSION, EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FUNCTION.         (b)  EXCEPT TO THE EXTENT CAUSED BY THE WILLFUL MISCONDUCT OF A PARTY, NEITHER PARTY (OR ITS AFFILIATES) SHALL BE LIABLE TO THE OTHER PARTY (OR ITS AFFILIATES) FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE, CONSEQUENTIAL OR SIMILAR COSTS, LIABILITIES OR DAMAGES, WHETHER FORESEEABLE OR NOT, ARISING OUT OF, OR IN CONNECTION WITH, SUCH PARTY’S PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE RELATED TO THIS AGREEMENT.         (c)  By execution of this Agreement, each Party represents and warrants to the other: (a) that the representing Party has full right and authority to enter into and perform this Agreement in accordance with the terms hereof and thereof, and that by entering into or performing this Agreement, the representing Party is not in violation of its charter or bylaws, or any law, regulation or agreement by which it is bound or to which it is subject; (b) that 3   -------------------------------------------------------------------------------- the execution, delivery and performance of this Agreement by such Party has been duly authorized by all requisite corporate action, that the signatories for such Party hereto are authorized to sign this Agreement, and that the joinder or consent of any other Party, including a court or trustee or referee, is not necessary to make valid and effective the execution, delivery and performance of this Agreement by such Party; (c) that the representing party is a corporation duly incorporated and organized and validly existing and in good standing under the laws of its state of organization; (d) that there are no actions, suits or proceedings pending or, to its knowledge, threatened against the representing Party before any court, governmental body or administrative agency that would materially impair such Party’s performance under this Agreement, and (e) that this Agreement constitutes a legal, valid and binding obligation enforceable against such Party in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. The foregoing representations shall survive the execution and delivery of this Agreement. 6.  INDEMNIFICATION         (a)  Subject to the provisions of Article 5 above, Global Crossing hereby agrees to indemnify, defend, protect and hold harmless Exodus, its Affiliates, and their employees, officers, agents and directors (the “Exodus Indemnified Persons”), from and against, and assumes liability for: all suits, actions, damages or claims of any character (i) brought against an Exodus Indemnified Person because of any injuries or damage received or sustained by any persons or property which in whole or in part arise on account of the negligent acts or omissions of Global Crossing in the performance of its obligations under this Agreement, and (ii) brought against an Exodus Indemnified Person under the workers compensation laws arising out of the acts or omissions of Global Crossing; provided, however, that the foregoing indemnification obligations shall not apply to the extent caused by the negligence or willful misconduct of an Exodus Indemnified Person.         (b)  Subject to the provisions of Article 5 above, Exodus hereby agrees to indemnify, defend, protect and hold harmless Global Crossing, its Affiliates, and their employees, officers, agents and directors (the “Global Crossing Indemnified Persons”), from and against, and assumes liability for: all suits, actions, damages or claims of any character (i) brought against a Global Crossing Indemnified Person because of any injuries or damage received or sustained by any persons or property which in whole or in part arise on account of the negligent acts or omissions of Exodus or its Affiliates in the performance of its obligations under this Agreement, (ii) brought against a Global Crossing Indemnified Person under the workers compensation laws arising out of the acts or omissions of Exodus or its Affiliates, provided, however, that the foregoing indemnification obligations shall not apply to the extent caused by the negligence or willful misconduct of a Global Crossing Indemnified Person.         (c)  Nothing contained herein shall operate as a limitation on the right of either Party hereto to bring an action for damages against any third party.         (d)  Notwithstanding the termination of this Agreement for any reason, the provisions in this Article shall survive such termination. 7.  REPRESENTATION         The Parties acknowledge and agree that the relationship between them is solely that of independent contractors. Neither Party, nor their respective employees, agents or representatives, has any right, power or authority to act or create any obligation, express or implied, on behalf of the other Party. 8.  FORCE MAJEURE         Other than with respect to failure to make payments due hereunder, neither Party shall be liable under this Agreement for delays, failures to perform, damages, losses or destruction, or malfunction of any equipment, or any consequence thereof, caused or occasioned by, or due to fire, earthquake, flood, water, the elements, unusually severe weather conditions, power failures, explosions, civil disturbances, governmental actions, acts or omissions of third parties not acting as subcontractor or representative to the party claiming the force majeure. 9.  WAIVERS         Failure of either Party to enforce or insist upon compliance with the provisions of this Agreement shall not be construed as a general waiver or relinquishment of any provision or right under this Agreement. 4 -------------------------------------------------------------------------------- 10.  ASSIGNMENT         Neither Party may assign or transfer its rights or obligations under this Agreement without the other Party’s written consent, which consent may not be unreasonably delayed or withheld. Notwithstanding the foregoing, Global Crossing may assign this Agreement to its Affiliates or a successor-in-interest without Exodus’s consent, and Exodus may, with written notice to Global Crossing, assign this Agreement to its Affiliates or successor-in-interest without Global Crossing’s consent (provided the assignee’s financial condition and credit rating is comparable to or better than that of Exodus). Any assignment or transfer without the required consent is void. Notwithstanding any permitted or consented assignment or transfer, the parties shall remain liable hereunder for any breach by the assignee or transferee. For the purposes of this agreement an affiliate shall be in relation to any entity any other entity which is controlled by or under common control with that entity. 11.  CONFIDENTIALITY; INTELECTUAL PROPERTY; PUBLICATION         (a)   The Parties acknowledge and agree that this Agreement and all documents, data, information, engineering designs, pricing, maps and other materials which are marked confidential and oral communications designated as confidential or any other materials that are confidential in nature and disclosed by one Party to the other in fulfilling the provisions and intent of this Agreement, are and shall be confidential (the “Confidential Information”). “Confidential Information shall not include anything that (i) becomes publicly available other than through the actions of the receiving party; (ii) is required to be disclosed by a governmental or judicial law, order, rule or regulation; (iii) is independently developed by the receiving party; or (iv) becomes available to the receiving party without restriction from a third party. Neither Party shall divulge or otherwise disclose the Confidential Information to any third party without the prior written consent of the other Party, except that either Party may make disclosure to those required for the implementation or performance of this Agreement, including without limitation employees, auditors, attorneys, financial advisors, lenders and prospective lenders, funding partners and prospective funding partners, provided that in each case the permitted recipient agrees to be bound by the confidentiality provisions set forth in this section. In addition, either Party may make disclosure as required by a court or government order or as otherwise required by law, stock exchange, rule or regulation or in the performance of one’s obligations (or those of its Affiliates) as a public company or in any legal or arbitration proceeding relating to this Agreement. If either Party is required by law, rule or regulation or by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to disclose the Confidential Information, it will provide the other Party with prompt prior written notice of such request or requirement so that such Party may seek an appropriate protective order and/or waive compliance with this Section.         (b)  Nothing herein shall be construed as granting any right or license under any copyrights, inventions, or patents now or hereafter owned or controlled by the other party. Upon termination of this Agreement for any reason or upon request of either Party, the Parties shall return all Confidential Information, together with any copies of same, to the other Party. The requirements of confidentiality set forth herein shall survive the return of such Confidential Information.         (c)  Neither Party shall, without first obtaining the written consent of the other Party, use any trademark or trade name of the other Party or refer to the subject matter of this Agreement or the other Party (or its Affiliates) in any promotional activity or otherwise, nor disclose to others any specific information about the subject matter of this Agreement.         (d)  Neither Party shall issue any publication or press release relating directly or indirectly to this Agreement without first obtaining the other Party’s written consent.         (e)  The provisions of this Article 11 shall survive expiration or other termination of this Agreement. 12.  INTEGRATION:         This Agreement and all Exhibits and other attachments incorporated herein, represent the entire agreement between the Parties with respect to the subject matter hereof and supersede and merge all prior agreements, promises, understandings, statements, representations, warranties, indemnities and inducements to the making of this Agreement relied upon by either Party, whether written or oral. 5 -------------------------------------------------------------------------------- 13.  GOVERNING LAW:         This Agreement will be construed and enforced in accordance with the law of the State of New York, without regard to that state’s choice of law principles. The Parties agree that any action related to this Agreement shall be brought and maintained only in a Federal or State court of competent jurisdiction located in Monroe County, New York. The Parties each consent to the exclusive jurisdiction and venue of such courts and waive any right to object to such jurisdiction and venue. 14.  NOTICES:         All notices, including but not limited to, demands, requests and other communications required or permitted hereunder (not including Invoices) shall be in writing and shall be deemed given: (i) when delivered in person, (ii) 24 hours after deposit with an overnight delivery service for next day delivery, (iii) the same day when sent by facsimile transmission during normal business hours, receipt confirmed by sender’s equipment, or (iv) three Business Days after deposit in the United States mail, postage prepaid, registered or certified mail, return receipt requested, and addressed to the recipient Party at the address set forth below: If to Global Crossing: Global Crossing Bandwidth, Inc. 180 South Clinton Ave Rochester, New York 14646 Attn: Senior VP, North American Carrier Services Facsimile No. (716) 232-9168 with a copy to: Global Crossing Bandwidth, Inc. 180 South Clinton Ave. Rochester, New York 14646 Attn: Manager, National Contract Admin. Facsimile No. (716) 454-5825 If to Exodus: Exodus Communications, Inc. 2831 Mission College Blvd. Santa Clara, CA 95054 Attention: Executive Vice President, Engineering Facsimile No. (408) 346-2181 with a copy to: Exodus Communications, Inc. 2831 Mission College Blvd. Santa Clara, CA 95054 Attention: General Counsel Facsimile No.: (408) 346-2181 15.  COMPLIANCE WITH LAWS:         During the term of this Agreement, the Parties shall comply with all local, state and federal laws and regulations applicable to this Agreement and to their respective businesses. 16.  SURVIVAL OF PROVISIONS:         Any obligations of the Parties relating to monies owed, as well as those provisions relating to confidentiality, limitations on liability and indemnification, survive termination of this Agreement. 17.  COUNTERPARTS.         This Agreement may be executed in any number of counterparts and by facsimile signature, all of which taken together shall constitute one and the same agreement. 6 -------------------------------------------------------------------------------- 18.  INSURANCE.         While this Agreement is in effect, each party shall maintain in force and effect policies of insurance as follows:         (i)  Comprehensive General Liability Insurance, including contractual liability and broad form property damage, covering personal injury or death and property damage with a combined single limit of at least $5 million; and         (ii)  Workers Compensation Insurance with limits required by the laws of the state in which the Space is located.         The parties hereby mutually waive their respective rights of recovery against each other and their officers, directors, shareholders, partners, joint venturers, employees, agents, customers, invitees of either party for any loss arising from any cause covered by the insurance required to be carried under this Agreement.     IN WITNESS WHEREOF, the Parties have executed this Agreement on the dates set forth below.                          GLOBAL CROSSING BANDWIDTH, INC.   By:   /s/ Brian V. Fitzpatrick      --------------------------------------------------------------------------------   Title:   Brian V. Fitzpatrick President, North American Operations      EXODUS COMMUNICATIONS, INC.   By:   /s/ Donald P. Casey      --------------------------------------------------------------------------------   Title:   Donald P. Casey President and COO 7 -------------------------------------------------------------------------------- EXHIBIT A 1. DOMESTIC CITY PAIRS              The following cities are on-net city locations of the Global Crossing North American network. Sunnyvale LA 308 Sunnyvale Chicago 1,837 Sunnyvale Seattle 716 Chicago Newark 702 Newark WDC 199 Newark Boston 197 LA Dallas 1,240 Dallas Atlanta 721 Atlanta WDC 541 Boston Toronto 500 Austin Dallas 178 Dallas Chicago 799              Additional cities will be added to this Exhibit upon mutual agreement of the parties. 8 -------------------------------------------------------------------------------- EXHIBIT B COLOCATION SERVICE              All Colocation facilities are pending Global Crossing’s Engineering approval based upon the information provided to Global Crossing by Exodus in the Colocation Service Inquiry From. Any approved facilities shall be presented to Exodus as an amendment pursuant to Section 1.A. below. 1.  LICENSE:         A.  Global Crossing hereby grants Exodus a license to occupy certain designated space (the “Space”) within a designated Global Crossing premise (the “Facility”). Separate “Colocation Schedules” may be attached hereto from time to time covering for each separate site where Colocation will be established. All Colocation Schedules, upon their execution by both Parties, shall be incorporated herein and shall become a part hereof. By executing a Colocation Schedule, Exodus accepts the Space on an “AS-IS, WHERE IS” basis. Exodus may only use the Space to install, maintain, monitor, operate, replace, repair and remove certain of its telecommunications equipment (the “Equipment”) as specified on the Colocation Schedule.         B.  Exodus acknowledges that it has been granted only a license to occupy the Space and that it has no real property interests therein. Exodus shall not utilize the Facility for any unlawful purposes, assign, mortgage, sublease, encumber or otherwise transfer any Space or license granted hereunder. Any attempt by Exodus to encumber the Space or permit the use or occupancy by anyone other than Exodus shall be void.         C.  Exodus may utilize the Space and the Equipment to receive services from third party providers, other than for intercity domestic backbone capacity. Global Crossing will permit access to the Space by the third party providers in accordance with the terms herein. 2.  TERM AND TERMINATION:         A.  The term of a license shall be as set forth in the applicable Colocation Schedule and shall commence on the first day the Space is made available by Global Crossing (the “Commencement Date”), but shall be immediately terminable by Global Crossing upon the termination, expiration or cancellation for any reason of (i) any underlying agreement between Global Crossing and any other party involving Global Crossing’s continued use of the Facility, or (ii) this Agreement. Following the expiration of the license term as set forth in the Colocation Schedule for a Space, Exodus’s license shall automatically renew on a month to month basis in accordance with the same terms and conditions specified herein, unless terminated by either Exodus or Global Crossing upon sixty (60) days prior written notice.         B.  Global Crossing shall not be liable to Exodus in any way as a result of Global Crossing’s failure (for any reason) to tender possession of the Space to Exodus on or before the commencement date listed in the Colocation Schedule. Any delay in tendering possession of the Space to Exodus for any reason other than the acts or omissions of Exodus shall relieve Exodus of its obligation to pay the monthly recurring charges (MRC) set forth in the Colocation Schedule until possession of the Space is delivered to Exodus. 3.  CHARGES, FEES and TAXES:         A.  MRCs shall be payable in advance and without notice or demand and without abatement, deduction, counterclaim or setoff commencing on the first day the Space is made available by Global Crossing and on the first day of each calendar month thereafter. Installation and non-recurring charges are due when invoiced. MRCs shall be prorated for partial months. The MRCs may be increased from time to time during the term of the license by reason of (i) any increases payable by Global Crossing to its landlord(s) under the lease for the Facility or Rights of Way in which the Space is located; (ii) any increases incurred by Global Crossing in any of the services to the Facility procured by Global Crossing directly from the provider thereof; and (iii) any increases in real property taxes assessed against the Facility which Global Crossing is liable to pay. Exodus’s share of any such increases shall be pro-rated based on the number of innerduct linear feet in the Space as a percentage of the total number of innerduct linear feet in the Facility.         B.  In addition, Exodus shall be fully responsible for the prompt payment of all federal, state or local taxes, however denominated, based on or calculated with respect to the amounts payable by Exodus (including but not limited to sales/use, rental and gross receipts taxes or surcharges) and all taxes (including, but not limited to 9 -------------------------------------------------------------------------------- franchise, income and miscellaneous taxes) which are the liabilities of Exodus under (i) appropriate standard industry practices (including telecommunications, fiber optic and rental industries), (ii) applicable law and (iii) as otherwise agreed at any time between Exodus and Global Crossing; provided, however, the taxes on Global Crossing’s income and property shall be the sole responsibility of Global Crossing. 4.  MAKE-READY:         If applicable, Exodus shall pay Global Crossing the amount set forth in each Colocation Schedule for the cost of engineering or improvements to the Space required to be made by Global Crossing in order to accommodate Exodus’s Colocation into the Space (the “Make-Ready Fee”). The Make-Ready Fee shall be payable to Global Crossing upon Exodus’s execution of the Colocation Schedule for the Space. Title to such improvements shall remain vested in Global Crossing. 5.  MAINTENANCE:         A.  Global Crossing shall be responsible for maintenance of the Facility and the Space. Exodus shall not make any alterations, changes, additions or improvements to either the Facility or the Space without Global Crossing’s prior written consent. Exodus agrees to maintain and repair all of its Equipment placed in the Space at Exodus’s expense and shall be responsible for all costs associated with the configuration, installation, interconnection and operation of the Equipment, including without limitation, transportation related costs, and any electrical or other work which must be completed in order to interconnect the Equipment.         B.  Exodus’s responsibilities include, but are not limited to the following:               (i)  Exodus shall arrange for the transit delivery of all Equipment to the Space at its sole cost and expense.               (ii)  Exodus shall provide Global Crossing with reasonable prior notice (not less than two (2) business days) of the actual delivery date of the Equipment.               (iii)  Exodus shall not cause damage to, or interfere with use or operation of, the Space, the Facility or the equipment of Global Crossing or third parties.               (iv)  Exodus shall be in full compliance with telecommunication industry standards, NEC and OSHA requirements, and in accordance with Global Crossing’s requirements and specifications.               (v)  All Equipment must be mounted on racks, and using appropriate brackets, except where otherwise expressly permitted in writing by Global Crossing. Exodus is solely responsible for assuring that the Equipment is mounted in an efficient and appropriate manner.               (vi)  All cabling regardless of location, shall be tied and organized, run to the side of the rack, and labeled. Connectors must be secured in the interface socket.               (vii)  Exodus must provide for remote access (via modem or other means) where available, in order to administer, configure, monitor and operate the Equipment.               (viii)  Exodus shall, at all times, comply with Global Crossing’s rules and regulations regarding access to its facilities, including without limitation, adequate notice before entry (not less than one business day), appropriate dress and professional conduct. Global Crossing may remove any personnel of Exodus not in compliance with its rules and regulations, and may prohibit access by any person at its reasonable discretion. 6.  APPROVALS:         A.  Exodus shall submit to Global Crossing all building construction and electrical requirements and, architectural and engineering drawings indicating the proposed installation for approval. Exodus may not perform any construction or install any Equipment without written approval from Global Crossing. Global Crossing reserves the right to accept or reject Exodus’s design at its reasonable discretion. All costs of design work shall be Exodus’s responsibility. Exodus shall also be required to complete the Colocation Request For Information form.         B.  Global Crossing shall inspect the completed installation and must approve the same in writing before Exodus is allowed to utilize the Equipment for any reason. Any installations that do not comply with the 10 -------------------------------------------------------------------------------- approved drawings will be subject to rejection by Global Crossing. Global Crossing also reserves the right to order reasonable modifications to any installations.         C.  Exodus is solely responsible for obtaining any and all necessary building permits or other authorizations required for Colocation of its Equipment. 7.  INSURANCE and INDEMNITY:         A.  While a license is in effect, Exodus shall maintain in force and effect policies of insurance as follows:               (i)  Comprehensive General Liability Insurance, including contractual liability and broad form property damage, covering personal injury or death and property damage with a combined single limit of at least $1 million; and               (ii)  Workers Compensation Insurance with limits required by the laws of the state in which the Space is located.               The liability insurance shall name Global Crossing as an additional insured and shall be primary insurance and Global Crossing’s insurance shall not be called upon for contribution towards any such loss. Exodus’s insurer shall provide Global Crossing with a least ten (10) days prior written notice of cancellation or change in coverage. All insurance required of Exodus shall be evidenced by certificates of insurance provided to Global Crossing.         B.  Exodus shall be liable for and shall indemnify, defend and hold Global Crossing harmless from and against any claims, demands, actions, damages, liability, judgments, expenses and costs (including reasonable attorneys fees) arising from (i) Exodus’s use of the Space, or (ii) any damage or destruction thereto or to the Facility or any property therein caused by or due to (x) the acts or failures to act, negligent, willful or otherwise, of Exodus, its employees, agents or representatives, or (y) any malfunction of Exodus’s Equipment located in the Space.         C.  Global Crossing does not warrant that the integrity of the Space or the Facility will be free from any disruptions and Global Crossing shall not be liable therefor. Global Crossing’s entire liability for any such disruptions, or any other matter giving rise to a claim with respect to the Space or Facility, shall not exceed in any case the MRCs paid by Exodus for the month in which such disruption or other matter occurred. 8.  DAMAGE TO FACILITY:         If fire or other casualty damages the Facility in which the Space is located, Global Crossing shall give immediate notice to Exodus of such damage. If Global Crossing’s landlord or Global Crossing exercises an option to terminate the lease therefor due to such damage or Global Crossing’s landlord or Global Crossing decides not to rebuild the Facility in which the Space is located, this Agreement shall terminate as of the date of such exercise or decision as to the affected Space and the MRC paid by Exodus shall be modified accordingly. If neither the landlord of the affected Facility nor Global Crossing exercises the right to terminate or not to rebuild, the landlord or Global Crossing, as applicable, shall repair the Facility to substantially the same condition it was in prior to the damage, completing the same with reasonable speed. In the event that such repairs are not completed within a reasonable time, Exodus shall thereupon have the option to terminate this Agreement with respect to the affected Space, such option shall be the sole remedy available to Exodus against Global Crossing hereunder relating to such failure. If the Space or any portion thereof shall be rendered unusable by Exodus by reason of such damage, the MRC for such Space shall proportionately abate for the period from the date of such damage to the date when such damage shall have been repaired for the portion of the Space rendered unusable. 11 --------------------------------------------------------------------------------          9.  RATES AND CHARGES:           Exodus shall be charged for Colocation Space at the rates set out below. ICB means “Individual Case Basis”.         Monthly Recurring Charges: Rack Space $[***] per rack (with 30 amps of power) Cabinet Fee $[***] per cabinet Caged Fee $ ICB Additional Power $[***] per amp Mid Span Meets: DS-1/DS-3/OC-3/OC-12 $ ICB         Non Recurring Charges: Colocation Site $[***] per site Mid Span Meets: DS-1/DS-3/OC-3/OC-12 $ ICB Make Ready Fee $ ICB         Dispatch Fees: $70 per hour (I hour minimum) for unmanned sites during business hours (Monday through Friday 8:00 am to 6:00 p.m.) and $95 per hour (2 hour minimum,) for unmanned sites during non-business hours and nationally recognized holidays. 12 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- EXHIBIT C TECHNICAL SPECIFICATIONS I.  SONET SERVICES:         Protected Private Line Services will be provided using either Ring SONET (defined as SONET deployed in a four fiber, Bi-directional Line Switched Ring (BLSR), conforming to Telcordia GR-253-Core SONET Transport Systems Common Generic Criteria (Dec. 1997) or SONET (defined as a point-to-point service which utilizes SONET equipment provided by Global Crossing to furnish two working (transmit and receive) channels and two protect channels (transmit and receive) between the end points of the Route. Private Line Services will be provided by using SONET over a Dense Wavelength Division Mulitplexor (DWDM) system, directly over a DWDM system, or directly over fiber.              Performance Standards and Transmission Specifications for Private Line Service(s) provided on Supplier’s network under this Agreement are [***]% available seconds per year. II.  WAVELENGTH:         A.  Exodus acknowledges that (i) the circuits used for the Wavelength Services are not protected by a restoration protocol within or external to the SONET frame structure, (ii) Global Crossing will not provide Wavelength Services using conventional SONET TDM add/drop multiplexers using a BLSR or UPSR or linear restoration protocol within or external to the SONET frame structure, and (iii) the interoperability of the individual circuits is dependent upon the joint interconnection of the interface between Global Crossing’s WDM system and Exodus’s source systems and facilities. Exodus’s source systems will operate within the conventional 1310nm and 1550nm passbands, using Short Reach, Intermediate Reach, or Long Reach optic, as defined in Telcordia GR-253-CORE. Except with Exodus’s prior written consent, Global Crossing will provide the Wavelength Services solely over Global Crossing’s facilities-based TDM / WDM network and fiber, equipment or other WDM service(s) owned or controlled by Global Crossing and its Affiliates.         B.  The Wavelength Services will be configured as follows:               (i)  WDM Transmission System: WDM transmission equipment for each unprotected OC-48 (2.488Gb/s) channel, such as WDM Terminals, in-line amplifiers, regenerators and optical layer cross-connect equipment necessary to provide the Wavelength Services; and               (ii)  OC-48 (2.488Gb/s) TDM equipment used in conjunction with the WDM system: OC-48 transparent TDM transmission equipment for each unprotected OC-48 channels capable of use on each route. Equipment such as WDM transponders, regenerators and wavelength converters to provision OC-48 circuits. Exodus’s equipment may be connected through collocated equipment at facilities where both Global Crossing and Exodus have equipment or in a mid-span optical meet.               (iii)  At each of the end-point points of presence (“POPs”), Exodus will be responsible for providing all equipment necessary to interconnect with the Global Crossing Network. All Exodus equipment will be and remain the property of Exodus, except where Exodus fails to remove such equipment within thirty (30) days after the termination of the agreement for Optical Wavelength Services to or from a city, in which case, Global Crossing may deem such equipment in that city as abandoned, and may remove, store, or dispose of such equipment in its sole discretion. At each of the end-point POPs, the point of demarcation and connecting point between the Global Crossing network and any Exodus equipment will be the fiber termination panel provided by Global Crossing. Global Crossing will cooperate with Exodus’s installation of fiber, cable and fiber termination equipment within POPs, including but not limited to providing Exodus (including its representatives and contractors), all necessary access to the end-point POPs at reasonable times and in a reasonable manner following reasonable advance notice consistent with the access that it may provide to other similarly situated customers whose presence may be permitted to collocate at its POPs; provided however, that with seven (7) days prior written notice, Global Crossing will provide Exodus with accompanied access at any time; and provided further, however, that in the event of an emergency, Global Crossing will exercise commercially reasonable efforts to provide accompanied access at any time of the day upon one (1) hour’s notice (such notice being intended for Global Crossing to ensure that an escort is available). Global Crossing will disclose to Exodus the physical routes that the unprotected OC-48 circuits will use between the POPs within 2 business day after receipt of an approved ASR. Should Exodus desire an 13 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- alternate route, Global Crossing will determine availability and provide revised pricing, if necessary, for such alternative route.               (iv)  Global Crossing will transmit all SONET overhead transparently between Exodus POPs. Global Crossing will not alter any such overhead information. Global Crossing will not have any SONET line or section terminating equipment within its network.         C.  Performance Standards and Transmission Specifications for the Wavelength Services provided on Global Crossing’s network under this Agreement are set forth below:               (i)  Digital Frame Service Rates. Service will consist of DWDM optical transmission for OC-48 line rates of 2.5 Gb/s, using transponders, optical couplers, optical layer amplifiers and 3R regenerators and or a multiplexed OC48 using a 10 Gb/s transparent multi-plexor. Service will be provided in unprotected linear fashion. All restoration protocols, if used for the circuits, will be implemented and operated by Exodus. Exodus’s wavelengths will be part of a multi-wavelength DWDM transmission system carrying wavelengths for other customers and Global Crossing’s own circuits.               (ii)  Fiber patch cords and optical attenuators used on receivers will be the responsibility of the owner of the equipment to ensure that optical signal levels are within specification for the owner’s equipment. The optical interface at these points requires Exodus and Global Crossing OC-48 optics capable of accepting Short Reach, Intermediate Reach, and Long Reach OC-48 frame signals as defined in Telcordia Document GR-253-CORE, Issue 2, Rev 1, dated 12/97. The appropriate type of optics for the application will depend on the optical link engineering conducted jointly by Global Crossing and Exodus on an individual case basis.               (iii)  Optical Translation. Global Crossing shall furnish and operate at its POPs all DWDM equipment necessary to generate the precision optical wavelengths necessary for the optically multiplexed system. The optical interface at the fiber patch panel or fiber frame shall require Exodus and Global Crossing optics capable of accepting Short Reach, Intermediate Reach and Long Reach OC-48 frame signals as defined in Telcordia Document GR-253-CORe, Issue 2, Rev 1, 12/97. The appropriate type of optics for the application will depend on the optical link engineering conducted jointly by Global Crossing and Exodus on an individual case basis. Adaptation of Global Crossing DWDM equipment to provide intermediate reach and long reach signals per the above Telcordia spec will be considered on an individual case basis.               (iv)  Equipment Performance Specifications. Global Crossing’s OC-48 optical channels shall be designed and maintained per manufacturer’s specifications for power and environmental requirements. All of Global Crossing’s OC-48 circuits must operate with a measured BER of [***] or less. 14 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- EXHIBIT D DELIVERY PERIODS AND MILEAGE AND RATE CONVERSION MATRIX I.  DELIVERY PERIODS:         Global Crossing will deliver the services and capacities set out in Paragraph A below within the periods set out below. Delivery will be from acceptance of a completed order by Global Crossing.         A.  SERVICE DELIVERY PERIODS:               OC-3 Fully Protected SONET    60 days following acceptance of completed order               OC-12 Fully Protected SONET    60 days following acceptance of completed order               2.5 Gbps Linear Wavelength    90 days following acceptance of completed order II.  MILEAGE CONVERSION MATRIX: Total DS-0 Channel Miles:     [***]         For 9.953 Gbps or 2.488 Gbps Wavelength Services, the following conversion ratios and rates will apply. Global Crossing Bandwidth, Inc. represents that such rates and the pricing contained in Schedule 2A are no less favorable than the pricing described in Annex B of the Network Services, Marketing and Cooperation Agreement entered into as of September 27, 2000 between the Purchaser and Global Crossing Ltd. Service Conversion Ratio Net effective Rate per DS-0 Channel Mile 9.953 Gbps Linear Wavelength 1 times the DS-0 miles $[***] 2.488 Gbps Linear Wavelengths For City Pairs in Exhibit A 1 times the DS-0 miles $[***] 2.488 Gbps Linear Wavelength 1.09 times the DS-0 miles $[***]         For OC-3 or OC-12 SONET Services, the following conversion ratios and rates will apply: OC-12 Fully Protected SONET 3 times the DS-0 miles $[***] OC-3 Fully Protected SONET 4 times the DS-0 miles $[***]         For example, if Exodus orders an OC-12 SONET circuit on any City Pair, the DS-0 mile for such circuit will be multiplied by three and the product will be deducted from the Total Initial Channel Miles.         For OC-3 and OC-12 SONET Services ordered in excess of greater than 15% of the Total DS-0 Miles ( being 860,284,327), the DS-0 channel mile rate will be as follows: Service Conversion Ratio Net effective Rate per DS-0 Channel Mile OC-12 Fully Protected SONET 3.5 $[***] OC-3 Fully Protected SONET 5.5 $[***] III.  FORECASTING:         Within thirty (30) days after execution of this Agreement, the parties will establish mutually agreeable forecasting procedures. IV.  CIRCUIT CANCELLATION PENALTIES:         In the event that Exodus cancels an order for a circuit more than [***] days and less than [***] days prior to the agreed upon delivery date, Global Crossing will deduct from the Total Initial Channel Miles an amount equal to [***] % of the value of [***] month’s DS-0 channel miles for the cancelled circuit, unless Global Crossing has given notice that such circuit will be delivered late in accordance with Exhibit E Section I(C). 15 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. --------------------------------------------------------------------------------         In the event that Exodus cancels an order for a circuit within [***] days prior to the agreed upon delivery date, Global Crossing will deduct from the Total Initial Channel Miles an amount equal to [***] % of the value of [***] month’s DS-0 channel miles for the cancelled circuit; unless the canceled service is replaced with another service of equal or greater capacity and value and provided that such deduction shall only be made for the first [***] circuits cancelled in any [***] period. 16 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- EXHIBIT E SERVICE LEVEL AGREEMENT I.  DELIVERY REMEDIES:         A.  In the event Global Crossing fails to provision any circuit within the mutually agreed delivery date after accepting the relevant circuit order, Exodus’ sole remedy shall be to receive the following credits towards the Total Initial Channel Miles:         (i)  For late deliveries that are more than [***] days late, but less than [***] days late, Exodus shall receive a [***] credit equal to [***] month’s DS-0 miles for the circuit order.         (ii)  For late deliveries that are between [***] and [***] days late, Exodus shall receive an additional [***] credit equal to [***] month’s DS-0 miles for the circuit order.         (iii)  For late deliveries that greater than [***] days late, Exodus shall receive an additional credit equal to [***] month’s DS-0 miles for the circuit order.         B.  Notwithstanding the foregoing clause A and notwithstanding any Force Majeure Events, in the event Global Crossing fails to provision a Circuit within [***] days after negotiated due date of the relevant Circuit Order, Exodus’ sole remedy shall be to, at its election, keep such Circuit and receive the [***] credit described in clause A(iii) above or [***] with respect to such Circuit and [***]. If Exodus [***], Global Crossing shall have no further liability or obligation to Exodus with respect to such Circuit Order, other than to so provide all remedy with respect to such Circuit.         C.  Every two weeks, Global Crossing will provide Exodus a status report of confirmed orders, and Exodus will provide Global Crossing [***] of circuits to be ordered. In the event that Global Crossing informs Exodus, [***] days prior to the agreed upon delivery date for any circuit, that such circuit will be more than [***], Exodus will have [***]. On notification to Exodus of the delay Global Crossing will give Exodus a revised delivery date (the “Revised Date”). If Exodus does [***] shall apply to that circuit unless the circuit is delivered after the Revised Date in which case the remedies set out in 1A above will apply. II.  SERVICE LEVELS:         A.  Global Crossing will provide Exodus with a [***]% service availability guarantee on its wavelength services and [***]% on its protected private line services. Service availability is calculated from the ingress of the Global Crossing’s network to the egress of the Global Crossing’s network.         B.  The network availability measurement is equal to the total number of minutes in a calendar month during which customer network components are available, divided by the total number of minutes in a calendar month (“Network Availability Time”) and expressed as a percentage. Network Availability Time is calculated on a monthly basis for each customer’s network. The availability measurements are based on ITU-T Recommendation M.2100.         C.  A Service Outage is defined as a period during which there is a break in transmission, either identified by the Global Crossing’s Network Operations analyst or by Exodus. The start of the break is signaled by the first ten consecutively severely erred seconds (“SESs”), and the end is signaled by the first of ten consecutive non-SESs. A SES is a second with a bit error ratio of greater than or equal to 1 in 1000. Service unavailability does not include SESs associated with Scheduled Maintenance events, Customer-caused SESs, or SESs caused by companies other than Global Crossing. III.  MEAN TIME TO REPAIR (MTTR):         A.  Global Crossing will guarantee a MTTR objective of [***] per trouble report, 7 x 24. A Trouble Ticket will be created and completed for each outage. The MTTR calculation will be computed based on a summary of all monthly tickets.         B.  The time will be measured by time that any portion of Global Crossing’s network was not available. Time will be measured in minutes, as a monthly average of all troubles. 17 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. --------------------------------------------------------------------------------         C.  Time will be counted from the network alarm generation (at the point of failure) or trouble ticket creation and end at the latter of alarm condition clearance or Exodus notification to Global Crossing. The total network down time is divided by the number of documented trouble reports, to calculate the average.         D.  Credits for Service Outages will be applied based on the applicable number of DS-0 miles for the affected circuit. Credits for outages will apply on a per Service Outage basis as follows:         1.  In the case of protected circuits, (a) any Service Outages over [***] will result in a credit toward the Total Initial Channel Miles equal to [***]% of  [***] month’s DS-0 miles, and (b) any Service Outages greater than or equal to [***] will result in a credit toward the Total Initial Channel Miles equal to [***]% of [***] month’s DS-0 miles.         2.  In the case of unprotected circuits, (a) any Service Outages over [***] will result in a credit toward the Total Initial Channel Miles equal to [***]% of [***] month’s DS-0 miles, and (b) any Service Outages greater than or equal to [***] will result in a credit toward the Total Initial Channel Miles equal to [***]% of [***] month’s DS-0 miles.         E.  MTTR is calculated on a monthly basis and is reported as the average repair duration in hours of all trouble tickets within the monthly reporting period. IV.  MEAN TIME TO RESPOND:         A.  Global Crossing will meet a Mean Time to Respond commitment of [***] per trouble report on a 7 x 24 basis at all locations. The start time (alarm generation or trouble ticket creation) and response end-time (when Exodus is contacted) will be added to every trouble ticket.         B.  Mean Time to Respond will be calculated on a monthly basis and is reported as the average duration in minutes to contact Exodus after the initial alarm or trouble report logging. V.  BIT ERROR RATE (BER):         Global Crossing, as a minimum, will perform at a BER of less than [***]. VI.  [***] [***] 18 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- EXHIBIT F IRU AGREEMENT         Global Crossing USA, Inc (“GC USA”) and Exodus entered into a capacity purchase agreement on August 27, 1999 (the “CPA”) pursuant to which Exodus agreed to acquire and GC USA agreed to grant rights with respect to Capacity on an indefeasible right of use basis. The CPA provided that purchases of Additional Committed Capacity would be evidenced by the parties to the CPA executing Schedule 2A in the form set out in the CPA. Schedule 2A is attached to this Exhibit F and sets out details of the Additional Committed Capacity to be purchased by Exodus from Global Crossing or its Affiliates.         Exodus and Global Crossing agree that the terms of the CPA shall apply to the purchase of the Additional Committed Capacity save as set out in this Exhibit F and Schedule 2A.         References in the CPA to the Grantor shall be deemed to be references to Global Crossing or the relevant Global Crossing Affiliate which is granting the rights in the Additional Committed Capacity and capitalized words and phrases used in this Exhibit F shall, save where otherwise defined in this Exhibit F, or in the capacity agreement to which this Exhibit is attached (the “Agreement”) have the meanings set out in the CPA.         In the event of any conflict between the terms of the CPA and this Exhibit F (including Schedule 2A) the terms of this Exhibit F shall prevail.         Global Crossing and Exodus agree as follows: 1.  Term. The term of the IRU granted to Exodus hereunder in respect to each Traffic Connection shall begin on the Activation Date of the relevant Traffic Connection and shall terminate on the tenth anniversary thereof. Section 12(c) of the CPA shall not apply to the Additional Committed Capacity. 2.  Initial Payment. On 29 September, 2000 Exodus shall pay $[***], being the Purchase Price for the Additional Committed Capacity, to the Global Crossing Account details of which are set out in Section 3A of the agreement to which this Exhibit F is attached, in immediately available Dollars. The Purchase Price shall be non-refundable. 3.  Service Level Agreement.         (a)  Exodus shall be entitled to a credit equal to [***] months Initial Annual Maintenance Cost Payment for the affected Traffic Connection if the Actual Availability Date for that Traffic Connection has not occurred by the date which is [***] days after the later of the Anticipated Availability Date for that Capacity and the Requested Activation Date. If the Actual Availability Date occurs between [***] and [***] days following the later of the Anticipated Availability Date and the Requested Activation Date of a Traffic Connection a further credit of an amount equal to an additional [***] months Initial Annual Maintenance Payment for the affected Traffic Connection will be credited towards Exodus’ Initial Annual Maintenance Payment for that Traffic Connection.         (b)  Notwithstanding the foregoing if the Actual Availability Date for any Traffic Connection has not occurred by the later of the Delayed Availability Date (which for these purposes shall be the date which is [***] days from the Anticipated Availability Date of the relevant Traffic Connection) and the Requested Activation Date, then Exodus’ obligation to purchase that Traffic Connection shall terminate (unless Exodus requests an extension of time). The penalties specified in paragraph 3(a) above shall not apply in these circumstances. That portion of the Purchase Price previously received from Exodus in respect of the relevant Traffic Connection shall be retained by Global Crossing but Exodus shall be entitled to a credit (the “Credit”) equal to the amount of the Purchase Price previously received from Exodus which relates to such Traffic Connection. The Credit may be applied towards any future purchase of capacity by Exodus on the Global Crossing Network.         (c)  Global Crossing will grant to Exodus a credit towards the Initial Maintenance Cost Payments (a “Maintenance Credit”) in the event of an Outage of the Additional Committed Capacity. An Outage is defined for these purposes as sustained loss of service of [***] consecutive minutes or more due to the failure of Global Crossing to make the relevant Additional Committed Capacity available during that period. An Outage will be evidenced by customer reported trouble tickets each month, as time stamped by the Global Crossing trouble ticketing system. An Outage will not include outage time which is a result of deactivation of the Global Crossing 19 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- Network in the circumstances described in section 7(a)(iii) of the CPA or as a result of any scheduled maintenance agreed between Global Crossing and Exodus.         Exodus shall be entitled to a Maintenance Credit equal to [***]% of the Quarterly Initial Maintenance Cost Payment relating to the circuit which has suffered the Outage for each hour of outage. The maximum Maintenance Credit applicable in any [***] month period shall be an amount equal to [***] months Initial Maintenance Cost Payment for the relevant circuit.         [***]         (d)  Exodus shall not be entitled to any rights, remedies or damages whatsoever for the delay or non-occurrence of any Actual Availability Date other than as set out in this paragraph 3. Section 2(d) of the CPA shall not apply to this Exhibit F. 4.  Capacity to Vienna. The availability of the Additional Committed Capacity between Berlin, Vienna and Munich (the “Vienna Circuit”) is subject to board approval by Global Crossing. If such approval is not obtained by 31 October 2000 the parties obligations in respect of the Vienna Circuit will cease and this Exhibit F will cease to have any further effect in respect of the Vienna Circuit. The portion of the Purchase Price relating to the Vienna Circuit shall be retained by Global Crossing and will be credited towards any future purchase of Capacity by Exodus on the Global Crossing Network. 5.  Early Activation. Exodus may, at any time following the date of the Agreement, serve notice to amend the Requested Activation Date of any of the Additional Committed Capacity to an earlier date than that set out in Schedule 2A. Global Crossing may meet such amended Requested Activation Date if the relevant Additional Committed Capacity is available but its obligations under this Exhibit F shall be unaffected. 6.  Local Loops. Global Crossing will, when requested by Exodus, order and provision local loops on its behalf. The terms and conditions relating to such local loops will be set out in a separate Premise Access Service Agreement entered into between the parties. 7.  Collocation. Global Crossing will, when requested by Exodus and subject to availability, offer collocation to Exodus. The parties will enter into a separate collocation agreements in respect of each collocation space. 8.  Los Angeles to Sydney. Global Crossing intends to provide the Additional Committed Capacity between Los Angeles and Sydney on the Southern Cross Network. Global Crossing will allow Exodus to drop/insert in Hawaii if Global Crossing has the right to do so under the rights obtained by it in respect of its use of that network and subject to payment by Exodus of an amount equal to the cost to Global Crossing of it making such drop/insert available to Exodus. 9.  Option to Purchase London to Dublin Capacity. Exodus shall have the option to cancel its commitment to purchase 1 STM-1 between the Global Crossing POPs in London and Dublin (the “Dublin Circuit”) prior to activation of the Dublin Circuit by giving notice in writing to Global Crossing that it wishes to cancel such circuit. If Exodus does cancel this commitment, Global Crossing shall be entitled to retain the Purchase Price of the Dublin Circuit and Exodus shall be entitled to a credit equal to such Purchase Price to be applied towards any future purchase of Capacity by Exodus on the Global Crossing Network. 10.  Further Assurance. At any time and from time to time, upon the request of Global Crossing , Exodus shall or shall procure that its Affiliates shall, execute and deliver such further documents and do such other acts and things as Global Crossing may reasonably request in order to fully effect the purposes of this Agreement and /or to comply with local legal or regulatory requirements in the jurisdictions in which the Additional Committed Capacity is situated. 20 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- Schedule 2A COMMITMENT FOR ADDITIONAL CAPACITY              This Commitment is executed and delivered pursuant to Section 2(b) of the Capacity Purchase Agreement, dated August 27, 1999, between Exodus and GC USA except that the parties to this Commitment are Exodus and Global Crossing. The undersigned hereby agree that all the terms and conditions of such Capacity Purchase Agreement shall apply to the purchase of the Capacity set forth below. Traffic Connections are to be described as Point of Presence to Point of Presence (for example, New York - Tokyo). If more than one location for connectivity exists in a particular city, the specific address of the intended Point of Presence should be set forth in a footnote to this Schedule. Traffic Connection Number of MCUs Purchase Price per MCU Initial Annual Maintenance Cost Payment per MCU Anticipated Availability Date Requested Activation Date New York to Miami 1 STM-4 $[***] $[***] per STM-4 December 1, 2000 December 1, 2000 PEC ring connecting London, Paris, Frankfurt, Amsterdam and Munich 3 STM-1’s $[***] for the 3 STM-1’s * $[***] per STM-4 ring per annum December 30, 2000 December 30, 2000 Frankfurt to Berlin 1 STM-4c $[***] $[***] per STM-4 per annum March 1, 2001 March 1, 2001 Amsterdam to Stockholm to Berlin 1 STM-4c $[***] $[***] per STM-4 per annum June 30, 2001 June 30, 2001 Madrid to Milan to Munich 1 STM-4c $[***] $[***] per STM-4 per annum March 1, 2001 March 1, 2001 Paris to Madrid 1 STM-4c $[***] $[***] per STM-4 per annum September 30, 2001 September 30, 2001 Berlin to Vienna to Munich 1 STM-4c $[***] $[***] per STM-4 per annum September 30, 2001 September 30, 2001 New York to London 2 STM-1’s $[***] for the 2 STM-1’s * $[***] per STM-4 per annum November 30, 2000 November 30, 2000 New York to Frankfurt 2 STM-1’s $[***] for the 2 STM-1’s * $[***] per STM-4 per annum November 30, 2000 November 30, 2000 Dublin to London 1 STM-1 $[***] $[***] per STM-1 per annum 30 days from written notification by Exodus 30 days from written notification by Exodus Los Angeles to Sydney 1 STM-1 $[***] $[***] per STM-1 per annum November 30, 2000 November 30, 2000 ______________    *    As soon as practicable after the written request of Exodus Global Crossing will regroom these circuits and the circuits previously purchased by Exodus on these Traffic Connections pursuant to the CPA to an STM-4 on each of these Traffic Connections 21 [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. -------------------------------------------------------------------------------- GLOBAL CROSSING POP ADDRESSES AMSTERDAM BERLIN FRANKFURT HONG KONG LA Amsterdam – Koningsracht J. Geesinkweg 401-404 1096 AX Amsterdam Duivendrecht Netherlands Kitengstrasse 15-19 12277 Berlin Germany Rebstockerstrasse 31 60326 Frankfurt Germany 3/F, Sino Favour Centre 1 on Yip St. Chai Wan Hong Kong China 624 South Grand Suite 1020 Los Angeles CA 90017 LONDON MADRID MIAMI MILAN MUNICH London Switch Ltd. 240 East India Dock Road, London, E149YY Bardadillo 4 Madrid Spain Suite 142S Miami Telehouse 36 NE 2nd St. Miami, FL 33131 Via San Giusto 51 Milan Italy Arnulstrasse 32 80335 Munich, Germany NEW YORK PARIS STOCKHOLM SYDNEY 60 Hudson Street Room 204 New York, NY 10013, USA BIC Building 7-9 Rue Petit 92110 Clichy Paris, France (To be determined) (To be determined) TOKYO VIENNA Fukide Building 4-1-13 Toranomon Minato-ku Tokyo, Japan (To be determined) 22 --------------------------------------------------------------------------------

Exhibit 10(b) Contract No. 117162   NATURAL GAS PIPELINE COMPANY OF AMERICA (NATURAL) STORAGE RATE SCHEDULE NSS AGREEMENT DATED March 7, 2000   1. SHIPPER is: THE PEOPLES GAS LIGHT AND COKE COMPANY, a LDC. 2. (a) MDQ totals: 123,667 MMBtu per day. (b) MSV totals: 9,275,025 MMBtu. 3. TERM: April 1, 2000 through April 30, 2003. 4. [ ] This Agreement supersedes and cancels an ____________ Agreement dated ___________. [X] Service and reservation charges commence the latter of: (a) April 1, 2000, and (b) the date capacity to provide the service hereunder is available on Natural's System. [ ] Other:_____________________________________________ 5. SHIPPER'S ADDRESSES   NATURAL'S ADDRESSES   General Correspondence : THE PEOPLES GAS LIGHT & COKE COMPANY   NATURAL GAS PIPELINE COMPANY OF AMERICA RAULIE DE LARA   ATTENTION: ACCOUNT SERVICES 130 E. RANDOLPH DR.   ONE ALLEN CENTER, SUITE 1000 CHICAGO, IL 60601-6207   500 DALLAS ST., 77002     P. O. BOX 283 77001-0283     HOUSTON, TEXAS         Statements/Invoices/Accounting Related Materials : THE PEOPLES GAS LIGHT & COKE COMPANY   NATURAL GAS PIPELINE COMPANY OF AMERICA DIANE FILEWICZ, 24TH FLOOR   ATTENTION: ACCOUNT SERVICES 130 E. RANDOLPH DR.   ONE ALLEN CENTER, SUITE 1000 CHICAGO, IL 60601-6207   500 DALLAS ST., 77002     P.O. BOX 283 77001-0283     HOUSTON, TEXAS   Payments :     NATURAL GAS PIPELINE COMPANY OF AMERICA     P.O. BOX 70605     CHICAGO, ILLINOIS 60673-0605           FOR WIRE TRANSFER OR ACH:     DEPOSITORY INSTITUTION: THE CHASE     MANHATTAN BANK, NEW YORK, NY     WIRE ROUTING #: 021000021     ACCOUNT #: 323-206042     6. The above stated Rate Schedule, as revised from time to time, controls this Agreement and is incorporated herein. NATURAL AND SHIPPER ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT THAT STATE LAW IS APPLICABLE, NATURAL AND SHIPPER EXPRESSLY AGREE THAT THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE WHICH WOULD APPLY THE LAW OF ANOTHER STATE. This Agreement states the entire agreement between the parties and no waiver, representation, or agreement shall affect this Agreement unless it is in writing. AGREED TO BY: NATURAL GAS PIPELINE COMPANY OF AMERICA   THE PEOPLES GAS LIGHT AND COKE COMPANY "Natural"   "Shipper"       By: /s/ David J. Devine   By: /s/ William E. Morrow       Name: David J. Devine   Name: William E. Morrow       Title: Vice President, Business Planning   Title: Vice President     Contract No. 117162

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.2 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to the Employment Agreement (this "Amendment"), dated as of 20 July 2000, is entered into by and between Alliant Techsystems Inc., a Delaware corporation (the "Company"), and Paul David Miller (the "Executive"). WHEREAS, the Company and the Executive have entered into an agreement dated January 1, 1999 (the "Agreement"); and WHEREAS, the Company and the Executive now desire to amend the Agreement; NOW, THEREFORE, in consideration of the premises and for other and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows: 1.Amend Section 4(b) to read in its entirety as follows:  "(b)(i) In the event the Executive's employment hereunder shall automatically terminate on the original Expiration Date of March 31, 2002, or as such date may be extended by mutual agreement of the Company and the Executive, the Executive will be provided with monthly retirement benefits, commencing on the date of termination, under a non-qualified supplemental employees retirement plan (SERP) of the Company, equal to the excess, if any, of (A) over the sum of (B) and (C) as follows, assuming that such benefits are to be paid in the form of a single life only annuity without survivor benefits:     (A) Sixty percent (60%) of the Executive's Final Average Earnings, as such monthly amount is defined in the Aerospace Retirement Plan except that, for purposes of this Agreement, such amount shall be determined by reference to the Executive's highest thirty-six (36) consecutive months (or if the Term of Employment is less than thirty-six (36) months, then such lesser number of months representing the number of full months in the Term of Employment) of earnings attributable to base salary and annual cash incentive bonus awards during the last sixty (60) consecutive months of the Term of Employment, provided that the Executive has reached 65 years of age upon such termination date; if the Executive has not reached 65 years of age upon such termination date, the amount of the retirement benefits under this Section 4(b)(i)(A) shall be reduced due to early commencement based on the Executive's age at the date of termination in accordance with the terms of the Aerospace Retirement Plan;     (B) The monthly amount payable from the Aerospace Retirement Plan or other qualified defined benefit retirement plan of the Company in which the Executive may become a participant, assuming that such payment commences on the termination date and benefits are to be paid in the form of a single life only annuity without survivor benefits;     (C) The monthly amount payable from the Executive's United States military retirement or pension plans, assuming the form of such benefit as in effect as of the effective date of this Amendment;     (ii) In the event the Company terminates the Executive's employment without Cause, the Executive terminates his employment for Good Reason as defined in Section 4(b)(ix) below (other than a Qualifying Termination, as defined in the Company's Income Security Plan), or the Executive's employment is terminated as a result of the Executive's death or Disability prior to the original Expiration Date of March 31, 2002, or as such date may be extended by mutual agreement of the Company and the Executive, the Executive will commence to receive retirement benefits described under Section 4(b)(i) upon such termination but the Executive's age shall be determined as if the Executive had reached the age the Executive would have reached on the original Expiration Date of March 31, 2002, or such date to which it may have been extended by mutual agreement of the Company and Executive, whichever is later; --------------------------------------------------------------------------------     (iii) In the event the Company terminates the Executive's employment for Cause during the Term of Employment, the Executive shall not be entitled to receive the amounts described in Section 4(b)(i) and all such amounts shall be forfeited;     (iv) In the event the Executive terminates his employment for other than Good Reason prior to the original Expiration Date of March 31, 2002, the Executive shall not be entitled to receive the amounts described in Section 4(b)(i) and all such amounts shall be forfeited;     (v) If, upon the mutual agreement of the Company and the Executive, the Expiration Date of this Agreement is extended beyond the original Expiration Date of March 31, 2002, and the Executive terminates his employment for other than Good Reason following such original Expiration Date but prior to such extended Expiration Date, the Executive will receive retirement benefits described in Section 4(b)(i) based on the Executive's age as of such date of termination;     (vi) If, upon the mutual agreement of the Company and the Executive, the Expiration Date of this Agreement is extended beyond the original Expiration Date of March 31, 2002, the Executive's employment is terminated by the Company without Cause or the Executive terminates his employment for Good Reason (other than a Qualifying Termination, as defined in the Company's Income Security Plan) or as a result of the Executive's death or Disability, and the Executive has reached 63 years of age upon such termination date, the Executive will receive retirement benefits described under Section 4(b)(i) based on the assumption that the Executive had reached 65 years of age upon such termination date;    (vii) In the event of a Qualifying Termination, as defined in the Company's Income Security Plan, the Executive will receive retirement benefits described in Section 4(b)(i), incorporating any provisions of the Income Security Plan that may affect the determination of such amounts, and such amounts will become payable to the Executive in a single lump sum, utilizing the same assumptions necessary for making such determinations as set forth in the Aerospace Retirement Plan as in effect immediately prior to the Change of Control, as defined in the Company's Income Security Plan;    (viii) Except as provided in Section 4(b)(vii) or as otherwise elected by the Executive pursuant to this Section 4(b)(viii), the retirement benefits described in this Section 4(b) shall be paid as follows: (a) forty-nine percent (49%) of the total amount payable shall be paid as a monthly and 50% joint and survivor annuity benefit in accordance with the terms and conditions of the Aerospace Retirement Plan and (b) the remaining fifty-one percent (51%) shall be payable in a single lump sum, utilizing the same assumptions necessary for making such determinations as set forth in the Aerospace Retirement Plan. However, the Executive may elect, at least one year prior to the time at which the Executive is entitled to receive such benefits, to receive such benefits hereunder in any other actuarial equivalent form of benefits, utilizing the same assumptions necessary for making such determinations as set forth in the Aerospace Retirement Plan;     (ix) For purposes of this Agreement, "Good Reason" shall mean:     (a) Change of Compensation. A reduction by the Company in the Executive's annual base salary or target annual incentive bonus (as in effect on the Effective Date of this Agreement or as such amounts may have been increased from time to time) or the aggregate dollar value of the Executive's Stock Award or Performance Cash Award, as those terms are defined in the Income Security Plan (determined in accordance with the Company's policies and procedures based on the Executive's annual base salary and award parameters in effect on the Effective Date of this Agreement or as such amounts may have been increased from time to time), below the rate or value thereof, or the failure by the Company to continue the Executive's eligibility in any welfare benefits or retirement plans in which the Executive was participating on the Effective Date or such later date unless such welfare benefits or retirement plans are terminated by the Company in their entirety, and the elimination of eligibility affects all exempt employees, or the Executive is permitted to participate in other plans providing the Executive with materially comparable welfare benefits and in materially comparable retirement plans; or --------------------------------------------------------------------------------     (b) Change of Location. The Company requiring the Executive to be based anywhere other than the Executive's work location on the Effective Date, as it may be changed thereafter with the Executive's consent, or a location within fifty (50) miles from such location; unless such relocation is agreed to in writing by both the Company and the Executive, or is otherwise permitted by the terms of this Agreement; or     (c) Change of Position. The assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive. A termination pursuant to this Section 4(b)(ix) shall not be deemed a termination for Good Reason unless the Company receives written notice of such termination from the Executive within sixty (60) days after the occurrence of the events constituting the Executive's reason for such termination and the Company does not within thirty (30) days after receipt of such notice cure the stated reason therefor." 2.Amend Section 6(b)(iii) to read in its entirety as follows:     "all amounts owing to the Executive under Section 4(c) hereof and" Except as amended herein, all provisions of the Agreement shall continue in full force and effect.     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above and intend that this Amendment have the effect of a sealed instrument. Date:   July 20, 2000   /s/ Paul David Miller     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------         Paul David Miller                   ALLIANT TECHSYSTEMS INC.   Date:       July 20, 2000       By:       /s/ Daryl L. Zimmer     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------             Name:   Daryl L. Zimmer             Title:   Vice President, General Counsel & Secretary -------------------------------------------------------------------------------- QUICKLINKS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

Exhibit 10.23                 APPROVAL OF THE AMENDED 1995 DIMON INCORPORATED OMNIBUS STOCK INCENTIVE PLAN (Proposal 3)              The Board unanimously has approved and recommends amending DIMON's Omnibus Stock Incentive Plan (the "Incentive Plan") to: (i) increase the number of shares of DIMON Common Stock issuable under the Incentive Plan from 2,066,229 to 4,266,229; (ii) extend the duration of the Incentive Plan to February 8, 2015; (iii) expand the performance measures for eligibility for certain awards to include reductions in uncommitted and other inventories and debt; (iv) provide that non-employee members of the Board of Directors may participate in the Incentive Plan; and (v) eliminate the requirement that shareholders approve changes to the Incentive Plan that would increase benefits payable to the participants, except as would be required by the rules of any stock exchange on which DIMON Common Stock trades and subject to the overall limit on the number of shares issuable under the Incentive Plan. The proposed amendments require approval by vote of a majority of the votes entitled to be cast on the matter at the annual meeting. Consequently, abstentions and broker non-votes will be equivalent to votes against the proposed amendments. General            The Board adopted the Incentive Plan on February 9, 1995. The purpose of the Incentive Plan as amended is to assist DIMON in recruiting and retaining employees and Directors by enabling those employees and Directors to participate in DIMON's future success and to associate their interests with those of DIMON and its shareholders. The Incentive Plan permits the grant of options to purchase shares of DIMON Common Stock ("Options"), which may be incentive Options qualifying under Section 422 of the Code ("Incentive Options") or Options not so qualifying ("Nonqualified Options"), stock appreciation rights ("SARs"), restricted stock ("Restricted Stock"), performance shares ("Performance Shares") and incentive awards entitling the recipient to receive a cash payment ("Incentive Awards"). The principal features of awards that may be granted under the Incentive Plan are discussed below under the caption " Awards."            Under the amended Incentive Plan, a maximum of 4,266,229 shares of DIMON Common Stock may be issued upon the award of Restricted Stock, the settlement of Performance Shares or the exercise of Options and SARs. This maximum number will be increased annually by three percent (the "Replenishment Percentage") of the amount, if any, by which the total number of shares of DIMON Common Stock outstanding as of the last day of DIMON's fiscal year exceeds the total number of shares of DIMON Common Stock outstanding as of the first day of such fiscal year, excluding for such purposes shares of DIMON Common Stock issued under the Incentive Plan and shares of DIMON Common Stock issued as a result of the transactions or events described in the last sentence of the following paragraph. Pursuant to this provision, the number of shares issuable under the Plan was increased from the 2,000,000 shares originally authorized on February 9, 1995, to 2,066,229 shares as of June 30, 1999.     -75-                    If an Option or SAR is terminated, in whole or in part, for any reason other than its exercise, the number of shares of DIMON Common Stock allocated to the Option or SAR or portion thereof may be reallocated to other Options, SARs, Restricted Stock and Performance Share awards to be granted under the Incentive Plan. However, under the current Incentive Plan, shares of Restricted Stock that are forfeited may not be reallocated to other Options, SARs, Restricted Stock or Performance Shares to be awarded under the Incentive Plan. This restriction would be eliminated under the proposed amendments and forfeited Restricted Stock could be reallocated. The maximum number of shares available for awards under the Incentive Plan, the Replenishment Percentage, the per individual limits on awards (described below) and the terms of outstanding awards, will be adjusted as the Committee (defined below) determines equitable in the event there is (i) a change in the number of outstanding shares of DIMON Common Stock by reason of a stock dividend, stock split, subdivision or combination of shares, merger, consolidation, reorganization or similar change in the capital structure of DIMON or (ii) any other event occurs that, in the judgment of the Committee, necessitates such action. Administration            The Executive Compensation Committee (the "Committee") of the Board administers the Incentive Plan. Under the terms of the Incentive Plan, the Committee has the authority to award Restricted Stock and Performance Shares, and to grant Options, SARs and Incentive Awards, upon such terms not inconsistent with the provisions of the Incentive Plan as the Committee considers appropriate. Such terms may include conditions, in addition to those contained in the Incentive Plan, on the exercisability of all or any part of an Option or SAR or on the transferability of forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which an Option or SAR may be exercised or the time at which Restricted Stock may become transferable or nonforfeitable. In addition, the Committee has complete authority to: interpret all provisions of the Incentive Plan; prescribe the form of agreements evidencing awards under the Incentive Plan; adopt, amend and rescind rules and regulations pertaining to the administration of the Incentive Plan; and make all other determinations necessary or advisable for the administration of the Incentive Plan. The Committee, in its discretion, also may delegate to one or more officers of DIMON all or part of its authority and duties with respect to awards granted to employees who are not subject to the reporting or other provisions of Section 16 of the Exchange Act. Eligibility            Any employee of DIMON or any parent or subsidiary of DIMON and any member of the Board of DIMON is eligible to participate in the Incentive Plan if the Committee, in its sole discretion, determines that such person has contributed to the profits or growth of DIMON or such affiliate. Awards            Options granted under the Incentive Plan will entitle the optionee to purchase from DIMON shares of DIMON Common Stock at a price determined by the Committee at the time the option is granted. The option price may not be less than the fair market value of shares of DIMON Common Stock on the date the Option is granted. The Incentive Plan defines "fair market value" to mean, as of any given date, the closing price of DIMON Common Stock as reported on an established stock exchange or, if DIMON Common Stock was not traded on such day, the next preceding day that DIMON Common Stock so traded. Under the amended Incentive Plan, the maximum number of -76-   shares of DIMON Common Stock that may be issued upon the exercise of Incentive Options is 4,266,229 subject to adjustment by the Committee in the event of a stock dividend, stock split, subdivision or combination of shares, merger, consolidation, reorganization or similar change in the capital structure of DIMON or event which, in the judgment of the Committee, necessitates such action. No employee may be granted Incentive Options or related SARs that are first exercisable in any calendar year for stock having an aggregate fair market value, determined as of the date an Option is granted, exceeding $100,000. In addition, no employee may be granted Options and SARs that are not related to an Option in any calendar year for more than 70,000 shares of DIMON Common Stock, treating for such purposes an Option and related SAR as a single award.            SARs generally entitle an individual to receive the excess of the fair market value of a share of DIMON Common Stock on the date of exercise over the initial value, which will be the fair market value of a share of DIMON Common Stock on the date of grant. However, the Committee may prescribe that the individual realize appreciation on a different basis. For example, the Committee may limit the amount of appreciation that may be realized upon the exercise of an SAR. SARs may be granted in relation to option grants ("Corresponding SARs") or independently of option grants. The primary difference between these two types of SARs is that to exercise a Corresponding SAR, the individual must surrender, unexercised, that portion of the stock option to which the Corresponding SAR relates.            The maximum period during which an Option or SAR may be exercised will be determined by the Committee on the date of grant, except that no Incentive Option or its Corresponding SAR may be exercisable 10 years after the date of grant. All Options and SARs granted under the Incentive Plan will be nontransferable except by will or by the laws of descent and distribution. Notwithstanding the preceding sentence, if the agreement evidencing the Option or SAR provides, an Option or SAR may be transferred without consideration by the holder to certain of his or her family members. The Committee also may grant Options or SARs that are transferable on other terms and conditions as may be permitted by Rule 16b-3 under the Exchange Act. Options or SARs may be exercised in whole at any time, or in part from time to time, at such times and in compliance with such requirements as the Committee determines, provided that a Corresponding SAR that is related to an Incentive Option may be exercised only to the extent that the related Option is exercisable and only when the fair market value of DIMON Common Stock exceeds the option price of the related Option. The exercise of either an Option or Corresponding SAR will result in the termination of the other to the extent of the number of shares with respect to which the Option or Corresponding SAR is exercised.            Payment of the option price generally will be made in cash, a cash equivalent acceptable to the Committee or, if the agreement evidencing the Option provides, by surrendering shares of DIMON Common Stock. The agreement evidencing the Option also may allow payment of the option price in installments, in which event DIMON will lend the optionee an amount equal to not more than 90 percent of the option price, and the principal amount of the loan will be repayable in not more than five annual installments, subject to some exceptions. Interest on the unpaid principal balance will equal the minimum rate necessary to avoid imputed interest or original interest discount under the Internal Revenue Code (the "Code"). At the Committee's discretion, the amount payable as a result of the exercise of an SAR may be settled in cash, DIMON Common Stock or a combination of both.            Individuals may also be awarded shares of Restricted Stock. Restricted Stock is DIMON Common Stock that may be nontransferable or forfeitable, or both, unless and until certain conditions are satisfied. These conditions may include, for example, a requirement that the individual continue employment or service with DIMON for a specified period or that DIMON or the individual achieve stated objectives. Under the current Incentive Plan, the stated objectives may be based on -77-     performance goals stated with reference to the fair market value of DIMON Common Stock or on DIMON's return on shareholders' equity, return on employed assets, cash flow, return on investments, net income or earnings per share. The proposed amendments also would permit objectives related to uncommitted and other inventory levels or debt levels. Prior to the forfeiture of Restricted Stock, an individual will have all rights of a shareholder with respect to the Restricted Stock, including the right to receive dividends and to vote the shares, but may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Restricted Stock until any restrictions thereon have been satisfied. Under the Incentive Plan, no more than 35,000 shares of Restricted Stock may be awarded to an employee in any calendar year.            The Committee also may select individuals to receive an award of Performance Shares. A Performance Share is an award, stated with respect to a specified number of shares of DIMON Common Stock, that entitles the holder to receive shares of DIMON Common Stock and cash. The Committee, in its discretion, will determine whether a Performance Share will be settled with shares of DIMON Common Stock, cash or a combination of both. A Performance Share will be earned based on the lowest fair market value of DIMON Common Stock during the five valuation periods (June 1 through October 31) following the date of the award. The number of shares of DIMON Common Stock earned under a Performance Share award as of the end of a valuation period will be equal to the product of (x) the number of shares covered by the Performance Share award and (y) the Applicable Percentage (as defined in the next sentence), provided that such product will be reduced by the number of shares of DIMON Common Stock earned or, in the case of a cash payment, the number of shares represented by the payment made in a prior valuation period with respect to the same Performance Share award. Under the Incentive Plan, Applicable Percentage means the same percentage, in multiples of five percent, by which the lowest fair market value of the DIMON Common Stock during a valuation period exceeds the fair market value of DIMON Common Stock on the date that the Performance Share was granted. For example, if the lowest closing price of DIMON Common Stock during a valuation period represents a 10 percent appreciation from the fair market value on the date of grant, 10 percent of the Performance Shares will be earned. The Applicable Percentage may not be less than zero but can exceed 100 percent.            No Performance Shares will be earned, and no DIMON Common Stock will be issued, unless the lowest closing price of DIMON Common Stock during a valuation period represents at least five percent appreciation from the fair market value on the date of grant. No Performance Shares will be earned or cash settlement made with respect to any valuation period unless the Committee certifies the number of shares of DIMON Common Stock or the amount of cash earned by an employee during that period. To the extent that a Performance Share award is earned, DIMON Common Stock will be issued or a cash payment will be made as soon as practicable after the end of each valuation period.            The Incentive Plan provides that an individual's right to earn additional benefits under a Performance Share award will terminate if the individual's employment or service with DIMON and its subsidiaries ends for reasons other than death, disability or retirement. If an individual's employment or service ends on account of death, disability or retirement, the employee, or his estate in the case of death, will be entitled to receive shares of DIMON Common Stock or a cash payment for benefits earned in valuation periods preceding termination of employment and the next following valuation period. Under the Incentive Plan, no employee may be awarded more than 35,000 Performance Shares in any calendar year. An individual may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of a Performance Share or the right to receive payment thereunder other than by will or the laws of descent and distribution. Notwithstanding the preceding sentence, the Committee may grant Performance Shares that are transferable to the extent allowed by Rule 16b-3 under the Exchange Act. -78-                    The Incentive Plan provides that the Committee may select individuals to receive Incentive Awards. An Incentive Award is an opportunity to earn a bonus, payable in cash, upon the attainment of stated performance objectives. Under the amended Incentive Plan, the performance objectives may be stated with reference to the fair market value of DIMON Common Stock or on DIMON's return on shareholders' equity, return on employed assets, cash flow, return on investments, net income, earnings per share, uncommitted inventory levels or debt levels. The period in which the performance will be measured will be at least one year. Incentive Awards are nontransferable except by will or by the laws of descent and distribution, except that the Committee may grant Incentive Awards that are transferable upon such terms and conditions as are allowed by Rule 16b-3 under the Exchange Act. Under the Incentive Plan, no employee may receive an Incentive Award payment in any calendar year that exceeds the lesser of (i) 75 percent of the employee's base salary (prior to any salary reduction or deferral election) as of the date of grant of the Incentive Award or (ii) $450,000. Termination and Amendment            No awards may be granted under the current Incentive Plan after February 8, 2005. The proposed amendments would extend this date to February 8, 2015. The Board may, without further action by shareholders, terminate or suspend the Incentive Plan in whole or in part. Under the current Incentive Plan, the Board also may amend the Incentive Plan, except that no such amendment may become effective without shareholder approval if the amendment materially increases the number of shares of DIMON Common Stock that may be issued under the Incentive Plan, changes the class of individuals who may be selected to participate in the Incentive Plan, or increases the benefits that may be payable to participants. The proposed amendments would eliminate the requirement that shareholders approve amendments that would increase benefits payable to the participants under the Incentive Plan, except as would be required by the rules of any stock exchange on which DIMON Common Stock trades and subject to the overall limit on the number of shares issuable under the Incentive Plan. This amendment will increase the flexibility of the Incentive Plan, while preserving the shareholders rights' under existing stock exchange rules and their prerogative to approve the aggregate number of shares issuable under the Incentive Plan. Federal Tax Consequences            DIMON has been advised by counsel regarding the federal income tax consequences of the Incentive Plan. No income will be recognized by an optionee at the time an Option is granted. If the Option is an Incentive Option, no income will be recognized upon the optionee's exercise of the Option. Income will be recognized by an optionee when he disposes of shares acquired under an Incentive Option. The exercise of a Nonqualified Option generally will be a taxable event that will require the optionee to recognize, as ordinary income, the difference between the shares' fair market value and the option price.            No income will be recognized upon the grant of an SAR. The exercise of an SAR generally will be a taxable event. The individual generally must recognize income equal to any cash that is paid and the fair market value of DIMON Common Stock that is received in settlement of an SAR.            Income will be recognized when a Performance Share award is earned and when DIMON Common Stock is transferred or cash is paid to the individual. At that time the individual will recognize income equal to the sum of the fair market value of any DIMON Common Stock transferred, and any cash paid, to the individual.   -79-                      Income will be recognized on account of an award of Restricted Stock when the shares first become transferable or are no longer subject to a substantial risk of forfeiture. At that time, the individual will recognize income equal to the fair market value of the Restricted Stock.            No income will be recognized on account of the grant of an Incentive Award. Income will be recognized when the Incentive Award is earned and a payment is made to the individual.            The employer, either DIMON or a subsidiary, will be entitled to claim a federal income tax deduction on account of the exercise of a Nonqualified Option or SAR, the settlement of a Performance Share award, the settlement of an Incentive Award or the vesting of a Restricted Stock award. The amount of the deduction will be equal to the ordinary income recognized by the participant. The employer will not be entitled to a federal income tax deduction on account of the grant or the exercise of an Incentive Option, except that the employer may claim a federal income tax deduction on account of certain dispositions of Incentive Option stock.                                                                         -80-  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10 EMPLOYMENT AGREEMENT     THIS EMPLOYMENT AGREEMENT, made effective as of the 27th day of October, 2000, by and between James C. Granger ("Executive") and NORSTAN, INC., a Minnesota corporation (the "Company"), W I T N E S S E T H:     WHEREAS, the Company will employ Executive as President and Chief Executive Officer of Norstan, Inc., effective as of October 27, 2000;     WHEREAS, Executive's experience and knowledge are considered to be necessary to the continued success of the Company's business;     WHEREAS, the Company wishes to enter into an agreement with Executive governing the terms and conditions of his employment, and Executive is willing tobe employed on the terms and conditions hereinafter set forth;     NOW, THEREFORE, in consideration of the premises, and of the mutual covenants hereinafter set forth, the parties do hereby agree as follows:     1.  Employment Period.  The Company agrees to employ Executive, and Executive agrees to serve in the full-time employ of the Company, for the period (the "Employment Period") beginning on October 27, 2000 and ending on October 31, 2002; provided, that on November 1, 2001, and on each November  1 thereafter ("Renewal Date"), the Employment Period shall automatically be extended to the date which is 24 months after such Renewal Date unless, not later than such Renewal Date, the Company gives Executive written notice that the Employment Period shall not be so extended; provided further, that in the event of a "Change in Control" (as defined in subparagraph 7.e. below), the Employment Period shall automatically be extended to the date which is 24 months after the date on which the Change in Control occurs. Notwithstanding the foregoing, in no event shall the Employment Period continue beyond the earliest to occur of the date of Executive's 65th birthday, the date as of which Executive's employment is terminated pursuant to paragraph 4 or paragraph 7, or the date of the Executive's death.     2.  Duties.  During the Employment Period, Executive shall serve as President and Chief Executive Officer of Norstan, Inc., or, except as otherwise provided in this Agreement, in such other executive positions as the Chairman of the Board of Directors of the Company shall from time to time determine. Executive shall perform such executive and managerial duties consistent with such positions as the Chairman of the Board of Directors of the Company shall from time to time direct. Executive shall devote his best efforts and all of his business time and attention (except for usual vacation periods and reasonable periods of illness or other incapacity) to the business of the Company and its subsidiaries.     3.  Compensation.  During the Employment Period, Executive shall be compensated as follows:     a.  Salary.  Executive shall be paid a salary at a rate which is not less than $350,000 per year, exclusive of bonuses, if any, which may from time to time be awarded to Executive pursuant to any authorized bonus, incentive, or similar plan maintained by the Company. Executive's salary shall be subject to annual review and shall be paid in equal, bi-weekly installments.     b.  Expenses.  Executive shall be reimbursed for all reasonable business expenses incurred in the performance of his duties pursuant to this Agreement, to the extent such expenses are substantiated and are consistent with the general policies of the Company and its subsidiaries relating to the reimbursement of expenses of executive officers.     c.  Fringe Benefits.  In addition to any other compensation provided under this Agreement, Executive shall be entitled to participate, during the Employment Period, in any and all pension, -------------------------------------------------------------------------------- profit sharing, and other employee benefit plans or fringe benefit programs which are from time to time maintained by the Company for its executive officers, in accordance with the provisions of such plans or programs as are from time to time in effect. These fringe benefits include automobile, car phone and country club expenses.     d.  Other Benefits.  Executive shall be granted stock options and restricted stock awards in amounts consistent with his positions as President and Chief Executive Officer of the Company. In addition although the parties do not believe that Executive will suffer any loss by reason of his employment by Company, Company and Executive agree to share in any such loss resulting from the cancellation or rescission of certain stock options granted to Executive by his current employer and to arrive at a method for apportioning any such loss.     e.  Deductions and Withholding.  All compensation and other benefits payable to or on behalf of Executive pursuant to this Agreement shall be subject to such deductions and withholding as may be agreed to by Executive or required by applicable law.     4.  Disability.  If, during the Employment Period, Executive shall become incapacitated by accident or illness and, as determined under the Long-Term Disability Plan of the Company, shall be unable to perform the duties of the positions he then occupies for a period of 150 consecutive days, the Company shall have the right to terminate the Employment Period effective at any time after such 150 day period of disability by giving 30 days advance written notice to Executive. If the Employment Period is thus terminated, Executive shall not be entitled to receive any compensation or other benefits pursuant to this Agreement, other than compensation or benefits accrued through the effective date of such termination.     5.  Death.  If Executive shall die during the Employment Period without having been notified, pursuant to subparagraph 7.a. below, of a breach of any of the terms of this Agreement in any material respect, his base salary (at the rate in effect at the time of his death) shall be continued for a period of 12 months to the beneficiary named in the last written instrument signed by Executive for the purposes of this Agreement and received by the Company prior to his death. If Executive fails to name a beneficiary, such amounts shall be paid to his estate.     6.  Other Benefits.  The compensation provisions of this Agreement shall be in addition to, and not in derogation or diminution of, any benefits that Executive or his beneficiaries may be entitled to receive under the provisions of any pension, profit sharing, disability, or other employee benefit plan now or hereafter maintained by the Company.     7.  Termination.       a.  For Cause By Company.  The Company may terminate Executive's employment for cause upon 60 days prior written notice to Executive. Such notice shall specify in reasonable detail the nature of the cause and, during such 60 day period, Executive shall have the opportunity to cure the stated cause. If Executive fails to cure a stated cause, the Employment Period shall terminate at the end of the 60 day notice period, but without prejudice to Executive's right to contest the existence of any stated cause and/or to contest the fact that the cause has not been cured. For the purposes of this Agreement, cause shall mean any conduct by Executive involving an act or acts of dishonesty on the part of the Executive constituting a felony and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company, or any failure by Executive to substantially comply with the terms of this Agreement in any material respect.     b.  Ineligibility.  If the Company terminates Executive's employment for cause, or if Executive voluntarily terminates his employment under circumstances other than those specified in subparagraphs 7.c., or 14.a., Executive shall not be entitled to receive any compensation or other benefits pursuant to this Agreement, other than compensation or benefits accrued through the effective date of such termination. 2 --------------------------------------------------------------------------------     c.  Eligibility.  If, after or due to a "Change in Control" (as such term is defined in subparagraph 7.e. below), and prior to the expiration of the then current extension of the Employment Period, (a) Executive voluntarily terminates his employment (i) because he has been reassigned to a position of lesser rank or status or because he has been transferred to a location which is more than 25 miles from his previous principal place of employment, or because his base salary or incentive compensation has been reduced, or because his benefits have been reduced (unless such reduction is made uniformly in a plan of general application to all of the Company's eligible employees); or (ii) for Good Reason (as defined below); or (iii) if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that the Executive shall have furnished the Company with a written statement from a qualified physician to such effect and provided, further, that, at the Company's request, the Executive shall submit to an examination by a physician selected by the Company and such doctor shall have concurred in the conclusion of the Executive's doctor; or (iv) for any reason in Executive's sole discretion at any time within 18 months after the date of a Change in Control of the Company by giving thirty (30) days prior notice of his intention to terminate; or (b) the Company terminates Executive's employment for reasons other than those specified in paragraph 4 or subparagraph 7.a. of this Agreement, then Executive shall receive the compensation and benefits set forth in paragraph 8 below.      (i) For purposes of this Agreement, "Good Reason" shall mean (A) a failure by the Company to comply with any material provision of this Agreement which has not been cured within ten (10) days after notice of such noncompliance has been given by the Executive to the Company, or (B) any purported termination of the Executive's employment which is not effected pursuant to a notice of termination which notice 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.     d.  Without Cause By Company.  If, other than caused by a Change in Control, the Company terminates Executive's employment at any time prior to the expiration of the initial or then current extension of the Employment Period for reasons other than those specified in paragraph 4 or subparagraph 7.a. of this Agreement, then Executive shall continue to receive his base salary and fringe benefits (automobile, car phone and country club expense) for a period of 12 months.     e.  Change in Control, Defined.  For the purposes of this Agreement, a Change in Control shall be deemed to occur when and if, during the Employment Period:      (i) any Person (meaning any individual, firm, corporation, partnership, trust or other entity, and includes a "group" (as that term is used in Sections 13(d) and 14(d) of the Act), but excludes Continuing Directors (as defined below) and benefit plans sponsored by the Company):     (A) makes a tender or exchange offer for any shares of the Company's outstanding voting securities at any point in time (the "Company Stock") pursuant to which any shares of the Company's Stock are purchased; or     (B) together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Act) of at least 20% of Company's Stock; or     (ii) the stockholders of the Company approve a definitive agreement or plan to merge or consolidate the Company with or into another unaffiliated corporation, to sell or otherwise dispose of all or substantially all of its assets, or to liquidate the Company; or 3 --------------------------------------------------------------------------------     (iii) a majority of the members of the Board become individuals other than Continuing Directors (as defined below).     A "Continuing Director" means: (a) any member of the Board as of October 1, 2000, and (b) any other member of the Board, from time to time, who was (i) nominated for election by the Board or (ii) appointed by the Board to fill a vacancy on the Board or to fill a newly-created directorship, in each case excluding any individual nominated or appointed (y) at a Board meeting at which the majority of directors present are not Continuing Directors or (z) by unanimous written action of the Board unless a majority of the directors taking such action are Continuing Directors.     8.  Compensation on Change in Control.  In the event of a termination under subparagraph 7.c. above, during the Period of Employment or any extension thereof:      (i) The Company shall pay the Executive any earned and accrued but unpaid installment of base salary through the Date of Termination, at the rate in effect on the Date of Termination, or if greater, on the date immediately preceding the date that a Change in Control occurs, and all other unpaid amounts to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, including, without limitation, all accrued vacation time; such payments to be made in a lump sum on or before the fifth day following the Date of Termination.     (ii) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as liquidated damages to the Executive an amount equal to the product of (A) the sum of (1) the Executive's annual salary rate in effect as of the Date of Termination, or if greater, on the date immediately preceding the date that a Change in Control occurs, and (2) the greater of: (i) the prior year's actual incentive payment to the Executive under the Company's incentive plan for that year or (ii) the dollar amount payable at 100% of target under the Company's then current incentive plan for the year in which occurs such Date of Termination, and (B) the number two (2); such payment to be made in a lump sum on or before the fifth day following the Date of Termination.     (iii) The Company shall pay all other damages to which the Executive is entitled as a result of such termination, including damages for any and all loss of benefits to the Executive under the Company's employee welfare benefit plans and perquisite programs which the Executive would have received had the Executive's employment continued for an additional two (2) years, and including all reasonable legal fees and expenses incurred by him as a result of such termination, including the fees and expenses of enforcing the terms of this Agreement; payment of such fees to be made within thirty (30) days following the Company's receipt of an appropriate invoice therefor.     (iv) For a period of not less than twenty-four (24) months following the Executive's Date of Termination, the Company will reimburse the Executive in an amount not to exceed $15,000 for all reasonable expenses of a reputable outplacement organization incurred by him (but not including any arrangement by which the Executive prepays expenses for a period of greater than thirty (30) days) in seeking employment with another employer.     (v) Executive shall be fully vested in all shares of restricted stock, performance awards, stock appreciation rights and stock options granted to him under the Norstan, Inc. 1995 Long-Term Incentive Plan (or any predecessor or successor plan) on the date of a Change in Control.     (vi) The present value (as defined herein) of the liquidated damages payable to the Executive under subsection (ii) above, and any other payments otherwise payable to the Executive by the Company on or after a Change in Control, as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), which are deemed under said Section 280G to constitute "parachute payments" (as defined in Section 280G without regard to Section 280G(b)(2)(A)(ii)), shall be less than three times the Executive's base amount (as defined herein). In the event that 4 -------------------------------------------------------------------------------- the present value of such payments equals or exceeds such amount, the provisions set forth in this subparagraph (vi) will apply, and liquidated damages or other severance benefits payable to the Executive under this Agreement will be made only in accordance with this subparagraph (vi) notwithstanding any provision to the contrary in this Agreement.     (A) Not later than thirty days after the Date of Termination, the Company will provide the Executive with a schedule indicating by category the present value of the liquidated damages payable to the Executive under this Agreement, all other benefits payable to the Executive under this Agreement (specifying the paragraph, subparagraph or clause under which each such payment is to be made) and any other payments otherwise payable to the Executive by the Company on or after the Change in Control, which, in the Company's opinion, constitute parachute payments under Section 280G of the Code. No payments under this Agreement shall be made until after thirty days from the receipt of such schedule by the Executive. At any time prior to the expiration of said 30-day period, the Executive shall have the right to select from all or part of any category of payment to be made under this Agreement those payments to be made to the Executive in an amount the present value of which (when combined with the present value of any other payments otherwise payable to the Executive by the Company that are deemed parachute payments) is less than 300 percent of the Executive's base amount. If the Executive fails to exercise his right to make a selection, only a lump sum cash severance payment equal to one dollar less than 300 percent of the Executive's base amount (reduced by the present value of any other payments otherwise payable to the Executive by the Company that are deemed parachute payments and increased, to the extent such increase will not cause the payment to be an excess parachute payment under Section 280G of the Code, by interest from the Date of Termination to the date of payment at the Federal short-term rate, compounded annually, promulgated under Section 1274(d) of the Code as effective for the month in which the Date of Termination occurs) shall be made to the Executive on the day after the expiration of the period extending thirty days from his receipt of the schedule provided for hereunder, and no other liquidated damages or other benefits under subparagraphs (ii), (iii), (iv) and (v) above of this Agreement shall be paid to the Executive.     (B) If the Company fails to supply the schedule within thirty days of the Date of Termination, then the provisions of this subparagraph (vi) shall not apply and the Company shall be obligated to pay to the Executive the full amount of liquidated damages and other benefits under this Agreement, without regard to subparagraph (vi).     (C) If the Executive disagrees with the schedule prepared by the Company, then the Executive shall have the right to submit the schedule to arbitration, in accordance with the provisions of paragraph 12 herein. The period in which the Executive may select his benefits under this Agreement shall be extended until fifteen days after a final and binding arbitration award is issued or a final judgment, order or decree of a court of competent jurisdiction is entered upon such arbitration award (the time for appeal therefrom having expired and no appeal having been perfected), and the Company's period for paying the Executive's unpaid benefits under this Agreement shall be extended until ten days thereafter. If the Executive fails to make a selection within said fifteen day period, the Company shall pay the unpaid benefits within five days following the expiration of the Executive's fifteen day period.     (D) For purposes of this subparagraph (vi), "present value" means the value determined in accordance with the principles of Section 1274(b)(2) of the Code under regulations promulgated under Section 280G of the Code, and "base amount" means the annualized includible compensation for the base period payable to the Executive by the Company and includible in the Executive's gross income for Federal income tax purposes during the shorter of the period consisting of the most recent five taxable years ending before the date of any 5 -------------------------------------------------------------------------------- Change in Control of the Company or the portion of such period during which the Executive was an employee of the Company.     (E) In the event that Section 280G of the Code, or any successor statute, is repealed, this subparagraph (vi) shall cease to be effective on the effective date of such repeal.    (vii) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise.     9.  Competition.       a.  During the Employment Period, Executive will not, except with the express written consent of the Chairman of the Board of Directors of the Company become engaged in, or permit his name to be used in connection with any business other than the businesses of the Company and its subsidiaries, whether or not such other business is a competitive business.     b.  Executive covenants and agrees that for a period of 12 months after the termination of the Employment Period, or for such longer period as Executive is receiving payments pursuant to paragraph 8, he will not, except with the express written consent of the then Chairman of the Board of Directors of the Company, engage directly or indirectly in, or permit his name to be used in connection with any competitive business in the geographic area serviced by the Company or its subsidiaries. Executive further covenants and agrees for a period of 12 months from the date of termination of his employment hereunder not to solicit or assist anyone else in the solicitation of, any of the Company's then-current employees to terminate their employment with the Company and to become employed by any business enterprise with which the Executive may then be employed, associated, affiliated or connected.     c.  For the purposes of this paragraph 9: (i) the phrase, "engage directly or indirectly in" shall encompass: (A) all of Executive's activities whether on his own account or as an employee, director, officer, agent, consultant, independent contractor, or partner of or in any person, firm, or corporation (other than the Company and its subsidiaries), or (B) Executive's ownership of more than 10% of the voting stock of any corporation, 5% or more of the gross income of which is derived from any business or businesses in which Executive may not then engage; and (ii) the phrase "competitive business" shall mean: (A) the sale of telephone, telecommunications, or similar equipment, or (B) any other business in which the Company or its subsidiaries is then engaged.     d.  Notwithstanding the foregoing, the restrictions set forth in subparagraph 9.b. shall not apply if Executive's employment is terminated under any of the circumstances described in subparagraphs 7.c. or 14.a.     10.  Confidential Information.  Executive agrees that he will not, without the prior written consent of the Board of Directors of the Company, during the term or after termination of his employment under this Agreement, directly or indirectly disclose to any individual, corporation, or other entity (other than the Company or any subsidiary thereof, their officers, directors, or employees entitled to such information, or to any other person or entity to whom such information is regularly disclosed in the normal course of the Company's business) or use for his own or such another's benefit, any information, whether or not reduced to written or other tangible form, which:     a.  is not generally known to the public or in the industry;     b.  has been treated by the Company or any of its subsidiaries as confidential or proprietary; and 6 --------------------------------------------------------------------------------     c.  is of competitive advantage to the Company or any of its subsidiaries and in the confidentiality of which the Company or any of its subsidiaries has a legally protectable interest. Information which becomes generally known to the public or in the industry, or in the confidentiality of which the Company and its subsidiaries cease to have a legally protectable interest, shall cease to be subject to the restrictions of this paragraph.     11.  Enforcement.  If, at the time of enforcement of any provision of paragraphs 9 or 10, a court shall hold that the period, scope, or geographical area restrictions stated therein are unreasonable under circumstances then existing, the maximum period, scope, or geographical area reasonable under the circumstances shall be substituted for the stated period, scope, or area. In the event of a breach by Executive of any of the provisions of paragraphs 9 or 10, the Company may, in addition to any other rights and remedies existing in its favor, apply to any 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.     12.  Arbitration.  Except to the extent provided in paragraph 11, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration before three arbitrators, and judgment rendered by the arbitrators, or a majority of them, may be entered in any court having jurisdiction thereof. Within 30 days after notice by either party to the other requesting such arbitration, each party shall appoint a disinterested and neutral arbitrator, and the two thus chosen shall appoint a third disinterested and neutral arbitrator. If the two arbitrators so appointed cannot agree upon the appointment of a third arbitrator, then such third arbitrator shall be appointed by the Chief Judge of the United States District Court for the district that then includes the City of Minneapolis. Such arbitration shall be conducted in the City of Minneapolis in conformity with the procedures provided under the Uniform Arbitration Act, as adopted by the State of Minnesota and as then in effect. Except as provided in paragraph 13 of this Agreement, the parties shall each pay their own expenses in connection with such arbitration and any related proceedings.     13.  Payment of Costs.  If a dispute arises regarding a termination of Executive's employment after a Change in Control and Executive obtains a final judgment in his favor from which no appeal may be taken, whether because the time to do so has expired or otherwise, or his claim is settled by the Company prior to the rendering of such a judgment, all reasonable legal fees and expenses incurred by Executive in contesting or disputing any such termination, in seeking to obtain or enforce any right or benefit provided for in this Agreement, or in otherwise pursuing his claim will be promptly paid by the Company, with interest thereon at the highest Minnesota statutory rate for interest on judgments against private parties, from the date of payment thereof by Executive to the date of reimbursement to him by the Company.     14.  Successors.       a.  Of the Company.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it 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 entitle Executive to terminate his employment with the Company and to receive the payments and benefits provided for in paragraph 8. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined, and any successor to the business and/or assets of the Company which executes and delivers the agreement provided for in this paragraph 14 or which otherwise becomes bound by all the terms and provisions of this Agreement as a matter of law. 7 --------------------------------------------------------------------------------     b.  Of Executive.  This Agreement and all rights of the Executive hereunder 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 him hereunder if he 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.     15.  General Provisions.       a.  Assignments.  Executive's rights and interests under this Agreement may not be assigned, pledged, or encumbered by him without the Company's written consent.     b.  Effect of Headings.  The headings of all of the paragraphs and subparagraphs of this Agreement are inserted for convenience of reference only, and shall not affect the construction or interpretation of this Agreement.     c.  Modification, Amendment, Waiver.  No modification, amendment, or waiver of any provision of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms.     d.  Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.     e.  No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person.     f.  Applicable Law.  All questions concerning the construction, validity, and interpretation of this Agreement shall be governed by the laws of the State of Minnesota.     g.  Notices.  Any notice to be served under this Agreement shall be in writing and shall be mailed by registered mail, registry fee and postage prepaid and return receipt requested, addressed: If to the Company, to:   Norstan, Inc. 5101 Shady Oak Road Minnetonka, MN 55343 Attention: Chairman of the Board cc: VP & General Counsel, or   If to Executive, to:   James C. Granger 4600 Xene Lane North Plymouth, MN 55446 or to such other place as either party may specify in writing, delivered in accordance with the provisions of this subparagraph. 8 --------------------------------------------------------------------------------     h.  Survival.  The rights and obligations of the parties shall survive the term of Executive's employment to the extent that any performance is required under this Agreement after the expiration or termination of such term.     i.  Entire Agreement.  This Agreement constitutes the entire agreement of the parties with respect to the subject matter thereof, and supersedes all previous agreements between the parties relating to the same subject matter.     IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year first above written.     NORSTAN INC. (the "Company")           By:       /s/ PAUL BASZUCKI    -------------------------------------------------------------------------------- Paul Baszucki Chairman of the Board           James C. Granger (the "Executive")                   /s/ JAMES C. GRANGER    -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- QUICKLINKS EMPLOYMENT AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.2 VOTING AGREEMENT     THIS VOTING AGREEMENT ("Agreement") is made and entered into as of September 12, 2000, by and among Reuter Manufacturing, Inc., a Minnesota corporation (the "Company"), certain existing holders of the Company's common stock, $.1875 par value per share (the "Common Stock"), whose names, addresses and respective ownership positions in the Company are listed in Schedule 1 attached hereto (the "Shareholders"), and Activar, Inc., a Minnesota corporation (the "Investor"). The Company, the Shareholders and the Investor are individually referred to as a "Party" and collectively referred to as the "Parties." RECITALS     WHEREAS, the Company is negotiating a Securities Purchase Agreement (the "Purchase Agreement") pursuant to which the Company intends to issue and sell shares of the Company's Common Stock and Series A Preferred Stock to the Investor in exchange for $800,000.     WHEREAS, capitalized terms used herein without definition have the meanings specified in the Purchase Agreement.     WHEREAS, the Investor has required, as a condition to the closing under the Purchase Agreement, that the Shareholders enter into this Agreement.     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows: 1.Voting Agreement.  Each of the Shareholders hereby agrees, on behalf of itself and any of such Parties' heirs, beneficiaries, successors or assigns, to vote all shares of Common Stock, now owned or hereafter acquired of record or beneficially by each such Shareholder (collectively, the "Shares"): 1.1for the election of designees of the Investor to the Board of Directors of the Company (the "Board"); and 1.2as directed by the Investor on all matters which are, at any time and from time to time, presented for a vote to the Company's shareholders at any regular or special meeting of shareholders. 2.Waiver of Right to Abstain or Be Absent From a Meeting.  Each of the Shareholders hereby expressly waives any right which such Shareholder would otherwise have to abstain, except as expressly provided herein, from any action taken at, or to be absent from, a duly held meeting of the Company's shareholders. 3.Irrevocable Proxy.  To secure the Shareholders' obligations to vote the Shares in accordance with this Agreement, each Shareholder hereby appoints the Investor, from time to time, or its designees, as such Investor's true and lawful proxy and attorney, with the power to act alone and with full power of substitution, to vote all of the Shares in favor of the matters set forth in Section 1 hereof (as applicable) if, and only if, such Shareholder fails to vote all of such Shareholder's shares in accordance with the applicable provisions of Section 1 hereof. The proxy and power granted by each Shareholder pursuant to this Section 3 are coupled with an interest and are given to secure the performance of such Party's duties under Sections 1 and 2 of this Agreement. Each such proxy will be irrevocable for the term hereof. The proxy, so long as any Party hereto is an individual, will survive the death, incompetency and disability of such Party or any other individual holder of Shares and, so long as any Party hereto is an entity, will survive the merger or dissolution of such Party or any other entity holding any Shares. 1 -------------------------------------------------------------------------------- 4.Limitations on Transfer.  No Shareholder shall sell, transfer, assign, distribute or otherwise dispose of such Party's Shares to any person or entity, other than to the Investor or the Company, unless and until such person or entity shall agree in writing to take such Shares subject to, and shall accept and agree to be bound in writing by, the terms and conditions of this Agreement, in which case such person or entity shall be deemed to be a Shareholder for purposes of this Agreement. 5.Legend.  The Company agrees that each certificate evidencing the Shares subject to the provisions of this Agreement and each certificate issued in exchange for or upon the transfer of any such Shares will, upon the Investor's request, during the term of this Agreement, be endorsed with a legend in substantially the following form or to the following effect: THE SHARES EVIDENCED BY THIS CERTIFICATE AND ANY TRANSFER THEREOF ARE SUBJECT TO THE TERMS OF A VOTING AGREEMENT DATED AS OF SEPTEMBER 12, 2000 BETWEEN REUTER MANUFACTURING, INC. AND CERTAIN OF ITS SHAREHOLDERS (INCLUDING THE HOLDER OF THIS CERTIFICATE). SUCH VOTING AGREEMENT CONTAINS CERTAIN RESTRICTIONS ON VOTING AND TRANSFER OF THE SHARES. A COPY OF SUCH VOTING AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY AND WILL BE FURNISHED BY THE COMPANY UPON REQUEST AND WITHOUT CHARGE. 6.Effectiveness; Termination.  The provisions of this Agreement shall be effective immediately upon the closing under the Purchase Agreement; provided, however, that if the Closing does not occur on or before October 31, 2000, then this Agreement shall be void and of no effect. This Agreement, if it becomes effective, shall terminate upon the earlier to occur of: 6.1the date that the Investor owns more than fifty (50%) of the issued and outstanding shares of the Company's voting securities; or 6.2the third anniversary of the date of closing under the Purchase Agreement. 7.Remedies; Specific Performance.  The Company and each Party understands and agrees that a breach of the terms and conditions of this Agreement will cause the other Parties irreparable harm which cannot be reasonably or adequately compensated by receipt of money damages at law, and that any Party or Parties may, in their sole discretion, apply to any court of law or equity or competent jurisdiction for specific enforcement, injunctive relief and or other equitable remedies to prevent or remedy a breach of this Agreement or any part hereof. All rights and remedies herein provided are cumulative and not exclusive of any remedy provided by law or by equity. 8.Delays or Omissions.  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement shall impair any such right, power or remedy of such Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence thereto, or of a similar breach of 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. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under the Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. 9.Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon and be enforceable by the respective heirs, successors and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the Parties or their respective heirs, successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2 -------------------------------------------------------------------------------- 10.Waivers, Amendments and Approvals.  Any term or provision of this Agreement requiring performance by or binding upon the Company or the Shareholders and Investor, or other terms of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing signed by each of the Parties. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon the Shareholders and Investor (including permitted assigns pursuant to Section 9 hereof). 11.Severability.  Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement, shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 12.Attorneys' Fees.  Should suit be brought to enforce or interpret any part of this Agreement, the prevailing party shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court (including, without limitation, costs, expenses and fees on any appeal). The prevailing party shall be the party entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. A party not entitled to recover its costs shall not be entitled to recover attorneys' fees. 13.Entire Agreement.  This Agreement, the schedules hereto, the documents referenced herein and the exhibits thereto, constitute the entire understanding and agreement of the Parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the Parties with respect hereto and thereto. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. 14.Governing Law.  This Agreement shall be governed by and construed in accordance with, the laws of the State of Minnesota, notwithstanding the laws of conflict of any jurisdiction. 15.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. (BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS NEXT.) 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date written above. Company:   REUTER MANUFACTURING, INC.                     By: /s/ Michael Tate --------------------------------------------------------------------------------     Name: Michael Tate     Its: President and Chief Executive Officer   Investor:       ACTIVAR, INC.           By:   /s/ J.L. Reisser --------------------------------------------------------------------------------     Name: J.L. Reisser     Its: President and Chief Operating Officer   Shareholders:                 /s/ Kenneth E. Daugherty -------------------------------------------------------------------------------- KENNETH E. DAUGHERTY           /s/ Edward E. Strickland -------------------------------------------------------------------------------- EDWARD E. STRICKLAND                 /s/ Richard W. Perksin -------------------------------------------------------------------------------- RICHARD W. PERKINS                         (SIGNATURE PAGE VOTING AGREEMENT) 4 -------------------------------------------------------------------------------- SCHEDULE 1 Name and Address --------------------------------------------------------------------------------   Number of Shares Held --------------------------------------------------------------------------------   Number of Options Held --------------------------------------------------------------------------------   Number of Warrants Held --------------------------------------------------------------------------------   Total -------------------------------------------------------------------------------- Kenneth E. Daugherty 1913 East Hunskor Road Oak Harbor, WA 98277   347,689   21,000   25,000   393,689   Edward E. Strickland 520 Warbass Way Friday Harbor, WA 98250       375,958       48,000       50,000       473,958   Richard W. Perkins 730 East Lake Street Wayzata, MN 55391-1769       250,000       —       —       250,000 5 -------------------------------------------------------------------------------- QUICKLINKS VOTING AGREEMENT SCHEDULE 1

AIRCRAFT LEASE AGREEMENT Dated as of August 14, 2000 BETWEEN FRONTIER AIRLINES, INC. as LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION as LESSOR Aircraft Make and Model: Used Boeing B737-300 Aircraft Manufacturer's Serial Number: 26301 Aircraft Registration Mark: Per Exhibit E Make and Model of Engines: CFM56-3C1 Serial Numbers of Engines: 726115 and 727103 USED AIRCRAFT NO. 2 TABLE OF CONTENTS ARTICLE 1 SUMMARY OF TRANSACTION....................................................................2 1.1 Description of Aircraft...................................................................2 1.2 Scheduled Delivery Date and Location......................................................2 1.3 Initial Lease Term........................................................................2 1.4 Lease Extension Option....................................................................2 1.5 Security Deposit..........................................................................2 1.6 Transaction Fee...........................................................................2 1.7 Rent During Initial Lease Term............................................................2 1.8 Rent During Lease Extension Term..........................................................3 1.9 Reserves..................................................................................3 1.10 Country of Aircraft Registration..........................................................3 1.11 Maintenance Program.......................................................................3 1.12 Agreed Value of Aircraft..................................................................3 1.13 LESSOR's Bank Account.....................................................................4 ARTICLE 2 DEFINITIONS...............................................................................5 2.1 General Definitions.......................................................................5 2.2 Specific Definitions.....................................................................10 ARTICLE 3 PLACE AND DATE OF DELIVERY...............................................................12 3.1 Place of Delivery........................................................................12 3.2 Scheduled Delivery Date..................................................................12 3.3 No LESSOR Liability......................................................................12 3.4 Total Loss of Aircraft prior to Delivery.................................................12 3.5 Cancellation for Delay...................................................................12 ARTICLE 4 LEASE TERM AND EXTENSION OPTION..........................................................13 4.1 Initial Lease Term.......................................................................13 4.2 Lease Extension Option...................................................................13 4.3 "Lease Term" and "Expiration Date".......................................................13 4.4 "Termination Date".......................................................................13 ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS.....................15 5.1 Security Deposit.........................................................................15 5.2 Transaction Fee..........................................................................15 5.3 Rent.....................................................................................16 5.4 Reserves.................................................................................16 5.5 LESSOR's Bank Account....................................................................17 5.6 Default Interest.........................................................................18 5.7 No Deductions or Withholdings............................................................18 5.8 Value Added Taxes........................................................................18 5.9 Wire Transfer Disbursement Report........................................................19 5.10 Net Lease................................................................................19 5.11 LESSOR Performance of LESSEE Obligation..................................................20 5.12 Consideration for Rent and other Amounts.................................................20 ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT............................................21 6.1 LESSEE Selection of Aircraft.............................................................21 6.2 Condition at Delivery....................................................................21 6.3 LESSEE Inspection of Aircraft at Delivery................................................21 6.4 Delivery of Aircraft to LESSEE...........................................................21 6.5 LESSEE Acceptance of Aircraft............................................................21 ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS..............22 7.1 Pre-Delivery Requirements................................................................22 7.2 LESSOR's Pre-Delivery Requirements.......................................................22 7.3 Delivery Requirements....................................................................23 7.4 Post-Delivery Requirements...............................................................24 ARTICLE 8 DISCLAIMERS..............................................................................25 8.1 "As Is, Where Is"........................................................................25 8.2 Waiver of Warranty of Description........................................................25 8.3 LESSEE Waiver............................................................................26 8.4 Conclusive Proof.........................................................................26 8.5 No LESSOR Liability for Losses...........................................................26 8.6 No Liability to Repair or Replace........................................................27 8.7 No Waiver................................................................................27 ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES...................................................28 9.1 Warranties...............................................................................28 9.2 Non-Assignable Warranties................................................................28 9.3 Reassignment.............................................................................28 9.4 Warranty Claims..........................................................................28 ARTICLE 10 OPERATION OF AIRCRAFT....................................................................29 10.1 Costs of Operation.......................................................................29 10.2 Compliance with Laws.....................................................................29 10.3 Training.................................................................................29 10.4 No Violation of Insurance Policies.......................................................29 10.5 Flight Charges...........................................................................29 ARTICLE 11 SUBLEASES................................................................................30 11.1 No Sublease without LESSOR Consent.......................................................30 11.2 LESSOR Costs.............................................................................30 11.3 Any Approved Sublease....................................................................30 11.4 Assignment of Sublease...................................................................31 11.5 Continued Responsibility of LESSEE.......................................................31 ARTICLE 12 MAINTENANCE OF AIRCRAFT..................................................................32 12.1 General Obligation.......................................................................32 12.2 Specific Obligations.....................................................................32 12.3 Replacement of Parts.....................................................................34 12.4 Removal of Engines.......................................................................35 12.5 Pooling of Engines and Parts.............................................................35 12.6 Installation of Engines on other aircraft................................................35 12.7 Engine Thrust Rating.....................................................................36 12.8 Modifications............................................................................36 12.9 Performance of Work by Third Parties.....................................................38 12.10 Reporting Requirements...................................................................38 12.11 Information Regarding Maintenance Program................................................38 12.12 LESSOR Rights to Inspect Aircraft........................................................38 ARTICLE 13 USE OF RESERVES..........................................................................39 13.1 Airframe Reserves........................................................................39 13.2 Engine Reserves..........................................................................39 13.3 Landing Gear Reserves....................................................................40 13.4 Reimbursement............................................................................40 13.5 Reimbursement Adjustment.................................................................40 13.6 Costs in Excess of Reserves..............................................................41 13.7 Reimbursement after Termination Date.....................................................41 ARTICLE 14 TITLE AND REGISTRATION...................................................................42 14.1 Title to the Aircraft During Lease Term..................................................42 14.2 Registration of Aircraft.................................................................42 14.3 Filing of this Lease.....................................................................42 14.4 Evidence of Registration and Filings.....................................................42 ARTICLE 15 IDENTIFICATION PLATES....................................................................43 15.1 Airframe Identification Plates...........................................................43 15.2 Engine Identification Plates.............................................................43 ARTICLE 16 TAXES....................................................................................44 16.1 General Obligation of LESSEE.............................................................44 16.2 Exceptions to Indemnity..................................................................44 16.3 After-Tax Basis..........................................................................45 16.4 Timing of Payment........................................................................46 16.5 Contests.................................................................................46 16.6 Refunds..................................................................................46 16.7 Cooperation in Filing Tax Returns........................................................46 16.8 Survival of Obligations..................................................................46 ARTICLE 17 INDEMNITIES..............................................................................47 17.1 General Indemnity........................................................................47 17.2 Exceptions to General Indemnities........................................................48 17.3 After-Tax Basis..........................................................................49 17.4 Timing of Payment........................................................................49 17.5 Subrogation..............................................................................49 17.6 Notice...................................................................................49 17.7 Refunds..................................................................................49 17.8 Defense of Claims........................................................................49 17.9 Survival of Obligation...................................................................50 ARTICLE 18 INSURANCE................................................................................51 18.1 Categories of Insurance..................................................................51 18.2 Write-back of any Date Recognition Exclusion.............................................51 18.3 Insurance for Indemnities................................................................51 18.4 Insurance required by Manufacturer.......................................................51 18.5 Renewal..................................................................................51 18.6 Assignment of Rights by LESSOR...........................................................51 18.7 Other Insurance..........................................................................52 18.8 Information..............................................................................52 18.9 Currency.................................................................................52 18.10 Grounding of Aircraft....................................................................52 18.11 Failure to Insure........................................................................52 18.12 Reinsurance..............................................................................52 18.13 Limit on Hull in favor of LESSEE.........................................................53 ARTICLE 19 LOSS, DAMAGE AND REQUISITION.............................................................54 19.1 Definitions..............................................................................54 19.2 Notice of Total Loss.....................................................................55 19.3 Total Loss of Aircraft or Airframe.......................................................55 19.4 Surviving Engine(s)......................................................................56 19.5 Total Loss of Engine and not Airframe....................................................56 19.6 Other Loss or Damage.....................................................................57 19.7 Copy of Insurance Policy.................................................................58 19.8 Government Requisition...................................................................58 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent................58 ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE......................................59 20.1 Representations and Warranties...........................................................59 20.2 Covenants................................................................................60 ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR......................................63 21.1 Representations and Warranties...........................................................63 21.2 Covenant of Quiet Enjoyment..............................................................64 ARTICLE 22 FINANCIAL AND RELATED INFORMATION........................................................65 ARTICLE 23 RETURN OF AIRCRAFT.......................................................................66 23.1 Date of Return...........................................................................66 23.2 Technical Report.........................................................................66 23.3 Return Location..........................................................................66 23.4 Full Aircraft Documentation Review.......................................................66 23.5 Aircraft Inspection......................................................................66 23.6 Certificate of Airworthiness Matters.....................................................67 23.7 General Condition of Aircraft at Return..................................................68 23.8 Checks Prior to Return...................................................................70 23.9 Engine Return Requirements...............................................................71 23.10 Hour/Cycle/Calendar Time Requirements....................................................73 23.11 Like for Like............................................................................74 23.12 Export and Deregistration of Aircraft....................................................74 23.13 LESSEE's Continuing Obligations..........................................................74 23.14 Airport and Navigation Charges...........................................................75 23.15 Return Acceptance Certificate............................................................75 23.16 Indemnities and Insurance................................................................76 23.17 Civil Reserve Air Fleet..................................................................76 ARTICLE 24 ASSIGNMENT...............................................................................78 24.1 No Assignment by LESSEE..................................................................78 24.2 Sale or Assignment by LESSOR.............................................................78 24.3 LESSOR's Lender..........................................................................78 24.4 LESSEE Cooperation.......................................................................78 24.5 Protections..............................................................................79 ARTICLE 25 DEFAULT OF LESSEE........................................................................80 25.1 LESSEE Notice to LESSOR..................................................................80 25.2 Events of Default........................................................................80 25.3 LESSOR's General Rights..................................................................82 25.4 Deregistration and Export of Aircraft....................................................82 25.5 LESSEE Liability for Damages.............................................................82 25.6 Waiver of Default........................................................................83 25.7 Present Value of Payments................................................................83 25.8 Use of "Termination Date"................................................................84 25.9 LESSEE's Remedies........................................................................84 25.10 Waiver of Consequential Damages..........................................................84 ARTICLE 26 NOTICES..................................................................................85 26.1 Manner of Sending Notices................................................................85 26.2 Notice Information.......................................................................85 ARTICLE 27 GOVERNING LAW AND JURISDICTION...........................................................86 27.1 California Law...........................................................................86 27.2 Non-Exclusive Jurisdiction in California.................................................86 27.3 Service of Process.......................................................................86 27.4 Prevailing Party in Dispute..............................................................86 27.5 Waiver...................................................................................86 ARTICLE 28 MISCELLANEOUS............................................................................87 28.1 Transportation of Personnel..............................................................87 28.2 Press Releases...........................................................................87 28.3 Power of Attorney........................................................................87 28.4 LESSOR Performance for LESSEE............................................................87 28.5 LESSOR's Payment Obligations.............................................................87 28.6 Application of Payments..................................................................87 28.7 Usury Laws...............................................................................87 28.8 Delegation by LESSOR.....................................................................88 28.9 Confidentiality..........................................................................88 28.10 Rights of Parties........................................................................88 28.11 Further Assurances.......................................................................88 28.12 Use of Word "including"..................................................................89 28.13 Headings.................................................................................89 28.14 Invalidity of any Provision..............................................................89 28.15 Time is of the Essence...................................................................89 28.16 Amendments in Writing....................................................................89 28.17 Counterparts.............................................................................89 28.18 Delivery of Documents by Fax.............................................................89 28.19 Entire Agreement.........................................................................89 28.20 Expenses.................................................................................90 EXHIBIT A AIRCRAFT DESCRIPTION.....................................................................92 EXHIBIT B CONDITION AT DELIVERY....................................................................93 EXHIBIT C CERTIFICATE OF INSURANCE.................................................................99 EXHIBIT D BROKERS' LETTER OF UNDERTAKING..........................................................106 EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE.....................................................108 EXHIBIT F OPINION OF COUNSEL......................................................................110 EXHIBIT G FORM OF POWER OF ATTORNEY...............................................................111 EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME).........................................................113 EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)..........................................................118 EXHIBIT J RETURN ACCEPTANCE RECEIPT...............................................................122 EXHIBIT K MONTHLY REPORT..........................................................................132 EXHIBIT L AIRCRAFT DOCUMENTATION..................................................................135 EXHIBIT M TECHNICAL EVALUATION REPORT.............................................................137 AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of August 14, 2000. BETWEEN: FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239 ("LESSEE") and INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation whose address and principal place of business is at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, United States of America ("LESSOR"). The subject matter of this Lease is one (1) used B737-300 aircraft as more particularly described on Exhibit A attached hereto. In consideration of and subject to the mutual covenants, terms and conditions contained in this Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease from LESSOR the aircraft and the parties further agree as follows: ARTICLE 1 SUMMARY OF TRANSACTION The following is a summary of the lease transaction between LESSEE and LESSOR. It is set forth for the convenience of the parties only and will not be deemed in any way to amend, detract from or simplify the other provisions of this Lease. 1.1 Description of Aircraft One used Boeing B737-300 aircraft with two (2) installed CFM56-3C1 engines, all as more particularly described on Exhibit A hereto 1.2 Scheduled Delivery Date and Location On or about August 17, 2000 at the TIMCO maintenance facility at Greensboro, North Carolina. 1.3 Initial Lease Term Approximately 38 months ending on November 1, 2003. However, upon prior written notice to LESSEE given on or before November 1, 2002 LESSOR may elect to continue such initial lease term until July 31, 2004 1.4 Lease Extension Option One (1) Lease extension option of nine (9) months 1.5 Security Deposit * 1.6 Transaction Fee * 1.7 Rent During Initial Lease Term Period of Lease Term Amount of Rent * * * * 1.8 Rent During Lease Extension Term * 1.9 Reserves * 1.10 Country of Aircraft Registration United States 1.11 Maintenance Program LESSEE's Maintenance Program 1.12 Agreed Value of Aircraft * 1.13 LESSOR's Bank Account * ARTICLE 2 DEFINITIONS Except where the context otherwise requires, the following words have the following meanings for all purposes of this Lease. The definitions are equally applicable to the singular and plural forms of the words. Any agreement defined below includes each amendment, modification, supplement and waiver thereto in effect from time to time. 2.1 General Definitions. "Aircraft" means the Aircraft described on Exhibit A hereto, including the Airframe, two (2) Engines, Parts and Aircraft Documentation, collectively. As the context requires, "Aircraft" may also mean the Airframe, any Engine, any Part, the Aircraft Documentation or any part thereof individually. For example, in the context of return to LESSOR the term "Aircraft" means the Airframe, Engines, Parts and Aircraft Documentation collectively, yet in the context of LESSEE not creating any Security Interests other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the Airframe, any Engine, any Part or the Aircraft Documentation individually. "Aircraft Documentation" means all (a) log books, Aircraft records, manuals and other documents provided to LESSEE in connection with the Aircraft, (b) documents listed in Exhibits E and L and (c) any other documents required to be maintained during the Lease Term by the Aviation Authority, LESSEE's Maintenance Program and this Lease. "Airframe" means the airframe listed in the Estoppel and Acceptance Certificate executed at Delivery together with all Parts relating thereto (except Engines or engines). "Airframe Warranty Assignment" means the Assignment of Rights (Airframe) to be entered into between LESSOR and LESSEE in the form of Exhibit H. "Airworthiness Directives" or "ADs" means all airworthiness directives (or equivalent) of the FAA and the Aviation Authority applicable to the Aircraft. "APU" means the auxiliary power unit of the Aircraft. "Aviation Authority" means the FAA or any Government Entity which under the Laws of U.S. from time to time has control over civil aviation or the registration, airworthiness or operation of aircraft in U.S. If the Aircraft is registered in a country other than the U.S., "Aviation Authority" means the agency which regulates civil aviation in such other country. "Aviation Documents" means any or all of the following which at any time may be obtainable from the Aviation Authority: (a) if required, a temporary certificate of airworthiness from the Aviation Authority allowing the Aircraft to be flown after Delivery to the State of Registration, (b) an application for registration of the Aircraft with the appropriate authority in the State of Registration, (c) the certificate of registration for the Aircraft issued by the State of Registration, (d) a full certificate of airworthiness for the Aircraft specifying transport category (passenger), (e) an air transport license, (f) an air operator's certificate, (g) such recordation of LESSOR's title to the Aircraft and interest in this Lease as may be available in the State of Registration and (h) all such other authorizations, approvals, consents and certificates in the State of Registration as may be required to enable LESSEE lawfully to operate the Aircraft. "Basic Engine" means those units and components of the Engine which are used to induce and convert fuel/air mixture into thrust/power; to transmit power to the fan and accessory drives; to supplement the function of other defined systems external to the Engine; and to control and direct the flow of internal lubrication, plus all essential accessories as supplied by Engine manufacturer. The nacelle, installed components related to the Aircraft systems, thrust reversers, QEC and the primary flight nozzle are excluded. "Business Day" means a day other than a Saturday or Sunday on which the banks in New York City are open for the transaction of business of the type required by this Lease. "Certificated Air Carrier" means any Person (except the U.S. Government) that is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be applicable, any Person (except the U.S. Government) that is a citizen of the U.S. (as defined in Section 40102 of Title 49 of the U.S.C.) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the U.S., and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated. "Creditor" means any lessor, owner, bank, lender, mortgagee or other Person which is the owner of or has any interest in an aircraft engine or aircraft operated by LESSEE. "Creditor Agreement" means the applicable agreement between a Creditor and LESSEE or between Creditors pursuant to which such Creditor owns, leases or has an interest in either an aircraft operated by LESSEE on which an Engine may be installed or in an aircraft engine which may be installed on the Airframe. "Default" means any event which, upon the giving of notice or the lapse of time would constitute an Event of Default. "Delivery" means the delivery of the Aircraft from LESSOR to LESSEE pursuant to Article 6.4. "Delivery Date" means the date on which Delivery takes place. "Dollars" and "$" means the lawful currency of the U.S. "Engine" means (a) each of the engines listed on the Estoppel and Acceptance Certificate; (b) any replacement engine acquired by LESSOR and leased to LESSEE pursuant to Article 19.5 following a Total Loss of an Engine; and (c) all Parts installed in or on any of such engines at Delivery (or substituted, renewed or replacement Parts in accordance with this Lease) so long as title thereto is or remains vested in LESSOR in accordance with the terms of Article 12.3. "Engine Warranty Assignment" means the Assignment of Rights (Engines) to be entered into between LESSOR and LESSEE in the form of Exhibit I. "Estoppel and Acceptance Certificate" means that certain estoppel and acceptance certificate in the form of Exhibit E pursuant to which LESSEE accepts Delivery of the Aircraft. "Event of Default" means any of the events referred to in Article 25.2. "FAA" means the Federal Aviation Administration of the Department of Transportation or any successor thereto under the Laws of the U.S. "FARs" means the U.S. Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations thereto. "Geneva Convention" means the Convention on the International Recognition of Rights in Aircraft signed in Geneva, Switzerland on June 19, 1948. "Government Entity" means any (a) national, state or local government, (b) board, commission, department, division, instrumentality, court, agency or political subdivision thereof and (c) association, organization or institution of which any of the entities listed in (a) or (b) is a member or to whose jurisdiction any such entity is subject. "Landing Gear" means the installed main and nose landing gear, components and their associated actuators, side braces and parts. "Law" means any (a) statute, decree, constitution, regulation, order or any directive of any Government Entity, (b) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party and (c) judicial or administrative interpretation or application of any of the foregoing. "Lease" means this Aircraft Lease Agreement, together with all Exhibits hereto. "LESSOR's Lien" means any Security Interest created by LESSOR or otherwise arising solely as a result of any act or omission of LESSOR or any Person claiming by or through LESSOR. "LESSOR's Taxes" means any Taxes referred to in Article 16.2. "Maintenance Program" means LESSEE's maintenance program as approved by the Aviation Authority or such other maintenance program as LESSOR may, in its reasonable discretion, accept in writing. "Manufacturer" means The Boeing Company. "MPD" means the Maintenance Planning Document published by Manufacturer and applicable to the Aircraft. With respect to the hour/cycle/calendar time limitation of Parts and inspections, references to the MPD mean the most restrictive limitation set forth therein. "Operative Documents" means this Lease, the Airframe Warranty Assignment, the Engine Warranty Assignment, the Estoppel and Acceptance Certificate and any Side Letter or other document or agreement entered into on or after the date hereof between LESSEE and LESSOR relating to the leasing of the Aircraft hereunder or the transactions contemplated hereby. "Overhaul" means the full reconditioning of the Aircraft, an Engine, APU, Landing Gear, module or Part, as the case may be, in which such equipment has been fully disassembled; cleaned; thoroughly inspected; and returned to the highest standard specified by the applicable manufacturer's manual. "Part" means any part, component, appliance, system module, engine module, accessory, material, instrument, communications equipment, furnishing, LESSEE furnished or LESSOR purchased equipment, the APU, or other item of equipment (other than complete Engines or engines) for the time being installed in or attached to the Airframe or any Engine, or which, having been removed from the Airframe or any Engine, remains the property of LESSOR. "Permitted Lien" means (a) LESSOR's Liens; (b) Security Interests arising in the ordinary course of LESSEE's business for Taxes either not yet assessed or, if assessed, not yet due or being contested in good faith in accordance with Article 16.5 or (c) materialmen's, mechanics', workmen's, repairmen's, employees' liens or similar Security Interests arising by operation of Law after the Delivery Date in the ordinary course of LESSEE's business for amounts which are either not yet due or are being contested in good faith by appropriate proceedings (and for which adequate reserves have been made or, when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings do not involve any danger of sale, forfeiture or loss of the Aircraft. "Permitted Sublessee" has the meaning ascribed thereto in Article 11.1.1. "Permitted Transferee" means any Person who: (a) is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. with the requisite power and authority to enter into and carry out the transactions contemplated by this Lease; (b) is not, and is not affiliated with, a Certificated Air Carrier; (c) enters into a binding agreement with LESSEE pursuant to which it agrees to be bound by the terms of this Lease and agrees to perform all of the obligations of LESSOR hereunder; and (d) is either (i) a U.S. bank, insurance company or other financial institution with a consolidated net worth of at least $25,000,000, (ii) a corporation which has (or a general partnership whose general partners have) a consolidated net worth of at least $25,000,000 and which is a sophisticated entity, experienced in participating as an equity investor in commercial aircraft leases, (iii) the trustee or agent of an aircraft income or similar fund; provided that such trustee or agent has a consolidated net worth of at least $25,000,000, or (iv) such other Person as LESSEE shall approve in writing, such approval not to be unreasonably withheld or delayed. "Person" means any individual, firm, partnership, joint venture, trust, corporation, Government Entity, committee, department, authority or any body, incorporated or unincorporated, whether having distinct legal personality or not. "Prime Rate" means the rate of interest from time to time announced by Chase Manhattan Bank in New York as its prime commercial lending rate. "Prior Lessee" means Pro Air, Inc. "Security Interest" means any encumbrance or security interest, however and wherever created or arising including (without prejudice to the generality of the foregoing) any right of ownership, security, mortgage, pledge, charge, encumbrance, lease, lien, statutory or other right in rem, hypothecation, title retention, attachment, levy, claim or right of possession or detention. "State of Registration" means U.S. or such other country or state of registration of the Aircraft as LESSOR may, in its absolute discretion, approve in writing. "U.S." means the United States of America. 2.2 Specific Definitions. The following terms are defined in the Articles referenced below: Terms Article Agreed Value 19.1 Airframe Reserves 5.4.1 CRAF 23.17.1 CRAF Program Requisition Period 23.17.1 Default Interest 5.6 Delivery Location 3.1 Engine Reserves 5.4.1 Expenses 17.1 Expiration Date 4.3 Extension Lease Term 4.2.1 Indemnitees 17.1 Initial Lease Term 4.3 Landing Gear Reserves 5.4.1 Lease Term 4.3 LESSOR's Assignee 24.2.1 LESSOR's Bank 5.5 LESSOR's Lender 24.3 Modification 12.8.1 Net Total Loss Proceeds 19.1 Outside Delivery Date 3.5 Passenger Service Equipment 12.8.1 Rent 5.3.1 Reserves 5.4.1 Scheduled Delivery Date 3.2 Security Deposit 5.1.1 Taxes 16.1 Termination Date 4.4 Total Loss 19.1 Total Loss Date 19.1 Total Loss Proceeds 19.1 Transaction Fee 5.2 ARTICLE 3 PLACE AND DATE OF DELIVERY 3.1 Place of Delivery. LESSOR will deliver the Aircraft to LESSEE at the TIMCO maintenance facility at Greensboro, North Carolina or such other place as may be agreed in writing between the parties (the "Delivery Location"). 3.2 Scheduled Delivery Date. As of the date of this Lease, Delivery of the Aircraft from LESSOR to LESSEE is scheduled to occur on or about August 17, 2000. LESSOR will notify LESSEE from time to time and in a timely manner of the exact date on which LESSOR expects Delivery to take place (the "Scheduled Delivery Date"). 3.3 No LESSOR Liability. LESSOR will not be liable for any loss or expense, or any loss of profit, arising from any delay or failure in Delivery to LESSEE unless such delay or failure arises as a direct consequence of the willful misconduct of LESSOR. 3.4 Total Loss of Aircraft prior to Delivery. If a Total Loss of the Aircraft occurs prior to Delivery, neither party will have any further liability to the other except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent, whereupon this Lease shall terminate. 3.5 Cancellation for Delay. Promptly after LESSOR becomes aware that a delay will cause Delivery to be delayed beyond September 30, 2000 (the "Outside Delivery Date"), LESSOR will notify LESSEE. By written notice given within thirty (30) days after the first to occur of (i) LESSEE's receipt of such LESSOR notice or (ii) the Outside Delivery Date, either party may by written notice to the other party terminate this Lease and this Lease will terminate on the date of receipt of such notice. In the event of such termination, neither party will have any further liability to the other party except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination within such thirty (30) day period, then the period for termination shall be deemed to be extended for an additional one hundred and eighty (180) days after the expiration of such thirty (30) day period. In the event that neither party gives a notice of termination within such one hundred and eighty (180) day period, the Lease will automatically terminate upon the expiration of such period, and LESSOR will return to LESSEE the Security Deposit and any prepaid Rent as provided above. ARTICLE 4 LEASE TERM AND EXTENSION OPTION 4.1 Initial Lease Term. The term of leasing of the Aircraft will commence on the Delivery Date and continue until November 1, 2003; provided, however, that upon prior written notice to LESSEE given on or before November 1, 2002 LESSOR may elect to continue such initial lease term until July 31, 2004 (and upon LESSEE's timely receipt of such notice the initial lease term will be deemed to continue until July 31, 2004 without any further act or notice) (the "Initial Lease Term"). 4.2 Lease Extension Option. 4.2.1 So long as no payment Default or Event of Default has occurred and is continuing hereunder on the date of exercise of the option or on the commencement date of the extension lease term with respect to such option, LESSEE will have one (1) option to extend the term of the Lease for a period of nine (9) months (the "Extension Lease Term"). 4.2.2 In order to exercise its option, LESSEE must give written notice to LESSOR not less than nine (9) months prior to the then existing Expiration Date of this Lease. Any notice given by LESSEE in accordance herewith will be irrevocable. 4.3 "Lease Term" and "Expiration Date". "Lease Term" means the term of leasing commencing on the Delivery Date and terminating on the Expiration Date. "Expiration Date" means the date on which LESSEE is required to redeliver the Aircraft to LESSOR in the condition required by this Lease on the last day of the Initial Lease Term or Extension Lease Term, if and as applicable. 4.4 "Termination Date". This Lease may in fact terminate on any of the dates set forth below: (a) the Expiration Date, provided LESSEE returns the Aircraft to LESSOR on the Expiration Date in the condition required by Article 23; or (b) a date earlier than the Expiration Date, if: (i) there is a Total Loss of the Aircraft prior to Delivery pursuant to Article 3.4; (ii) cancellation of this Lease occurs pursuant to Article 3.5; (iii) there is a Total Loss of the Aircraft and payment is made to LESSOR in accordance with Article 19.3; or (iv) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. (c) a date later than the Expiration Date, if: (i) LESSEE fails to return the Aircraft in the condition required by this Lease on the Expiration Date in accordance with Article 23; or (ii) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. The "Termination Date" is the date on which this Lease terminates because one of the above has occurred. ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS 5.1 Security Deposit. 5.1.1 * 5.1.2 The Security Deposit may be commingled with LESSOR's general funds and any interest earned on such Security Deposit will be for LESSOR's account. If the Security Deposit is reduced below the required amount by application to meet LESSEE's unperformed obligations under this Lease, LESSEE will replenish the Security Deposit within ten (10) days after LESSOR's demand therefor. The Security Deposit will serve as security for the performance by LESSEE of its obligations under this Lease and any other agreements between LESSEE and LESSOR relating to aircraft, engines, aircraft equipment or the extension of credit and may be applied by LESSOR upon the occurrence of an Event of Default hereunder or of an event of default by LESSEE under any such other agreements. 5.1.3 Upon termination of this Lease in accordance with Article 4.4 other than if an Event of Default has occurred and is continuing, LESSOR will return to LESSEE the amount of the Security Deposit then held by LESSOR (so long as no default by LESSEE exists under any other agreement between LESSEE and LESSOR relating to aircraft, engines or aircraft equipment or the extension of credit by LESSOR to LESSEE in which case LESSOR will be entitled to set off amounts owing to it), without interest, less an amount determined to be a reasonable estimate of the costs, if any, which LESSOR will incur to remedy any unperformed obligations of LESSEE under this Lease, including the correction of any discrepancies from the required condition of the Aircraft on return of the Aircraft. 5.2 Transaction Fee. * 5.3 Rent. 5.3.1 * 5.3.2 The first payment of the fixed portion of the Rent (US$20,000) during the Lease Term will be paid no later than the Delivery Date. Each subsequent payment of the fixed portion of the Rent will be due monthly thereafter no later than the same day of the month as the Delivery Date of the Aircraft except that, if such day is not a Business Day, the Rent will be due on the immediately preceding Business Day. If Delivery occurred on the 29th, 30th or 31st of the month and in any given month during the Lease Term there is no such corresponding date, Rent will be payable on the last Business Day of such month. 5.4 Reserves. 5.4.1 * 5.4.2 The amount of the Engine Reserves set forth in Article 5.4.1 may be increased by LESSOR in the event of an increase in the thrust rating of an Engine in accordance with Article 12.7. 5.4.3 Such Reserves (along with the flight hour variable portion of the Rent referred to in Article 5.3.1) will be paid on or before the 10th day of the calendar month next following the month in which the Delivery Date occurs and on or before the 10th day of each succeeding calendar month for flying performed during the calendar month prior to payment. All Reserves (and the flight hour variable portion of the Rent referred to in Article 5.3.1) for flying performed during the month in which the Termination Date occurs will be paid on the Termination Date, unless otherwise agreed by the parties. 5.4.4 No interest will accrue or be paid at any time to LESSEE on such Reserves and, subject to LESSOR's obligations under Article 13, LESSOR may commingle the Reserves with LESSOR's general funds. 5.5 LESSOR's Bank Account. The Security Deposit, Transaction Fee, Rent, Reserves and any other payment due under this Lease will be paid by wire transfer of immediately available U.S. Dollar funds to LESSOR's bank account at: * or to such other bank account as LESSOR may from time to time designate by written notice ("LESSOR's Bank"). When it is stated in this Lease that an installment of the Security Deposit, the monthly Rent, Reserves or any other payment is due or must be paid or made by LESSEE by a specific date, then such payment actually must be received by LESSOR's Bank on or before such specific date, even if, in order for such payment to be received by LESSOR's Bank by such specific date, LESSEE must initiate the wire transfer prior to such specific date. 5.6 Default Interest. * 5.7 No Deductions or Withholdings. All payments by LESSEE under this Lease, including the Security Deposit, Transaction Fee, Rent, Reserves, Default Interest, fees, indemnities or any other item, will be made in full without any deduction or withholding whether in respect of set off, counterclaim, duties, or Taxes (as defined in Article 16) imposed in the State of Registration or any jurisdiction from which such payments are made except to the extent otherwise required by Law, in which event LESSEE will pay any additional amount such that the net payment received by LESSOR after any required deduction or withholding equals the amount that LESSOR would have received if such withholding had not been required; provided, however, that if LESSEE pays any such additional amount to compensate for the withholding of any LESSOR Taxes, LESSOR shall pay to LESSEE promptly after receipt of LESSEE's written request therefor (which request shall include a description in reasonable detail of the LESSOR Taxes involved and the calculation of the amounts to be paid) such amounts as are necessary so that the net additional amounts received by LESSOR under this Article 5.7 do not exceed the amounts that LESSOR would have received if no amounts in respect of LESSOR Taxes had been required to be withheld or deducted by LESSEE. 5.8 Value Added Taxes. The Rent and other amounts payable by LESSEE under this Lease are exclusive of any value added tax, turnover tax or similar tax or duty. 5.9 Wire Transfer Disbursement Report. At the time of each Rent or other payment, LESSEE will advise LESSOR in writing of the amount of the payment being made by LESSEE and the allocation of such payment to the Security Deposit, Rent, Reserves, Default Interest and other charges. Notwithstanding the allocation set forth in LESSEE's report, in the event an Event of Default has occurred and is continuing under this Lease, LESSOR will have complete discretion to allocate LESSEE's payments as LESSOR determines. 5.10 Net Lease. 5.10.1 This Lease is a net lease and LESSEE's obligation to pay Rent and make other payments in accordance with this Lease will be absolute and unconditional under any and all circumstances and regardless of other events, including the following: (a) any right of set off, counterclaim, recoupment, defense or other right (including any right of reimbursement) which LESSEE may have against LESSOR, Prior Lessee, Manufacturer, the Engine manufacturer or any other person for any reason, including any claim LESSEE may have for the foregoing; (b) unavailability or interruption in use of the Aircraft for any reason, including a requisition thereof or any prohibition or interference with or other restriction against LESSEE's use, operation or possession of the Aircraft (whether by Law or otherwise), any defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, specification or operation of any kind or nature of the Aircraft, the ineligibility of the Aircraft for any particular use or trade or for registration under the Laws of any jurisdiction or Total Loss of the Aircraft; (c) insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, administration or similar proceedings by or against LESSOR, LESSEE, Prior Lessee, Manufacturer, the Engine manufacturer or any other Person; (d) invalidity or unenforceability or lack of due authorization of or other defect in this Lease; (e) failure or delay on the part of any party to perform its obligations under this Lease; or (f) any other circumstance which but for this provision would or might have the effect of terminating or in any other way affecting any obligation of LESSEE hereunder. 5.10.2 Nothing in Article 5.10 will be construed to limit LESSEE's rights and remedies in the event of LESSOR's breach of its warranty of quiet enjoyment set forth in Article 21.2 or to limit LESSEE's rights and remedies to pursue in a court of law any claim it may have against LESSOR or any other Person; provided, however, that LESSEE will have no obligation to pay Rent as aforesaid, except in respect of Rent accrued at the time, for the number of days that LESSEE is deprived of the possession and use of the Aircraft as the result of the breach by LESSOR of its warranty of quiet enjoyment obligations set forth Article 21.2. 5.11 LESSOR Performance of LESSEE Obligation. If LESSEE fails to make any payment due under this Lease to a third party in connection with the Aircraft or fails to perform any other obligation required under this Lease, LESSOR may (but is not required to) at its election and without waiver of its rights perform such obligation and/or pay such amount. Within five (5) Business Days after written notice to LESSEE of the amount paid by LESSOR on behalf of LESSEE, LESSEE will repay such amount to LESSOR together with Default Interest. Such payment to LESSOR will constitute additional Rent payable by LESSEE to LESSOR hereunder. Any payment, performance or compliance by LESSOR of a LESSEE obligation hereunder will not affect the occurrence or continuance of a Default or Event of Default, as the case may be. 5.12 Consideration for Rent and other Amounts. The amount of the Rent and other payments contained herein are in consideration of LESSEE's waiver of warranties and indemnities set forth in Articles 8 and 17, respectively, and the other provisions of this Lease. ARTICLE 6 20 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT 6.1 LESSEE Selection of Aircraft. LESSEE COVENANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGMENT IN SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER, REPAIRER OR SERVICING AGENT OF THE AIRCRAFT. 6.2 Condition at Delivery. LESSOR has advised LESSEE that at Delivery the Aircraft will be as set forth in Exhibit A and in the condition set forth in Exhibit B. To the extent that at Delivery there are non substantial or minor deviations from the condition set forth in Exhibit B which do not affect the airworthiness of the Aircraft, LESSEE will nonetheless accept the Aircraft subject to such deviations and LESSEE and LESSOR will mutually agree to either (i) adjust the return conditions of the Aircraft set forth in Article 23 accordingly or (ii) arrange for LESSOR to reimburse LESSEE for the reasonable cost of rectification of such deviations. 6.3 LESSEE Inspection of Aircraft at Delivery. LESSEE will have the ground inspection and acceptance flight rights set forth in Exhibit B. LESSEE acknowledges that, as between LESSEE and LESSOR, in accepting the Aircraft LESSEE is relying on its own inspection and knowledge of the Aircraft in determining whether the Aircraft meets the requirements of this Lease. 6.4 Delivery of Aircraft to LESSEE. Subject to LESSEE having performed all of the conditions precedent to Delivery set forth herein, LESSOR will deliver the Aircraft to LESSEE at the Delivery Location. Provided that the Aircraft is in the condition required by Article 6.2, upon the tender of the Aircraft by LESSOR to LESSEE, LESSEE will accept the Aircraft by executing and delivering to LESSOR the Estoppel and Acceptance Certificate, whereupon Delivery will be deemed to have occurred for all purposes under this Lease, including, but not limited to, the commencement of LESSEE's obligation to pay Rent hereunder. 6.5 LESSEE Acceptance of Aircraft. If LESSEE fails to (a) comply with the conditions contained in Articles 7.1 and 7.3 so as to allow Delivery to take place on the Scheduled Delivery Date or (b) take delivery of the Aircraft when properly tendered for delivery by LESSOR in the condition required hereunder, LESSEE will indemnify LESSOR for all costs and expenses incurred by LESSOR as a result thereof. ARTICLE 7 PRE DELIVERY, DELIVERY AND POST DELIVERY 23 DOCUMENTARY AND OTHER REQUIREMENTS ARTICLE 7 PRE DELIVERY, DELIVERY AND POST DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS 7.1 Pre Delivery Requirements. LESSEE will deliver to LESSOR each of the following prior to the Scheduled Delivery Date of the Aircraft: (a) copies of resolutions of the Board of Directors of LESSEE or other written evidence of appropriate corporate action, duly certifying and authorizing the lease of the Aircraft hereunder and the execution, delivery and performance of this Lease, together with an incumbency certificate as to the person or persons authorized to execute and deliver documents on behalf of LESSEE hereunder; and (b) an opinion of counsel in the form and substance of Exhibit F. (c) a Certificate of Insurance and Brokers' Letter of Undertaking in the form and substance of Exhibits C and D, respectively, from LESSEE's insurance brokers evidencing insurance of the Aircraft in accordance with this Lease from the Delivery Date; (d) a copy of LESSEE's Air Operator's Certificate; (e) a power of attorney empowering LESSEE's representative, who may be an officer or employee of LESSEE, to accept the Aircraft on behalf of LESSEE; (f) a power of attorney in the form of Exhibit G; and (g) such other documents as LESSOR may reasonably request. 7.2 LESSOR's Pre Delivery Requirements. LESSEE's obligation to accept delivery of and lease the Aircraft hereunder is subject to satisfaction of the following conditions precedent: (a) LESSOR shall tender the Aircraft including the Aircraft Documentation to LESSEE at the Delivery Location in accordance with Article 6.2; (b) The Aircraft shall be registered in the U.S. in the name of LESSOR and the Aircraft shall have a valid Certificate of Airworthiness and shall be in the condition required in order to meet the operating requirements of FAR Part 121; and (c) All Airworthiness Directives which are issued prior to the Delivery Date and which require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery or within one (1) year after Delivery will be complied with on a terminating action basis at LESSOR's cost; Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. 7.3 Delivery Requirements. On the Delivery Date of the Aircraft, each of the following will occur: 7.3.1 If not previously done, LESSEE will pay to LESSOR the first monthly installment of Rent in accordance with Article 5.3.2; 7.3.2 LESSEE will execute and deliver to LESSOR the Estoppel and Acceptance Certificate covering the Aircraft and dated the Delivery Date. 7.3.3 LESSEE will deliver a certificate signed by an officer of LESSEE stating all of the following: (a) the representations and warranties contained in Article 20 are true and accurate on and as of the Delivery Date as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); and (b) no Default has occurred and is continuing or will result from LESSEE's lease of the Aircraft hereunder. 7.3.4 LESSEE's counsel will deliver an opinion confirming the matters set forth in the opinion of counsel described in Article 7.1 and advising that all filing and other requirements described in the earlier opinion of counsel have been met. 7.3.5 If any Creditor Agreement provides or contemplates that such Creditor will obtain any right, title or interest in an Engine which is installed on such Creditor's aircraft, prior to placing the Engine on such Creditor's aircraft LESSEE will deliver to LESSOR an engines cooperation agreement in form and substance acceptable to LESSOR which is executed by LESSEE and LESSEE's Creditors (as defined therein). 7.4 Post Delivery Requirements. Within fourteen (14) days after Delivery, if not previously provided, LESSOR will deliver to LESSEE (a) the Airframe Warranty Assignment duly executed by LESSOR and acknowledged by Manufacturer and (b) the Engine Warranty Assignment duly executed by LESSOR. ARTICLE 8 DISCLAIMERS LESSOR HAS COMMITTED TO LESSEE THAT ON THE DELIVERY DATE THE AIRCRAFT WILL BE IN THE CONDITION REQUIRED BY EXHIBIT B. SUCH COMMITMENT OR COVENANT ON THE PART OF LESSOR EXPIRES AND THE DISCLAIMERS SET FORTH IN THIS ARTICLE 8 APPLY UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND LESSEE: 8.1 "As Is, Where Is". LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS". LESSEE UNCONDITIONALLY ACKNOWLEDGES AND AGREES THAT NEITHER LESSOR NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES HAVE MADE OR WILL BE DEEMED TO HAVE MADE ANY TERM, CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) AS TO (a) THE CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE, DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR THE AIRCRAFT DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, OR THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (b) THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (c) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE OR (d) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 21 HEREOF. 8.2 Waiver of Warranty of Description. IN CONSIDERATION OF (a) LESSEE'S RIGHTS HEREUNDER TO INSPECT THE AIRCRAFT AND (b) LESSOR'S ASSIGNMENT TO LESSEE OF ANY EXISTING AND ASSIGNABLE WARRANTIES OF MANUFACTURER AND THE ENGINE MANUFACTURER, LESSEE HEREBY AGREES THAT ITS ACCEPTANCE OF THE AIRCRAFT AT DELIVERY AND ITS EXECUTION AND DELIVERY OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE CONSTITUTE LESSEE'S WAIVER OF THE WARRANTY OF DESCRIPTION, ANY CLAIMS LESSEE MAY HAVE AGAINST LESSOR BASED UPON THE FAILURE OF THE AIRCRAFT TO CONFORM WITH SUCH DESCRIPTION AND ANY AND ALL RIGHTS IT MAY HAVE TO THE REMEDIES SET FORTH IN SECTIONS 10508 THROUGH 10522 OF THE CALIFORNIA COMMERCIAL CODE. EVEN IF AT ANY TIME THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION SUBSTANTIALLY IMPAIRS THE VALUE AND UTILITY OF THE AIRCRAFT AND EITHER (i) LESSEE ACCEPTED THE AIRCRAFT BASED ON A REASONABLE ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED AND IT WAS NOT SEASONABLY CURED OR (ii) LESSEE ACCEPTED THE AIRCRAFT WITHOUT DISCOVERING THE NONCONFORMITY BUT LESSEE'S ACCEPTANCE OF THE AIRCRAFT WAS REASONABLY INDUCED EITHER BY LESSOR'S ASSURANCES OR BY THE DIFFICULTY OF DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE, LESSEE AGREES NOT TO LOOK TO LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION. 8.3 LESSEE Waiver. LESSEE hereby waives as between itself and LESSOR and agrees not to seek to establish or enforce any rights and remedies, express or implied (whether statutory or otherwise) against LESSOR or the Aircraft relating to any of the matters mentioned in Articles 8.1 or 8.2 and the leasing thereof by LESSOR to LESSEE. 8.4 Conclusive Proof. DELIVERY BY LESSEE TO LESSOR OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED THE AIRCRAFT, INCLUDING THE ENGINES AND THE AIRCRAFT DOCUMENTATION AND THAT EACH IS IN THE CONDITION REQUIRED HEREUNDER AND WITHOUT DEFECT, EXCEPT AS SPECIFICALLY SET FORTH IN SUCH CERTIFICATE, (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND OTHERWISE IN EVERY WAY SATISFACTORY TO LESSEE. 8.5 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not be liable to LESSEE, any sublessee or any Person, whether in contract or tort and however arising, for any cost, loss or damage (consequential or otherwise) arising out of the condition of the Aircraft, whether or not due in whole or in part to an act or omission or the active or passive negligence of LESSOR. 8.6 No Liability to Repair or Replace. LESSOR will not be liable for any expense in repairing or replacing any item of the Aircraft or be liable to supply another aircraft or any item in lieu of the Aircraft or any Part thereof if the same is lost, confiscated, damaged, destroyed or otherwise rendered unfit for use. 8.7 No Waiver. Nothing in this Article 8 or elsewhere in this Lease will be deemed to be a waiver by LESSEE of any rights it may have against Manufacturer, the Engine manufacturer or any other Person. ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES 9.1 Warranties. Effective upon Delivery LESSOR will assign to LESSEE for the duration of the Lease Term the benefit of all warranties and indemnities given to LESSOR by Manufacturer and the Engine manufacturer pursuant to the Airframe Warranty Assignment and the Engine Warranty Assignment, respectively. Effective on the Delivery Date, all other assignable vendor warranties with respect to the Aircraft are hereby assigned by LESSOR to LESSEE. 9.2 Non Assignable Warranties. To the extent that any warranty or indemnity given to LESSOR by Manufacturer and others with respect to the Aircraft cannot be assigned, LESSEE will be entitled to take such action to enforce such warranty or indemnity in the name of LESSOR against Manufacturer and such other parties as LESSEE sees fit, but subject to LESSEE first ensuring that LESSOR is indemnified and secured to LESSOR's satisfaction against all losses, damage, costs, expenses and liabilities thereby incurred or reasonably likely to be incurred. 9.3 Reassignment. On the Termination Date, the benefit of any warranty assigned by LESSOR to LESSEE will be reassigned automatically to LESSOR or its designee. LESSEE's rights under such warranties (including LESSEE's claims and rights to payment thereunder) will revert to LESSOR during any period in which an Event of Default is continuing. LESSEE at its own cost and expense will do all such things and execute such documents as may be reasonably required for this purpose. 9.4 Warranty Claims. LESSEE will diligently and promptly pursue any valid claims it may have against Manufacturer and others under such warranties with respect to the Aircraft and will provide notice of the same to LESSOR. ARTICLE 10 OPERATION OF AIRCRAFT 10.1 Costs of Operation. LESSEE will pay all costs incurred in the operation of the Aircraft during the Lease Term, for profit or otherwise, including the costs of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance, storage, landing and navigation fees, airport charges, passenger service and any and all other expenses of any kind or nature, directly or indirectly, in connection with or related to the use, movement and operation of the Aircraft. The obligations, covenants and liabilities of LESSEE under this paragraph arising prior to return of the Aircraft to LESSOR will continue in full force and effect, notwithstanding the termination of this Lease or expiration of the Lease Term. 10.2 Compliance with Laws. Except as expressly provided in this Lease, LESSEE agrees throughout the Lease Term to maintain operational control of the Aircraft and use the Aircraft in accordance with applicable Laws of the State of Registration and of any country, state, territory or municipality into or over which LESSEE may operate. LESSEE will not employ, suffer or cause the Aircraft to be used in any business which is forbidden by Law or in any manner which may render it liable to condemnation, destruction, seizure, or confiscation by any authority. LESSEE will not permit the Aircraft to fly to any airport or country if so doing would cause LESSEE to be in violation of any Law applicable to LESSEE or the Aircraft. 10.3 Training. LESSEE will not use the Aircraft for testing or for training of flight crew members other than LESSEE crew members and it will not use the Aircraft for training any more than it utilizes for training the other B737 300 aircraft in its fleet. 10.4 No Violation of Insurance Policies. LESSEE will not use or permit the Aircraft to be used in any manner or for any purpose which is not covered by the insurance policies LESSEE is required to carry and maintain as set forth in this Lease. LESSEE will not carry any goods of any description excepted or exempted from such policies or do any other act or permit to be done anything which could reasonably be expected to invalidate or limit any such insurance policy. 10.5 Flight Charges. LESSEE will pay promptly when due all enroute navigation charges, navigation service charges and all other charges payable by LESSEE for the use of or for services provided at any airport, whether in respect of the Aircraft or any other aircraft of LESSEE, and will indemnify and hold LESSOR harmless in respect of the same. This indemnity will continue in full force and effect notwithstanding the termination or expiration of the Lease Term for any reason or the return of the Aircraft. ARTICLE 11 SUBLEASES 11.1 No Sublease without LESSOR Consent. LESSEE WILL NOT SUBLEASE OR PART WITH POSSESSION OF THE AIRCRAFT (EXCEPT FOR MAINTENANCE AND REPAIR) AT ANY TIME WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY WITHHELD OR DELAYED) EXCEPT FOR A SUBLEASE TO A PERMITTED SUBLESSEE PRE APPROVED IN ARTICLE 11.1.1 BELOW, AND IN ACCORDANCE WITH SUCH REQUIREMENTS AS MAY FROM TIME TO TIME BE AGREED IN WRITING BETWEEN LESSOR AND LESSEE. The wet leasing of the Aircraft during the Lease Term (in which LESSEE and its crews retain operational control of the Aircraft) will not be considered a sublease of the Aircraft. 11.1.1 LESSEE may sublease the Aircraft without LESSOR's prior consent to an operator based in the U.S. which is then currently a lessee of LESSOR, provided such operator is not then in default under the aircraft lease agreement between such operator and LESSOR ("Permitted Sublessee"). Any such sublease will be subject to the provisions of this Article 11, including the provisions of Article 11.2 below. 11.2 LESSOR Costs. LESSEE will indemnify LESSOR on demand for all reasonable and actual out of pocket expenses (including legal fees) incurred in connection with LESSOR's assessment of the subleasing proposal (whether or not LESSOR's consent to such sublease is ultimately given), review of the sublease documentation and implementation of the sublease. 11.3 Any Approved Sublease. Any sublease to a Permitted Sublessee, and any other sublease approved by LESSOR will be for a term no greater than the remaining Lease Term and contain provisions consistent with this Lease protecting LESSOR's title to the Aircraft, providing appropriate LESSOR indemnities, regarding the maintenance and repair standards for the Aircraft, concerning the insurances which will be carried by the sublessee and the circumstances which constitute a Total Loss of the Aircraft. Any such sublease will be subject and subordinate to this Lease. In its sole discretion, LESSOR may require an opinion of counsel in connection with such sublease, including LESSOR's right to repossess the Aircraft in the event of an Event of Default hereunder or under the sublease. LESSEE will not amend the terms of any approved sublease without the prior written consent of LESSOR, which will not be unreasonably withheld. Notwithstanding the foregoing, LESSOR agrees that even if an Event of Default has occurred and is continuing hereunder, so long as the approved sublessee fully performs all of the obligations of LESSEE hereunder and agrees to do so on a going forward basis and there is no risk to LESSOR of an impairment to LESSOR's unencumbered title to the Aircraft, LESSOR will not interfere with such sublessee's quiet use and enjoyment of the Aircraft. 11.4 Assignment of Sublease. Any approved sublease will be assigned to LESSOR as security. LESSEE will deliver the original counterpart of the sublease to LESSOR and make any filings necessary to protect LESSOR's security interest. 11.5 Continued Responsibility of LESSEE. LESSEE will continue to be responsible for performance of its obligations under this Lease during any period of sublease. ARTICLE 12 MAINTENANCE OF AIRCRAFT 12.1 General Obligation. 12.1.1 During the Lease Term and until the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE alone has the obligation, at its expense, to maintain and repair the Aircraft, Engines, and all of the Parts (a) in accordance with the Maintenance Program, (b) in accordance with the rules and regulations of the Aviation Authority, (c) in accordance with Manufacturer's type design, (d) in accordance with any other regulations or requirements necessary in order to maintain a valid Certificate of Airworthiness for the Aircraft and meet the requirements at all times during the Lease Term and upon return of the Aircraft to LESSOR for issuance of a Standard Certificate of Airworthiness for transport category aircraft issued by the FAA in accordance with FAR Part 21 (except during those periods when the Aircraft is undergoing maintenance or repairs as required or permitted by this Lease and to the extent in conflict with the requirements of the Aviation Authority) and (e) in the same manner and with the same care as used by LESSEE with respect to similar aircraft and engines operated by LESSEE and without in any way discriminating against the Aircraft. 12.1.2 No Engine will remain in an unserviceable condition for more than three (3) months. 12.1.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power by the hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. 12.2 Specific Obligations. Without limiting Article 12.1, LESSEE agrees that such maintenance and repairs will include but will not be limited to each of the following specific items: (a) performance in accordance with the Maintenance Program of all routine and non routine maintenance work; (b) incorporation in the Aircraft of all Airworthiness Directives, all alert service bulletins of Manufacturer, Engine manufacturer and other vendors or manufacturers of Parts incorporated on the Aircraft and any service bulletins which must be performed in order to maintain the warranties on the Aircraft, Engines, and Parts; (c) incorporation in the Aircraft of all other service bulletins of Manufacturer, the Engine manufacturer and other vendors which LESSEE schedules to adopt within the Lease Term for the rest of its B737 aircraft fleet. It is the intent of the parties that the Aircraft will not be discriminated against in service bulletin compliance (including method of compliance) or other maintenance matters compared with the rest of LESSEE's B737 aircraft fleet. LESSEE will not discriminate against the Engines with respect to Overhaul build standards and life limited part replacements; (d) incorporation in the Maintenance Program for the Aircraft of a corrosion prevention and control program as recommended by Manufacturer, the Aviation Authority and the FAA and the correction of any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor as recommended by Manufacturer; (e) maintaining in English and keeping in an up to date status the records and historical documents set forth in Exhibit L; (f) maintaining historical records, in English, for on condition, condition monitored, hard time and life limited Parts (including tags from the manufacturer of such Part or a repair facility which evidence that such Part is new or overhauled and establish authenticity, total time in service and time since overhaul for such Part), the hours and cycles the Aircraft and Engines operate and all maintenance and repairs performed on the Aircraft; and (g) properly documenting all repairs, Modifications and alterations and the addition, removal or replacement of equipment, systems or components in accordance with the rules and regulations of the Aviation Authority and reflecting such items in the Aircraft Documentation. In addition, all repairs to the Aircraft will be accomplished in accordance with either (i) Manufacturer's Structural Repair Manual (or FAA approved Repair Approval Sheets) or (ii) FAA approved data (such as FAA Form 8110 or equivalent). All Modifications and alterations will be accomplished in accordance with FAA approved data (such as FAA Form 8110 or equivalent). 12.3 Replacement of Parts. 12.3.1 LESSEE, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered unfit or beyond economical repair (BER) for use for any reason. In the ordinary course of maintenance, service, repair, overhaul or testing, LESSEE may remove any Part provided that LESSEE replaces such Part as promptly as practicable. All replacement Parts will (a) be free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) be in airworthy condition and of at least equivalent model, service bulletin and modification status and have a value and utility at least equal to the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof and (c) have a current "serviceable tag" of the manufacturer or maintenance facility providing such items to LESSEE, indicating that such Parts are new, serviceable or Overhauled. So long as a substitution meets the requirements of the Maintenance Program and the Aviation Authority, LESSEE may substitute for any Part a part that does not meet the requirements of the foregoing sentence if a complying Part cannot be procured or installed within the available groundtime of the Aircraft and as soon as practicable the noncomplying part is removed and replaced by a complying Part. With respect to replacement modules in an Engine, LESSEE will use best reasonable efforts to ensure that any replacement module will not have been previously operated at a higher thrust rating than the replaced module provided that in all circumstances life limited Parts in such replacement module will have no less life remaining than the life limited Parts in the replaced module. 12.3.2 All Parts removed from the Airframe or any Engine will remain the property of LESSOR and subject to this Lease no matter where located, until such time as such Parts have been replaced by Parts (which have been incorporated or installed in or attached to the Airframe or such Engine) which meet the requirements for replacement Parts specified above and title to such replacement Parts has passed to LESSOR under the Laws of the State of Registration and lex situs. To the extent permitted by the Laws of the State of Registration and the lex situs it is the intent of LESSOR and LESSEE that without further act and immediately upon any replacement Part becoming incorporated, installed or attached to the Airframe or an Engine as above provided, (a) title to the removed Part will thereupon vest in LESSEE, free and clear of all rights of LESSOR, (b) title to the replacement Part will thereupon vest in LESSOR free and clear of all rights of LESSEE (other than LESSEE's rights under this Lease) and (c) such replacement Part will become subject to this Lease and be deemed to be a Part hereunder to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine. 12.4 Removal of Engines. 12.4.1 If an Engine is removed for testing, service, repair, maintenance, Overhaul work, alterations or modifications, title to such Engine will at all times remain vested in LESSOR. 12.4.2 LESSEE will be entitled to remove any of the Engines from the Aircraft and install another engine or engines on the Aircraft, provided that LESSEE complies with each of the following obligations: (a) the insurance requirements set forth in Article 18 and Exhibit C are in place; (b) LESSEE ensures that the identification plates referred to in Article 15 are not removed from any Engine upon such Engine being detached from the Aircraft; and (c) title to the Engine remains with LESSOR free from all Security Interests (except Permitted Liens) regardless of the location of the Engine or its attachment to or detachment from the Aircraft. 12.5 Pooling of Engines and Parts. LESSEE may subject the Engines and Parts to normal interchange or pooling agreements with responsible international scheduled commercial air carriers customary in the airline industry and entered into by LESSEE in the ordinary course of its business with respect to its entire B737 fleet so long as (a) in the case of pooling of an Engine, such Engine is returned to LESSEE within four (4) months, (b) no transfer of title to the Engine occurs, (c) all other terms of this Lease continue to be observed with respect to the Engines or Parts, including but not limited to Articles 8, 10, 12, 14, 15, 16, 17, 18 and 19 and (d) LESSEE continues to be fully responsible to LESSOR for the performance of all of its obligations hereunder. 12.6 Installation of Engines on other aircraft. Any Engine removed from the Aircraft may be installed on another aircraft in LESSEE's fleet which utilizes engines of the same type as the Engine only if one of the situations described in this Article 12.6 exists: 12.6.1 LESSEE or LESSOR has title to such other aircraft free and clear of all Security Interests (except Permitted Liens). 12.6.2 LESSEE, LESSOR and all of the Creditors of LESSEE of such aircraft enter into an engines cooperation agreement in form and substance reasonably acceptable to LESSOR in which each party agrees to recognize one another's rights in the engines. LESSEE will reimburse LESSOR and LESSOR's Lender for their reasonable attorneys' fees and costs in negotiating and finalizing engine cooperation agreement arrangements with LESSEE and its Creditors. 12.6.3 Such other aircraft is subject to a Creditor Agreement (but no other Security Interests except Permitted Liens) which by its terms expressly or effectively states that such Creditor and its successors and assigns will not acquire any right, title or interest in any Engine by reason of such Engine being installed on such aircraft. LESSEE hereby agrees that if LESSOR's title to an Engine is in fact impaired under any such Creditor Agreement, such impairment will be deemed to be a Total Loss of such Engine and the provisions of Article 19.5 will apply. To the extent another Creditor Agreement contains such provisions, then LESSOR hereby agrees for the benefit of the Creditor of such Creditor Agreement that neither LESSOR nor its successors or assigns will acquire or claim any right, title or interest in any engine in which LESSEE or another Creditor has an interest as a result of such engine being installed on the Airframe. 12.7 Engine Thrust Rating. If an Engine is utilized by LESSEE on the Aircraft or on any other airframe (or if the Engine is utilized by any sublessee or user under a pooling arrangement in accordance with this Lease) at a thrust rating greater than the thrust rating set forth in Exhibit A, LESSEE will promptly notify LESSOR and the Engine Reserves amounts set forth in Article 5.4.1 will be increased in an amount proportional to the accelerated rate of deterioration of the Engine resulting from the increased thrust rating. 12.8 Modifications. 12.8.1 * 12.8.2 LESSOR may review LESSEE's proposed designs, plans, engineering drawings and diagrams, and flight and maintenance manual revisions for any proposed Modification. If requested by LESSOR, LESSEE will furnish LESSOR (at LESSEE's expense) with such documents in final form and any other documents required by Law, as a result of such Modification. All Modifications incorporated on the Aircraft will be properly documented in the Aircraft Documentation and be fully approved by the Aviation Authority. 12.8.3 Notwithstanding any other provision of this Lease, no Modification will be made which has the effect of decreasing the utility or value of the Aircraft or invalidating any warranty applicable to the Aircraft. 12.8.4 No Modification will be made by LESSEE if an Event of Default exists and is continuing hereunder. 12.8.5 Unless otherwise agreed by LESSOR in writing, all permanent or structural Modifications will forthwith become a part of the Aircraft and LESSEE relinquishes to LESSOR all rights and title thereto. However, all (i) temporary and non structural Modifications and (ii) all Passenger Service Equipment so long as such equipment can be removed without causing material damage to the Aircraft, will remain the property of LESSEE and, at LESSOR's request and LESSEE's cost, will be removed from the Aircraft prior to return of the Aircraft, with LESSEE restoring the Aircraft to the condition it was in prior to the Modification or installation of Passenger Service Equipment in a manner cosmetically acceptable to LESSOR. Notwithstanding the foregoing, no such removal will be permitted without LESSOR's permission during the occurrence of an Event of Default hereunder and immediately upon the occurrence of an Event of Default hereunder, without the requirement of any further act or notice, all right, title and interest in such Modifications and Passenger Service Equipment will immediately vest in LESSOR; provided however, that in the event of such an Event of Default, with respect to any Passenger Service Equipment, LESSOR will use commercially reasonable efforts to reach agreement with any vendors or suppliers holding title to the Passenger Service Equipment in order to protect the mutual interests of LESSOR and such parties. 12.8.6 LESSOR will bear no liability for the cost of Modifications of the Aircraft whether in the event of grounding or suspensions of certification, or for any other cause. 12.9 Performance of Work by Third Parties. Whenever maintenance and repair work on the Aircraft or Engines will be regularly performed by a Person other than LESSEE, such Person will be an FAA authorized repair station. 12.10 Reporting Requirements. 12.10.1 Commencing with a report furnished ten (10) days after the end of the calendar month in which Delivery occurs, LESSEE will furnish to LESSOR a Monthly Report in English in the form attached hereto as Exhibit K. Each Monthly Report will be furnished within ten (10) days after the end of each calendar month, except that the Monthly Report pertaining to the last month (or any portion thereof) of the Lease Term will be furnished to LESSOR on the Termination Date. 12.10.2 Commencing with the second scheduled "C" check for the Aircraft, LESSEE will provide LESSOR with a Technical Evaluation Report for the Aircraft in the form and substance of Exhibit M, as revised. Such Technical Evaluation Report will be furnished within three (3) Business Days after the completion of every second "C" check performed during the Lease Term and at other times reasonably requested by LESSOR. 12.11 Information Regarding Maintenance Program. LESSEE will provide LESSOR with a copy of or information regarding the Maintenance Program for the Aircraft, as reasonably requested by LESSOR. 12.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR and/or its authorized agents or representatives will have the right to inspect the Aircraft and Aircraft Documentation. LESSOR agrees that such requests will be coordinated with LESSEE so as to cause the minimum practical disturbance to LESSEE's operation or its personnel. LESSEE agrees to cooperate with LESSOR in making the Aircraft and Aircraft Documentation available to such authorized technical teams. LESSOR will have no duty to make any such inspection and will not incur any liability or obligation by reason of (and LESSEE's indemnity obligations pursuant to Article 17 will apply notwithstanding) not making any such inspection or by reason of any reports it receives or any reviews it may make of the Aircraft records. ARTICLE 13 USE OF RESERVES 13.1 Airframe Reserves. The Airframe Reserves payable by LESSEE hereunder will be retained by LESSOR as LESSEE's contribution toward payment of the cost of performance of the "C7"inspection and the 22,400 flight hour structural inspection of the Aircraft pursuant to the MPD. LESSEE and LESSOR acknowledge and agree that such "C7" and 22,400 flight hour structural inspection tasks will not be due to be performed until after return of the Aircraft by LESSEE. As a result, the parties agree that the Airframe Reserves are not reimburseable to LESSEE hereunder and that LESSOR will retain all Airframe Reserves paid by LESSEE; provided, however, in the event of the Total Loss of the Aircraft, fifty percent (50%) of the Airframe Reserves held by LESSOR will be retained by LESSOR and the remaining portion of such Reserves will be paid to LESSEE in accordance with Article 19.9. 13.2 Engine Reserves. 13.2.1 Subject to the limitations set forth in Article 13.2.2, LESSOR will reimburse LESSEE from the Engine Reserves for the actual cost associated with performance restoration, the replacement of life limited Parts or permanent repair of on condition Parts in the Basic Engine during completed Engine shop visits (i.e. heavy maintenance visits) requiring off wing teardown and/or disassembly, with work performed for all other causes excluded, including those causes set forth in Article 13.5. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement for an Engine will be made up to the amount in the Engine Reserves applicable to such Engine at the time of removal of such Engine. 13.2.2 Twenty three percent (23%) of the per hour Engine Reserve payable by LESSEE for an Engine will be designated and will be reimbursable solely for the replacement of life limited parts in such Engine. With respect only to Engine Reserves applicable to performance restoration of an Engine, reimbursement will be further limited as to each module of such Engine in accordance with the following percentages of the remaining total amount in the Engine Reserves for such Engine: 18% Fan & Accessory Gearbox 22% High Pressure Compressor Module 44% High Pressure Turbine Module 16% Low Pressure Turbine Module 13.2.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power by the hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's consent which consent shall not be unreasonably withheld or delayed. 13.3 Landing Gear Reserves. LESSOR will reimburse LESSEE from the Landing Gear Reserves for the actual cost of an Overhaul of the Landing Gear, up to the amount remaining in the Landing Gear Reserves, with work performed for all other causes excluded, including those causes set forth in Article 13.5. 13.4 Reimbursement. LESSEE will be entitled to reimbursement from the Engine Reserves and the Landing Gear Reserves after the work is completed and the Engine or Landing Gear has left the repair agency, by submitting invoices and proper documentation within six (6) months after completion of the work. For the Engine, proper documentation includes a description of the reason for removal (if removed), a shop teardown report, a shop findings report if an Engine is removed (or an equivalent report if an Engine is not removed), a full description of the workscope and complete disk records for the Engine both prior to and after the repair. Both the invoice supplied by the Engine repair facility and that submitted by LESSEE to LESSOR with respect to an Engine will state whether or not credits were provided due to life remaining on any removed Engine Parts and the amount of any such credits will be itemized. For the Landing Gear, proper documentation includes the total calendar time, hours and cycles on the Landing Gear both prior to and after the Overhaul, a copy of the complete Overhaul report which includes a life limited component list and a description of all work performed on the Landing Gear assembly. 13.5 Reimbursement Adjustment. By way of example, among the exclusions from reimbursement are those items resulting from repairs covered by LESSEE's or a third party's insurance, (deductibles being for the account of LESSEE) or warranties or required as a result of an Airworthiness Directive, manufacturer's service bulletin, faulty maintenance or installation, improper operations, misuse, neglect, accident, incident, ingestion, or other accidental cause. Reimbursement from the Reserves will not be available for the APU, quick engine change (QEC) Parts, thrust reversers, or any of their associated components. All invoices subject to reimbursement from LESSOR will be reduced (by adjustment between LESSEE and LESSOR retroactively if necessary) by the actual amounts received by LESSEE on account of such work from responsible third parties or other sources, such as insurance proceeds, manufacturer's warranties, guarantees, concessions and credits (including, with respect to Engines, credits due to life remaining on any removed Engine Parts). 13.6 Costs in Excess of Reserves. LESSEE will be responsible for payment of all costs in excess of the amounts reimbursed hereunder. If on any occasion the balance in the Engine Reserves or Landing Gear Reserves for a particular Engine or Landing Gear (at the time of removal, in the case of an Engine or the Landing Gear) is insufficient to satisfy a claim for reimbursement in respect of such Engine or the Landing Gear, as applicable, the shortfall may not be carried forward or made the subject of any further claim for reimbursement. 13.7 Reimbursement after Termination Date. LESSEE may not submit any invoice for reimbursement from the Engine Reserves or Landing Gear Reserves after the Termination Date unless on or prior to such date LESSEE has notified LESSOR in writing that such outstanding invoice will be submitted after the Termination Date and the anticipated amount of such invoice. So long as LESSEE has provided such notice to LESSOR, LESSEE may then submit such outstanding invoice at any time within six (6) months after the Termination Date. In the event of the Total Loss of the Aircraft, fifty percent (50%) of the unreimbursed Reserves held by LESSOR will be retained by LESSOR and the remaining portion of the Reserves will be paid to LESSEE in accordance with Article 19.9. ARTICLE 14 TITLE AND REGISTRATION 14.1 Title to the Aircraft During Lease Term. Title to the Aircraft will be and remain vested in LESSOR. LESSOR and LESSEE intend this Lease to be a "true lease". LESSEE will have no right, title or interest in the Aircraft except as provided in this Lease. 14.2 Registration of Aircraft. LESSOR at its sole cost and expense will register and maintain registration of the Aircraft in the name of LESSOR at the register of aircraft in the State of Registration. LESSEE will cooperate with LESSOR and will from time to time take all other steps then required by Law (including the Geneva Convention if applicable) or as LESSOR may reasonably request to protect and perfect LESSOR's interest in the Aircraft and this Lease in the State of Registration or in any other jurisdictions in or over which LESSEE may operate the Aircraft. 14.3 Filing of this Lease. To the extent permitted by Law and in accordance with the requirements of the Law from time to time, LESSEE at its sole cost and expense will cause this Lease to be kept, filed, recorded and refiled or rerecorded in the State of Registration and in any other offices necessary to protect LESSOR's rights hereunder as reasonably requested by LESSOR. 14.4 Evidence of Registration and Filings. As LESSOR may reasonably request from time to time, LESSEE will furnish to LESSOR an opinion of counsel or other evidence reasonably satisfactory to LESSOR of the registrations and filings required hereunder. ARTICLE 15 IDENTIFICATION PLATES LESSOR will affix and LESSEE will at all times maintain on the Airframe and each Engine the identification plates containing the following legends or any other legend reasonably requested by LESSOR in writing: 15.1 Airframe Identification Plates. Location: One to be affixed to the Aircraft structure above the forward entry door adjacent to and not less prominent than that of Manufacturer's data plate and another in a prominent place on the flight deck. Size: No smaller than 4" x 6". Legend: "THIS AIRCRAFT IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION. MANUFACTURER'S SERIAL NO: 26301 OWNER'S ADDRESS: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States of America Fax: (310) 788 1990" 15.2 Engine Identification Plates. Location: The legend on the plate must be no less prominent than the Engine data plate and must be visible. Size: No smaller than 2" x 6". "THIS ENGINE IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION, LOS ANGELES, CALIFORNIA, USA." ARTICLE 16 TAXES 16.1 General Obligation of LESSEE. Except as set forth in Article 16.2, LESSEE agrees to pay promptly when due, and to indemnify and hold harmless LESSOR on a full indemnity basis from, all license and registration fees and all taxes, fees, levies, imposts, duties, charges, deductions or withholdings of any nature (including without limitation any value added, franchise, transfer, sales, gross receipts, use, business, excise, turnover, personal property, stamp or other tax) together with any assessments, penalties, fines, additions to tax or interest thereon, however or wherever imposed (whether imposed upon LESSEE, LESSOR, on all or part of the Aircraft, the Engines or otherwise), by any Government Entity or taxing authority in the U.S. (including without limitation the City or County of Los Angeles), or any foreign country or by any international taxing authority, upon or with respect to, based upon or measured by any of the following (collectively, "Taxes"): (a) the Aircraft, Engines or any Parts; (b) the use, operation or maintenance of the Aircraft or carriage of passengers or freight during the Lease Term; (c) this Lease, the payments due hereunder and the terms and conditions hereof; and (d) the ownership, financing, delivery, import or export, return, sale, payment of Total Loss Proceeds or other disposition of the Aircraft. 16.2 Exceptions to Indemnity. The indemnity provided for in Article 16.1 does not extend to any of the following Taxes (hereinafter referred to as "LESSOR's Taxes"): (a) Taxes imposed by the U.S. or by any state within the U.S. on the net income, profits or gains, gross receipts, capital or net worth of LESSOR; (b) Taxes attributable to the period, or an event occurring, prior to Delivery or after return of the Aircraft to LESSOR in accordance with this Lease; (c) Taxes attributable to LESSOR's gross negligence, willful misconduct or breach of this Lease; (d) Taxes which LESSEE is contesting in good faith in accordance with Article 16.5; (e) Taxes imposed by any country other than the U.S. on the net income, gross receipts, capital or net worth of LESSOR but only to the extent that (i) such Taxes were not in any way connected with, due to or arising out of this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft and (ii) such Taxes would be otherwise payable by LESSOR notwithstanding this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft; (f) excess Taxes imposed as a result of LESSOR's voluntary or involuntary transfer or other disposition of the Aircraft, Engines or any Parts or this Lease (except a transfer or sale resulting directly from LESSEE's Default) provided that LESSEE remains responsible for payment of any Taxes and the specific amount of such Taxes that it would have been required to indemnify for had such voluntary or involuntary transfer not occurred; (g) Taxes consisting of any interest, penalties or additions to tax imposed on LESSOR as a result, in whole or in part, of a failure of LESSOR to file any Tax return properly and timely, unless such failure shall be caused by the failure of LESSEE to fulfill any obligations of LESSEE under Section 16.7 with respect to such Tax return; or (h) Taxes resulting from, or that would not have been imposed but for, any LESSOR's Lien arising as a result of claims against, or acts or omissions of, or otherwise attributable to, LESSOR or any related party. 16.3 After Tax Basis. The amount which LESSEE is required to pay with respect to any Taxes indemnified against under Article 16.1 is an amount sufficient to restore LESSOR on an after tax basis to the same position LESSOR would have been in had such Taxes not been incurred. If LESSOR determines in good faith that it has realized a Tax benefit (by way of deduction, credit or otherwise) as a result of any payment for which LESSEE is liable under Section 5.7 or 16.1 of this Lease, and such benefit was not previously taken into account in calculating the amount of such payment on an after tax basis in accordance with the immediately preceding sentence of this Article 16.3, LESSOR will pay to LESSEE an amount that is reasonably sufficient to ensure that LESSOR is in no better an after tax position than it would have been in if the event giving rise to LESSEE's liability for payment had not occurred. 16.4 Timing of Payment. Any amount payable to LESSOR pursuant to this Article 16 will be paid within ten (10) days after receipt of a written demand therefor from LESSOR accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable provided, however, that such amount need not be paid by LESSEE prior to the earlier of (a) the date any Tax is payable to the appropriate Government Entity or taxing authority or (b) in the case of amounts which are being contested by LESSEE in good faith or by LESSOR pursuant to Article 16.5, the date such contest is finally resolved. 16.5 Contests. If claim is made against LESSOR for Taxes with respect to which LESSEE is liable for a payment or indemnity under this Lease, LESSOR will promptly give LESSEE notice in writing of such claim provided, however, that LESSOR's failure to give notice will not relieve LESSEE of its obligations hereunder unless such failure materially impairs or precludes LESSEE's ability to contest the claim. So long as (a) a contest of such Taxes does not involve any material risk of the sale, forfeiture or loss of the Aircraft or any interest therein, (b) if LESSOR so requests, LESSEE has provided LESSOR with an opinion of independent tax counsel that a reasonable basis exists for contesting such claim and (c) adequate reserves have been made for such Taxes or, if required, an adequate bond has been posted, then LESSOR at LESSEE's written request will in good faith, with due diligence and at LESSEE's expense, contest (or permit LESSEE to contest in the name of LESSEE or LESSOR) the validity, applicability or amount of such Taxes. 16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of any Taxes (including any deductions or withholdings referred to in Article 5.7) which LESSEE has paid, LESSOR will promptly pay to LESSEE the net amount of such Taxes refunded. 16.7 Cooperation in Filing Tax Returns. LESSEE and LESSOR will cooperate with one another in providing information which may be reasonably required to fulfill each party's tax filing requirements and any audit information request arising from such filing. 16.8 Survival of Obligations. The indemnity obligations and other agreements of LESSEE as set forth in this Article 16 will survive the Termination Date. ARTICLE 17 INDEMNITIES 17.1 General Indemnity. Except as set forth in Article 17.2 and Article 28.20, LESSEE agrees to indemnify and hold harmless LESSOR and its officers, directors, employees, agents and shareholders (individually an "Indemnitee" and collectively "Indemnitees") from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, disbursements and expenses (including legal fees, costs and related expenses) of every kind and nature, whether or not any of the transactions contemplated by this Lease are consummated (collectively "Expenses"), which are imposed on, incurred by or asserted against any Indemnitee and which are in any way relating to, based on or arising out of any of the following: (a) this Lease or any transactions contemplated hereby; (b) the operation, possession, use, non use, control, leasing, subleasing, maintenance, storage, overhaul, testing, inspections or acceptance flights at return of the Aircraft, any Engine, or any Part during the Lease Term by LESSEE, any sublessee or any other Person, whether or not the same is in compliance with the terms of this Lease, including without limitation claims for death, personal injury, property damage, other loss or harm to any Person and claims relating to any Laws, including without limitation environmental control, noise and pollution laws, rules or regulations; (c) the manufacture, design, acceptance, rejection, delivery, return, sale after an Event of Default, import, export, condition, repair, modification, servicing, rebuilding, enforcement of warranties whether in LESSOR's or LESSEE's name, customer and product support provided by Manufacturer and other vendors, airworthiness, registration, reregistration, performance, sublease, merchantability, fitness for use, substitution or replacement of the Aircraft, Engine, or any Part under this Lease or other transfer of use or possession of the Aircraft, Engine, or any Part, including under a pooling or interchange arrangement, including without limitation latent and other defects, whether or not discoverable and patent, trademark or copyright infringement; (d) any non compliance by LESSEE with any term of this Lease or the falsity or inaccuracy of any representation or warranty of LESSEE set forth herein; (e) the prevention or attempt to prevent the arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the Aircraft, or in securing the release of the Aircraft; or (f) as a consequence of any Default in payment by LESSEE of any sum to be paid by LESSEE when due under this Lease or any other Default by LESSEE in the due and punctual performance of its obligations under this Lease. The foregoing indemnity by LESSEE is intended to include and cover any Expense to which an Indemnitee may be subject (in contract, tort, strict liability or under any other theory) regardless of the negligence, active or passive or any other type, of such Indemnitee, so long as such Expense does not fall within any of the exceptions listed in Article 17.2. 17.2 Exceptions to General Indemnities. The indemnity provided for in Article 17.1 will not extend to Expenses of any Indemnitee to the extent resulting from or arising out of any of the following: (a) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to have resulted from the willful misconduct of such Indemnitee; (b) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to incidents, accidents or occurrences prior to the Delivery Date, but only where both the act or omission which gave rise to the incident, accident or occurrence and the incident, accident or occurrence itself occurred prior to the Delivery Date; (c) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to acts or events which occur after the Termination Date and return of the Aircraft to LESSOR in the condition required hereunder, but in any such case only to the extent not attributable to acts or omissions of LESSEE; (d) Expenses representing Taxes, it being acknowledged that the terms of Article 16 apply exclusively to LESSEE's indemnity obligations with respect to Taxes; (e) Expenses due to the breach by LESSOR of its covenant of quiet enjoyment pursuant to Article 21.2; (f) Expenses related to LESSOR Taxes or a LESSOR's Lien; or (g) Expenses that LESSOR has expressly agreed to pay under this Lease. 17.3 After Tax Basis. The amount which LESSEE will be required to pay with respect to any Expense indemnified against under Article 17.1 will be an amount sufficient to restore the Indemnitee, on an after tax basis, to the same position such Indemnitee would have been in had such Expense not been incurred. 17.4 Timing of Payment. It is the intent of the parties that each Indemnitee will have the right to indemnification for Expenses hereunder as soon as a claim is made and as soon as an Expense is incurred, whether or not such claim is meritorious and whether or not liability is established (but subject to Article 17.8). LESSEE will pay an Indemnitee for Expenses pursuant to this Article 17 within ten (10) days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and reasonable proof of such Expenses incurred. 17.5 Subrogation. Upon the payment in full of any indemnity pursuant to this Article 17 by LESSEE, LESSEE will be subrogated to any right of the Indemnitee in respect of the matter against which such indemnity has been made. 17.6 Notice. Each Indemnitee and LESSEE will give prompt written notice one to the other of any liability of which such party has knowledge for which LESSEE is, or may be, liable under Article 17.1 provided, however, that failure to give such notice will not terminate any of the rights of Indemnitees under this Article 17 except to the extent that LESSEE has been materially prejudiced by the failure to provide such notice. 17.7 Refunds. If any Indemnitee obtains a recovery of all or any part of any amount which LESSEE has paid to such Indemnitee, such Indemnitee will promptly pay to LESSEE the net amount recovered by such Indemnitee. 17.8 Defense of Claims. Unless an Event of Default has occurred and is continuing, LESSEE and its insurers will have the right (in each such case at LESSEE's sole expense) to investigate or, provided that LESSEE or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Article 17.1 and each Indemnitee will cooperate with LESSEE or its insurers with respect thereto. If LESSEE or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Indemnitees. If not, the Indemnitees will have the right to retain counsel of their choice at LESSEE's expense. 17.9 Survival of Obligation. Notwithstanding anything in this Lease to the contrary, the provisions of this Article 17 will survive the Termination Date and continue in full force and effect notwithstanding any breach by LESSOR or LESSEE of the terms of this Lease, the termination of the lease of the Aircraft to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of this Lease. ARTICLE 18 INSURANCE 18.1 Categories of Insurance. Throughout the Lease Term and until the Termination Date LESSEE will, at its own expense, effect and maintain in full force and effect the types of insurance and amounts of insurance (including deductibles) described in Exhibit C through such brokers and with such insurers as may be approved by LESSOR, such approval not to be unreasonably withheld, in London or New York or such other insurance markets as mutually agreed upon by the parties. 18.2 Write back of any Date Recognition Exclusion. In the event any of LESSEE's insurances (either the primary insurance or the reinsurance) contain any date recognition exclusion clause or similar clause excluding from such insurance coverage damage to any property (including the Aircraft) or death or injury to any person on account of accidents, incidents or occurrences caused by date recognition or other Year 2000 related problems, LESSEE at its cost will obtain for the benefit of itself and LESSOR the broadest write back available in the U.S. insurance market with respect to such exclusion. 18.3 Insurance for Indemnities. The insurance referred to in Article 18.1 will in each case include and insure (to the extent of the risks covered by the policies) the indemnity provisions of Article 17 and LESSEE will maintain such insurance of the indemnities for a minimum of two (2) years following the Termination Date. 18.4 Insurance required by Manufacturer. During the Lease Term, LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. 18.5 Renewal. Not less than five (5) Business Days before the expiration or termination date of any insurance required hereunder, LESSEE will provide LESSOR with fax confirmation from LESSEE's insurance brokers that renewed certificates of insurance evidencing the renewal or replacement of such insurance and complying with Exhibit C will be issued on the termination date of the prior certificate. Within seven (7) days after such renewal, LESSEE will furnish its brokers' certificates of insurance to LESSOR. 18.6 Assignment of Rights by LESSOR. If LESSOR assigns all or any of its rights under this Lease as permitted by this Lease or otherwise disposes of any interest in the Aircraft to any other Person as permitted by this Lease, LESSEE will, upon request, procure that such Person hereunder be added as loss payee and/or additional assured in the policies effected hereunder and enjoy the same rights and insurance enjoyed by LESSOR under such policies. LESSOR will nevertheless continue to be covered by LESSEE's third party liability insurance policies. 18.7 Other Insurance. LESSOR may from time to time by notice to LESSEE require LESSEE at LESSEE's expense to effect such other insurance or such variations to the terms of the existing insurance as may then be customary in the airline industry for aircraft of the same type as the Aircraft and at the time commonly available in the insurance market. 18.8 Information. LESSEE will provide LESSOR with any information reasonably requested by LESSOR from time to time concerning the insurance maintained with respect to the Aircraft or in connection with any claim being made or proposed to be made thereunder. 18.9 Currency. All proceeds of insurance pursuant to this Lease will be payable in Dollars except as may be otherwise agreed by LESSOR. 18.10 Grounding of Aircraft. If at any time any of the insurance required pursuant to this Lease will cease to be in full force and effect, LESSEE will forthwith ground the Aircraft and keep the Aircraft grounded until such time as such insurance is in full force and effect again. 18.11 Failure to Insure. If at any time LESSEE fails to maintain insurance in compliance with this Article 18, LESSOR will be entitled but not bound to do any of the following (without prejudice to any other rights which it may have under this Lease by reason of such failure): (a) to pay any premiums due or to effect or maintain insurance consistent with the terms of this Lease or otherwise remedy such failure in such manner as LESSOR considers appropriate (and LESSEE will upon demand reimburse LESSOR in full for any amount so expended in that connection); or (b) at any time while such failure is continuing, to require the Aircraft to remain at any airport or (as the case may be), if allowed by applicable Law proceed to and remain at any airport within the continental U.S. designated by LESSOR, until such failure is remedied to LESSOR's reasonable satisfaction. 18.12 Reinsurance. Any reinsurance will be maintained with reinsurers and brokers reasonably acceptable to LESSOR. Such reinsurance will contain each of the following terms and will in all other respects (including amount) be reasonably satisfactory to LESSOR: (a) the same terms as the original insurance; (b) a cut through and assignment clause reasonably satisfactory to LESSOR; and (c) payment will be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of any of the original insurers and/or (ii) that the original insurers have made no payment under the original insurance policies. 18.13 Limit on Hull in favor of LESSEE. LESSEE may carry hull all risks or hull war and allied perils on the Aircraft in excess of the Agreed Value (such Agreed Value being payable to LESSOR) only to the extent such excess insurance which would be payable to LESSEE in the event of a Total Loss does not exceed ten percent (10%) of the Agreed Value and only to the extent that such additional insurance will not prejudice the insurances required herein or the recovery by LESSOR thereunder. LESSEE agrees that it will not create or permit to exist any liens or encumbrances over the insurances, or its interest therein, except as constituted by this Lease. ARTICLE 19 LOSS, DAMAGE AND REQUISITION Throughout the Lease Term and until the Termination Date, LESSEE will bear all risk of loss, theft, damage and destruction to the Aircraft. 19.1 Definitions. In this Article 19 and throughout this Lease: "Agreed Value" * "Net Total Loss Proceeds" means the Total Loss Proceeds actually received by LESSOR following a Total Loss, less any legal and other out of pocket expenses, taxes or duties incurred by LESSOR in connection with the collection of such proceeds. "Total Loss" means any of the following in relation to the Aircraft, Airframe or any Engine, and "Total Loss Date" means the date set forth in parenthesis after each Total Loss: (a) destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason (the date such event occurs or, if not known, the date on which the Aircraft, Airframe or Engine was last heard of); (b) actual or constructive total loss (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss) (the earlier of the date on which the loss occurs or thirty (30) days after the date of notice to LESSEE's brokers or insurers claiming such total loss); (c) requisition of title, confiscation, forfeiture or any compulsory acquisition or other similar event (the date on which the same takes effect); (d) sequestration, detention, seizure or any similar event for more than sixty (60) consecutive days or one hundred eighty (180) consecutive days if the Aircraft is located in the U.S. for such entire period (the earlier of the date on which insurers make payment on the basis of a total loss or the date of expiration of such period); (e) requisition for use for more than one hundred eighty (180) consecutive days, except as set forth in Article 19.8 (the earlier of the date on which the insurers make payment on the basis of a total loss or the date of expiration of such period); or (f) in the case of an Engine, the event described in Article 12.6.3 (the date on which the same takes effect). "Total Loss Proceeds" means the proceeds of any insurance or any compensation or similar payment arising in respect of a Total Loss. 19.2 Notice of Total Loss. LESSEE will notify LESSOR in writing within two (2) Business Days after a Total Loss Date of the Aircraft, Airframe or any Engine. 19.3 Total Loss of Aircraft or Airframe. If the Total Loss of the Aircraft or Airframe occurs during the Lease Term, the following will occur: 19.3.1 After the Total Loss Date and until receipt by LESSOR of the Agreed Value and all other amounts then due under this Lease, LESSEE will continue to pay Rent and the parties will perform, to the extent possible, all of their other obligations under this Lease. 19.3.2 On the date which is the earlier of the following dates: (a) the date on which the Total Loss Proceeds of the Aircraft or the Airframe are paid by LESSEE's insurance underwriters or brokers and (b) the date which falls forty five (45) days after the Total Loss Date, LESSEE will pay to LESSOR an amount equal to the sum of: (a) the Agreed Value and (b) all other amounts then due under this Lease, less an amount equal to the Net Total Loss Proceeds received by LESSOR by such date. 19.3.3 LESSOR will apply the Net Total Loss Proceeds and any amounts received from LESSEE pursuant to Article 19.3.2 as follows: (a) first, in discharge of any unpaid Rent and any other amounts accrued and unpaid up to the date of LESSOR's receipt of the Agreed Value; (b) second, in discharge of the Agreed Value; and (c) third, payment of the balance, if any, to LESSEE. 19.3.4 Upon receipt by LESSOR of all monies payable by LESSEE in Article 19.3, this Lease will terminate except for LESSEE's obligations under Articles 10.5, 16 and 17 which survive the Termination Date. FOR AVOIDANCE OF DOUBT, THE AGREED VALUE OF THE AIRCRAFT WILL BE PAYABLE TO LESSOR PURSUANT TO THIS ARTICLE 19.3 WHEN A TOTAL LOSS OF THE AIRFRAME OCCURS EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES. 19.4 Surviving Engine(s). If a Total Loss of the Airframe occurs and there has not been a Total Loss of an Engine or Engines, then, provided no Default has occurred and is continuing, at the request of LESSEE (subject to agreement of relevant insurers) and on receipt of all monies due under Article 19.3 and payment by LESSEE of all airport, navigation and other charges on the Aircraft, LESSOR will transfer all its right, title and interest in the surviving Engine(s) to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to freedom from any LESSOR's Lien. 19.5 Total Loss of Engine and not Airframe. 19.5.1 Upon a Total Loss of any Engine not installed on the Airframe or a Total Loss of an Engine installed on the Airframe not involving a Total Loss of the Airframe, LESSEE will replace such Engine as soon as reasonably possible by duly conveying to LESSOR title to another engine (a) free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) in airworthy condition and of the same or improved model, service bulletin and modification status and having a value and utility at least equal to the Engine which sustained the Total Loss, (c) not older (by reference to serial number or manufacture date) than the older of the two Engines (on the date of the replacement) delivered by LESSOR to LESSEE with the Aircraft on the Delivery Date, and (d) in the same or better operating condition as the Engine which sustained a Total Loss, including time in service, hours and cycles since new and hours and cycles available to the next inspection, Overhaul or scheduled or anticipated removal; provided that with respect to replacement modules in such other engine, LESSEE will use best reasonable efforts to ensure that such other engine will not have been previously operated at a higher thrust rating than the Engine which sustained the Total Loss and provided further that in all circumstances life limited Parts in such replacement engine will have no less life remaining than the life limited Parts in the Engine which sustained the Total Loss. Such replacement engine will be an Engine as defined herein and the Engine which sustained such Total Loss will cease to be an Engine; whereupon, subject to agreement of relevant insurers, LESSOR will transfer all of its right, title and interest in and to the Engine which sustained the Total Loss to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to title and freedom from any LESSOR's Lien. 19.5.2 LESSEE agrees at its own expense to take such action as LESSOR may reasonably request in order that any such replacement Engine becomes the property of LESSOR and is leased hereunder on the same terms as the destroyed Engine. LESSEE's obligation to pay Rent will continue in full force and effect, but an amount equal to the Net Total Loss Proceeds received by LESSOR with respect to such destroyed Engine will, subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease, be paid to LESSEE. 19.6 Other Loss or Damage. 19.6.1 If the Aircraft or any Part thereof suffers loss or damage not constituting a Total Loss of the Aircraft or the Airframe or any Engine, all the obligations of LESSEE under this Lease (including payment of Rent) will continue in full force. 19.6.2 * 19.6.3 To the extent insurance proceeds received by LESSEE directly from its insurers do not cover the cost of such repair work on the Aircraft or Engine and LESSOR has received additional insurance proceeds from LESSEE's insurers with respect to such repair work, LESSOR will (subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease and submission by LESSEE of reasonable documentation in support of such excess repair costs) pay to LESSEE insurance proceeds received by LESSOR as and when such repair work is performed on the Aircraft. 19.7 Copy of Insurance Policy. Promptly after the occurrence of a partial loss or Total Loss of the Aircraft or an Engine, at the request of LESSOR (and then only in the event reasonably required by LESSOR in connection with insurance policies pursuant to which coverage is sought) LESSEE will provide LESSOR with a copy of the relevant portions of LESSEE's insurance policy. LESSEE's insurance policy will be confidential between LESSOR and LESSEE and will not be disclosed by LESSOR to third parties other than LESSOR's professional advisors and except as necessary in respect of proceedings relating to such insurance claim. 19.8 Government Requisition. If the Aircraft, Airframe or any Engine is requisitioned for use by any Government Entity, LESSEE will promptly notify LESSOR of such requisition. All of LESSEE's obligations hereunder will continue as if such requisition had not occurred. So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity may be used by LESSOR to satisfy any obligations owing by LESSEE. 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent . For avoidance of doubt, the parties agree that (a) notwithstanding the Total Loss of the Airframe and/or Engines LESSOR will retain an amount equal to fifty percent (50%) of all Reserves paid by LESSEE and not payable to LESSEE pursuant to Article 13.4, and (b) in the event of the Total Loss of the Airframe and/or Engines upon receipt by LESSOR of all monies payable by LESSEE in accordance with Article 19.1.3, and subject to Article 5.1.3, LESSOR will (i) return the Security Deposit and any prepaid Rent to LESSEE and (ii) pay to LESSEE an amount equal to fifty percent (50%) of the Reserves then held by LESSOR. ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE 20.1 Representations and Warranties. LESSEE represents and warrants the following to LESSOR as of the date of execution of this Lease and as of the Delivery Date: 20.1.1 Corporate Status. LESSEE is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Colorado. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 20.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to the Aviation Authority or any other Government Entity is required for the valid authorization, execution, delivery and performance by LESSEE of this Lease, except as will have been duly effected as of the Delivery Date. 20.1.3 Binding. LESSEE's Board of Directors has authorized LESSEE to enter into this Lease and the other Operative Documents and to perform its obligations hereunder and thereunder. This Lease and the other Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease been duly executed and delivered by LESSEE and represent the valid, binding and enforceable obligations of LESSEE except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease, the consummation by LESSEE of the transactions contemplated under the Operative Documents and compliance by LESSEE with the terms and provisions thereof do not and will not contravene any Law applicable to LESSEE, or result in any material breach of or constitute any material default under or result in the creation of any Security Interest upon any property of LESSEE, pursuant to any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by law or other material agreement or instrument to which LESSEE is a party or by which LESSEE or its properties or assets may be bound or affected. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.5 Filings. Except for any filing or recording that may be required under the U.S. Federal Aviation Administration and except for the filing of UCC 1 financing statements with the Secretary of State of the State of Colorado, no filing or recording of any instrument or document (including the filing of any financial statement) is necessary under the Laws of the State of Registration in order for this Lease to constitute a valid and perfected lease of record relating to the Aircraft. 20.1.6 Licenses. LESSEE holds all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. 20.1.7 No Suits. There are no suits, arbitrations or other proceedings pending or threatened before any court or administrative agency against or affecting LESSEE which, if adversely determined, would have a material adverse effect on the business, assets or condition (financial or otherwise) of LESSEE or its ability to perform under this Lease, except as described in the filings provided to LESSOR pursuant to Article 22. 20.1.8 Tax Returns. All necessary returns have been delivered by LESSEE to all relevant taxation authorities in the jurisdiction of its incorporation and LESSEE is not in default in the payment of any taxes due and payable. 20.1.9 No Material Adverse Effect. LESSEE is not in default under any agreement to which it is a party or by which it may be bound which default if left uncured would have a material adverse effect on its business, assets or condition. 20.1.10 No Default under this Lease. At the time of execution of this Lease, no Default has occurred and is continuing and the financial statements provided to LESSOR pursuant to Article 22 fairly present the financial condition of LESSEE. 20.2 Covenants. LESSEE covenants to LESSOR that it will comply with the following throughout the entire Lease Term: 20.2.1 Licensing. LESSEE will hold all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. LESSEE will advise LESSOR promptly in the event any such licenses, certificates or permits are cancelled, terminated, revoked or not renewed. 20.2.2 Information about Suits. LESSEE will promptly give to LESSOR a notice in writing of any suit, arbitration or proceeding before any court, administrative agency or Government Entity which, if adversely determined, would materially adversely affect LESSEE's financial condition, affairs, operations or its ability to perform under this Lease provided, however, that compliance by LESSEE with the requirements of Article 22 hereof will be deemed compliance with the provisions of this Article 20.2.2. 20.2.3 Restrictions on Mergers. LESSEE will not consolidate with or merge into any other corporation or other Person, and will not convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any corporation or other Person, unless: (i) such transaction shall not have any material adverse effect on the rights of LESSOR under or in respect of the Lease or the Aircraft; (ii) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance, transfer, lease or other disposition all or substantially all of such property and other assets: (A) shall be a corporation organized and existing under the laws of the U. S. or any State thereof or the District of Columbia; (B) immediately after giving effect to such transaction, shall have acquired or succeeded to all or substantially all of the assets of LESSEE (if such assets are being transferred) as an entirety, and shall have a tangible net worth (determined in accordance with GAAP) of not less than LESSEE's tangible net worth (determined in accordance with GAAP) immediately prior to such transaction; (C) shall be a "citizen of the United States" of America as defined in Section 40102(a)(15)(c) of Title 49 of the U.S.C. and a Certificated Air Carrier; and (D) shall executed and deliver to LESSOR (1) such recordations and filings with any Government Entity and such other documents as shall be reasonably necessary or advisable in connection with such consolidation, merger, sale, lease, transfer or other disposition (2) an agreement, in form and substance reasonably satisfactory to LESSOR, assuming all of LESSEE's obligations under the Lease and the other Operative Documents without amendment thereto and (3) an officer's certificate to the effect that the requirements of this Section have been satisfied; and (iii) no Event of Default shall have occurred and be continuing or shall occur as a result thereof. 20.2.4 Restriction on Relinquishment of Possession. LESSEE will not, without the prior consent of LESSOR, deliver, transfer or relinquish possession of the Aircraft except in accordance with Articles 11 and 12. 20.2.5 No Security Interests. LESSEE will not create or agree to or permit to arise any Security Interest (other than Permitted Liens) on or with respect to the Aircraft, title thereto or any interest therein. LESSEE will forthwith, at its own expense, take all action as may be reasonably necessary to discharge or remove any such Security Interest if it exists at any time. 20.2.6 Representations to Other Parties. LESSEE will not represent or hold out LESSOR as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation of the Aircraft. ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR 21.1 Representations and Warranties. LESSOR represents and warrants the following to LESSEE as of the date of execution of the Lease and as of the Delivery Date and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED HAVE BEEN WAIVED IN ACCORDANCE WITH ARTICLE 8: 21.1.1 Corporate Status. LESSOR is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of California. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 21.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to any U.S. Government Entity is required for the valid authorization, execution, delivery and performance by LESSOR of this Lease. 21.1.3 Binding. This Lease and the other Operative Documents that have been have been executed and delivered by LESSEE as of the date of this Lease have been duly authorized, executed and delivered by LESSOR and represent the valid, enforceable and binding obligations of LESSOR except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSOR as of the date of this Lease, the consummation by LESSOR of the transactions contemplated therein and compliance by LESSOR with the terms and provisions thereof do not and will not contravene any Law applicable to LESSOR, or result in any material breach of or constitute any material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by law or other material agreement or instrument to which LESSOR is a party or by which LESSOR or its properties or assets may be bound or affected. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.5 Title to Aircraft. On the Delivery Date LESSOR will have good and valid title to the Aircraft. 21.1.6 Citizen of the United States. LESSOR is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.). 21.1.7 Airframe and Engine Warranty Assignments. The Airframe Warranty Assignment and the Engine Warranty Assignment when executed and delivered by LESSOR in accordance with Article 7.4 represent the valid and enforceable assignment to LESSEE of the warranties set forth therein. 21.2 Covenant of Quiet Enjoyment. So long as no Event of Default has occurred and is continuing hereunder, LESSOR covenants that neither LESSOR nor any person lawfully claiming through LESSOR will interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft during the Lease Term. ARTICLE 22 FINANCIAL AND RELATED INFORMATION LESSEE agrees to furnish each of the following to LESSOR: (a) within forty five (45) days after the end of each fiscal quarter of LESSEE, three (3) copies of the unaudited consolidated financial statements (including a balance sheet and profit and loss statement) prepared for such quarter in accordance with generally accepted accounting principles in the U.S.; (b) within ninety (90) days after the end of each fiscal year of LESSEE, three (3) copies of the audited consolidated financial statements (including a balance sheet and profit and loss statement) prepared as of the close of such fiscal year in accordance with generally accepted accounting principles in the U.S.; (c) promptly after distribution, three (3) copies of all reports and financial statements which LESSEE sends or makes available to its stockholders or creditors generally; (d) Technical Evaluation Reports in conjunction with every second "C" check for the Aircraft and at other times reasonably requested by LESSOR in accordance with Article 12.10.2 hereof; and (e) from time to time, such other reasonable information as LESSOR or LESSOR's Lender may reasonably request concerning the location, condition, use and operation of the Aircraft or the financial condition of LESSEE. ARTICLE 23 RETURN OF AIRCRAFT 23.1 Date of Return. LESSEE is obligated to return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR on the Expiration Date, unless a Total Loss of the Aircraft occurred prior to the Expiration Date and this Lease was terminated early in accordance with Article 19.3. If LESSEE is in Default hereunder by failing to return the Aircraft on the Expiration Date or if an Event of Default occurs prior to the Expiration Date and LESSOR repossesses the Aircraft, the return requirements set forth in this Article 23 nonetheless must be met on the date the Aircraft is actually returned to LESSOR or repossessed by LESSOR. 23.2 Technical Report. Six (6) months prior to the Expiration Date (and in an updated form at return of the Aircraft), LESSEE will provide LESSOR with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSOR's request, will make copies available of (a) drawings of the interior configuration of the Aircraft both as it then exists and as it will exist at return, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard time and life limited component listings, (e) a list of LESSEE initiated modifications and alterations, (f) interior material burn certificates, (g) the Aircraft Maintenance Program, (h) the complete workscope for the checks, inspections and other work to be performed prior to return, (i) a list of all no charge service bulletin kits with respect to the Aircraft which were ordered by LESSEE from Manufacturer or Engine manufacturer, (j) current Engine disk sheets and a description of the last shop visit for each Engine and (k) any other data which is reasonably requested by LESSOR. 23.3 Return Location. LESSEE at its expense will return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR at Denver, Colorado or to such other airport on LESSEE's route system as may be mutually agreed to by LESSEE and LESSOR. 23.4 Full Aircraft Documentation Review. For the period commencing at least ten (10) Business Days prior to the proposed redelivery date and continuing until the date on which the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE will provide for the review of LESSOR and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft return location. 23.5 Aircraft Inspection. 23.5.1 During the maintenance checks performed immediately prior to the proposed redelivery and at the actual return of the Aircraft, LESSOR and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSOR's reasonable satisfaction. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to the acceptance flight described in Article 23.5.2. 23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE will carry out for LESSOR and/or LESSOR's representatives an Aircraft acceptance flight in accordance with Manufacturer's standard flight operation check flight procedures or, if agreed to in writing by LESSOR, in accordance with an airline acceptance flight procedure, either of which will be for two (2) hours, or such longer duration as is necessary to perform such check flight procedures. Flight costs and fuel will be furnished by and at the expense of LESSEE. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to return of the Aircraft. 23.5.3 To the extent that the ground inspection and acceptance flight extend beyond the Expiration Date, the Lease Term will be deemed to have been automatically extended and the obligations of LESSEE hereunder (including Article 23.13.3) will continue on a day to day basis until the Aircraft is accepted by LESSOR as being in the condition required hereunder, which acceptance shall be evidenced by LESSOR executing and delivering to LESSEE the Return Acceptance Receipt in the form of Exhibit J. 23.6 Certificate of Airworthiness Matters. 23.6.1 The Aircraft will possess a current Certificate of Airworthiness issued by the Aviation Authority for transport category aircraft in accordance with FAR Part 21 and FAR Part 121 (although this Certificate of Airworthiness may later be substituted by the Export Certificate of Airworthiness or equivalent if requested by LESSOR pursuant to Article 23.12). 23.6.2 If the Aircraft is registered in a country other than the U.S. at time of return, LESSEE at its cost will demonstrate that the Aircraft meets the requirements for issuance of the U.S. Standard Certificate of Airworthiness for transport category aircraft specified in ARTICLE 23.6.1 by delivering to LESSOR at its option either an actual U.S. Standard Certificate of Airworthiness (if the Aircraft is to be registered in the U.S.) or a letter acceptable to LESSOR signed by an FAA Designated Airworthiness Representative (DAR) or another Person acceptable to LESSOR stating that the DAR or such Person has inspected the Aircraft and Aircraft Documentation (including records and manuals) and has found that the Aircraft meets the requirements for issuance of a U.S. Standard Certificate of Airworthiness for transport category aircraft in accordance with FAR Part 21 and, in addition, meets the operating requirements of FAR Part 121. 23.6.3 If the Aircraft is to be registered in a country other than in the U.S. after return from LESSEE, LESSOR may in its sole discretion waive the requirements of Article 23.6.1 and instead require that LESSEE at its expense (to the extent such expense is no greater than that which LESSEE would have incurred pursuant to Article 23.6.1, with any additional expenses being for LESSOR's account) put the Aircraft in a condition to meet the requirements for issuance of a Certificate of Airworthiness of the Aviation Authority of the next country of register, provided that if solely as a result of such work the Aircraft is returned after the scheduled redelivery date, LESSEE will not be liable for payment of Rent in respect of the period following the date the Aircraft would have been returned following completion of the requirements of this Article 23, but for the provisions of this Article 23.6.3. 23.7 General Condition of Aircraft at Return. 23.7.1 The Aircraft, Engines and Parts will have been maintained and repaired in accordance with the Maintenance Program, the rules and regulations of the Aviation Authority and this Lease. 23.7.2 Aircraft Documentation (including records and manuals) will have been maintained in an up to date status, in accordance with the rules and regulations of the Aviation Authority and the FAA and this Lease and in a form necessary in order to meet the requirements of ARTICLE 23.6.2. The records and historical documents set forth in Attachment 1 of Exhibit J will be in English. 23.7.3 The Aircraft will be in the same working order and condition as at Delivery (subject to the other provisions of this Article 23, reasonable wear and tear from normal flight operations excepted), with all pilot discrepancies and deferred maintenance items cleared on a terminating action basis. 23.7.4 The Aircraft will be airworthy (conform to type design and be in a condition for safe operation), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer, Aviation Authority and the FAA. 23.7.5 The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. 23.7.6 No special or unique Manufacturer, Engine manufacturer or Aviation Authority inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. 23.7.7 All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA approved data supported by FAA Form 8110 3) for the Aircraft, as applicable. 23.7.8 The Aircraft will be returned with LESSOR's Engines installed and with the same equipment as at Delivery, subject only to those replacements, additions and Modifications permitted under this Lease. 23.7.9 All Airworthiness Directives which are issued during the Lease Term and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to return of the Aircraft to LESSOR or within one (1) year after the Termination Date will have been complied with on the Aircraft on a terminating action basis at LESSEE's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. If, after using commercially reasonable efforts, LESSEE is unable to acquire the material, parts or components necessary to accomplish such Airworthiness Directive, LESSEE will pay to LESSOR upon return of the Aircraft the estimated cost of terminating such Airworthiness Directive. If the estimated cost cannot be mutually agreed upon by LESSEE and LESSOR, LESSEE and LESSOR will each obtain an estimate from a reputable FAA approved maintenance facility (unaffiliated with LESSEE or LESSOR) and the estimated cost will be the average of the two estimates. 23.7.10 The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. 23.7.11 If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives are granted by the Aviation Authority or permitted by the Maintenance Program, LESSEE at its sole cost and expense will nonetheless perform such maintenance or operating requirements, repairs or Airworthiness Directives as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry overs did not exist; provided, however, that if any Airworthiness Directive has been deemed terminated by means of an alternate means of compliance that is widely accepted by the international airline industry, such alternative means of compliance will be deemed to satisfy the terms of this Article 23.7.11. 23.7.12 The Aircraft will be free from any Security Interest except LESSOR's Liens and no circumstance will have so arisen whereby the Aircraft is or could become subject to any Security Interest or right of detention or sale in favor of the Aviation Authority, any airport authority, or any other authority. 23.7.13 All no charge vendor and Manufacturer's service bulletin kits received by LESSEE for the Aircraft but not installed thereon will be on board the Aircraft as cargo. At LESSOR's request, any other service bulletin kit which LESSEE paid for will also be delivered to LESSOR on board the Aircraft, but LESSOR will reimburse LESSEE for its actual out of pocket costs for such kit, unless LESSEE purchased such kit as part of its implementation of a service bulletin on its fleet of aircraft of the same type as the Aircraft but had not yet installed such kit on the Aircraft, in which case such kit will be furnished free of charge to LESSOR. 23.7.14 The Aircraft will be free of any leaks and any damage resulting therefrom. All repairs will have been performed on a permanent basis in accordance with the applicable manufacturer's instructions. 23.7.15 The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. Fuel tanks will be at least as full as at Delivery. 23.7.16 The Aircraft will be painted in LESSEE's livery. 23.8 Checks Prior to Return. Prior to return of the Aircraft to LESSOR, LESSEE at its expense will do each of the following: 23.8.1 Have performed, by LESSEE or any other FAA approved repair station, the next due "C" check as described in the MPD. LESSEE will also weigh the Aircraft. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA approved data. LESSEE agrees to perform during such check any other work reasonably required by LESSOR (and not otherwise required under this Lease) and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.8.2 Perform an internal and external corrosion inspection where any evidence of corrosion exists and correct any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor if and as recommended by Manufacturer. 23.8.3 All required external placards, signs and markings will be properly attached, free from damage, clean and legible. 23.8.4 Clean the exterior and interior of the Aircraft. 23.8.5 If reasonably required by LESSOR, repaint the flight deck and replace placards of the Aircraft. 23.8.6 In accordance with Article 23.7.7, permanently repair damage to the Aircraft that exceeds Manufacturer's limits and replace any non flush structural patch repairs installed on the Aircraft with flush type repairs, unless Manufacturer does not recommend a flush type repair. 23.9 Engine Return Requirements. 23.9.1 Immediately prior to the return of the Aircraft to LESSOR, LESSEE at LESSEE's expense will perform each of the following on the Engines: (a) With LESSOR or its representatives present, LESSEE will perform a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (b) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSEE will correct, to LESSOR's reasonable satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (c) With LESSOR or its representatives present, LESSEE will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Return Acceptance Receipt. 23.9.2 At return, each Engine will meet all of the following: (a) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (i) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (ii) the remaining EGT margin on such Engine; and (iii) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (b) The Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (c) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (d) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSEE will correct any discrepancies in the required condition of the Engines set forth in this Article 23.9.2 in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Article 23.9.2, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Article 23.9.2 will be rectified. 23.10 Hour/Cycle/Calendar Time Requirements. At return, the condition of the Aircraft will be as follows: 23.10.1 The Aircraft will have zero (0) hours consumed since completion of the last "C" check in accordance with the MPD (excluding hours consumed on the acceptance flight and any ferry flight). 23.10.2 The APU will be in serviceable condition. 23.10.3 The Landing Gear will be cleared for at least eight (8) months (or one (1) month if LESSEE exercises its extension option) of operation until the next Overhaul or scheduled removal; provided, however, that at LESSOR's request by notice at least six (6) months prior to the Expiration Date, LESSEE will cause to be performed an Overhaul the Landing Gear prior to return of the Aircraft and the costs of such Overhaul will be paid as follows: (i) first, by application of the Landing Gear Reserves paid by LESSEE and (ii) second, the balance will be paid by LESSOR. 23.10.4 Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. 23.10.5 Each life limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. 23.10.6 Each Part (excluding Landing Gear) which has a calendar limit (including emergency equipment) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the return of the Aircraft to LESSOR or (ii) one hundred percent (100%) of such Part's total approved life. 23.10.7 With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. 23.10.8 The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). 23.11 Like for Like. Notwithstanding anything in this Article 23 to the contrary, in the event that at Delivery the Aircraft did not meet a particular standard with respect to a specific item set forth in Exhibit B, and such deficiency was noted on the Estoppel and Acceptance Certificate, then LESSEE's return obligations with respect to such specific item will be modified accordingly so that LESSEE is not required to return such specific item with greater time remaining than existed at Delivery. 23.12 Export and Deregistration of Aircraft. At LESSOR's request by notice at least fifteen (15) days prior to the Expiration Date, LESSEE at its cost (except as set forth in the second sentence of this Article 23.12) will (a) provide an Export Certificate of Airworthiness or its equivalent from the State of Registration for the country designated by LESSOR, (b) assist with deregistration of the Aircraft from the register of aircraft in the State of Registration, (c) assist with arranging for prompt confirmation of such deregistration to be sent by the registry in the State of Registration to the next country of registration and (d) perform any other acts reasonably required by LESSOR in connection with such deregistration. If any Aircraft work which LESSEE is not otherwise required to perform hereunder, including engineering, is required in order to obtain such Export Certificate of Airworthiness, LESSEE will, to the extent reasonably possible, perform such work and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.13 LESSEE's Continuing Obligations. In the event that LESSEE does not return the Aircraft to LESSOR on the Expiration Date and in the condition required by this Article 23 for any reason (whether or not the reason is within LESSEE's control): 23.13.1 the obligations of LESSEE under this Lease will continue in full force and effect on a day to day basis until such return. This will not be considered a waiver of LESSEE's Event of Default or any right of LESSOR hereunder. 23.13.2 Until such return, the Agreed Value will be an amount equal to the Agreed Value on the day the Aircraft should have been returned to LESSOR pursuant to this Lease. 23.13.3 LESSEE will fully indemnify LESSOR on demand for all losses (including damages in accordance with Article 25.5(b)), liabilities, actions, proceedings, costs and expenses thereby suffered or incurred by LESSOR and, in addition, until such time as the Aircraft is redelivered to LESSOR and put into the condition required by this Article 23, instead of paying the Rent specified in Article 5.3, LESSEE will pay twice the amount of Rent for each day from the scheduled Expiration Date until the Termination Date (the monthly Rent payable under ARTICLE 5.3.1 will be prorated based on the actual number of days in the applicable month). Payment will be made upon presentation of LESSOR's invoice. Notwithstanding the foregoing, in the event that the Aircraft is removed from service by LESSEE and placed in a maintenance facility for the performance of work required to put the Aircraft into the condition required by this Article 23 and as a result of delays in the performance of such work the Aircraft is not returned on the Expiration Date, for a period of up to seven (7) days following the Expiration Date, LESSEE shall only be responsible for normal Rent. After the 7th day of such period, if LESSEE has not returned the Aircraft to LESSOR in the condition required by this Lease, LESSEE shall be responsible for twice the Rent for the period after such 7 day period in accordance with the provisions of this Article 23.13.3 until the actual Termination Date. 23.13.4 LESSOR may elect, in its sole and absolute discretion, to accept the return of the Aircraft prior to the Aircraft being put in the condition required by this Article 23 and thereafter have any such non conformance corrected at such time as LESSOR may deem appropriate (but within ninety (90) days following the return of the Aircraft) and at commercial rates then charged by the Person selected by LESSOR to perform such correction. Any direct expenses incurred by LESSOR for such correction will become additional Rent payable by LESSEE within fifteen (15) days following the submission of a written statement by LESSOR to LESSEE, identifying the items corrected and setting forth the expense of such corrections in reasonable detail. LESSEE's obligation to pay such supplemental Rent will survive the Termination Date. 23.14 Airport and Navigation Charges. LESSEE will ensure that at return of the Aircraft any and all airport, navigation and other charges which give rise or would if unpaid give rise to any lien, right of detention, right of sale or other Security Interest in relation to the Aircraft, Engine or any Part have been paid and discharged in full and will at LESSOR's request produce evidence thereof satisfactory to LESSOR. 23.15 Return Acceptance Certificate. Upon return of the Aircraft in accordance with the terms of this Lease, LESSEE will promptly prepare and execute two (2) Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR will countersign and return one such Return Acceptance Certificate to LESSEE. In addition, LESSEE and LESSOR will execute a Lease Termination for filing with the FAA evidencing termination of this Lease. 23.16 Indemnities and Insurance. The indemnities and insurance requirements set forth in Articles 17 and 18, respectively, will apply to Indemnitees and LESSOR's representatives during return of the Aircraft, including the ground inspection and acceptance flight. With respect to the acceptance flight, LESSOR's representatives will receive the same protections as LESSOR on LESSEE's Aviation and Airline General Third Party Liability Insurance. 23.17 Civil Reserve Air Fleet. 23.17.1 LESSEE may transfer possession of the Aircraft to the United States of America or any instrumentality or agency thereof as part of the Civil Reserve Air Fleet Program authorized under 10 U.S.C.ss.9511 et seq. (or any substantially similar program) ("CRAF Program") for a period which includes (collectively, the "CRAF Program Requisition Period") (a) the entire period of requisition under the CRAF Program and (b) an additional six (6) months after the expiration of the requisition under the CRAF Program. If the CRAF Program Requisition Period extends beyond the Expiration Date provided by this Lease, then the Lease will be deemed to continue until the end of the CRAF Program Requisition Period at a monthly rental rate equal to the monthly rental rate in effect at the end of the Lease Term and the Expiration Date will be deemed to be the end of the CRAF Program Requisition Period. If the Aircraft is requisitioned under the CRAF Program for a period which extends beyond the Lease Term, then LESSEE will provide LESSOR with written notice of the proposed redelivery at least six (6) months prior to such redelivery date and LESSEE must return the Aircraft in the condition required by Article 23 on the redelivery date set forth in such written notice. 23.17.2 LESSEE will promptly notify LESSOR in writing in the event of the requisition for use of the Aircraft under CRAF activation by the U.S. Government. All of LESSEE's obligations under this Lease will continue to the same extent as if such requisition had not occurred. 23.17.3 Any provisions of this Lease to the contrary notwithstanding, if there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, LESSOR agrees that LESSEE's insurances described in Exhibit C may be supplemented or replaced by insurances provided under Title XIII of the Act, and/or U.S. Government indemnification (which Title XIII insurances and indemnification will be, as to the Aircraft, in an amount not less than the Agreed Value and, as to all other insurances, in amounts not less than those established in Exhibit C); provided, however, that LESSEE will remain responsible for full compliance with all the provisions of this Lease, including Articles 17 and 19, to the extent Title XIII and/or the U.S. Government indemnification do not satisfy LESSEE's obligations under this Lease. 23.17.4 If there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, there will be no limitation on the geographic area in which the Aircraft may be operated so long as, taken as a whole, LESSEE's insurance, the Title XIII insurance and/or the indemnification provided by the U.S. Government fully cover (without any geographic exclusions) LESSEE's Exhibit C insurance requirements. 23.17.5 If an Event of Default occurs under this Lease and LESSOR elects to pursue its remedies under Article 25.3(e) to terminate this Lease and repossess the Aircraft, LESSOR will so notify the U.S. Government by sending a written communication with a copy to LESSEE as follows: Headquarters Air Mobility Command AMC Contracting Office XOKA Scott Air Force Base, Illinois 62225 5007 23.17.6 So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program (except payments on account of a Total Loss of the Aircraft) will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program may be used by LESSOR to satisfy any obligations owing by LESSEE. ARTICLE 24 ASSIGNMENT 24.1 No Assignment by LESSEE. EXCEPT AS EXPRESSLY PERMITTED BY ARTICLE 11 OR ARTICLE 20.2.3, NO ASSIGNMENT, NOVATION, TRANSFER, MORTGAGE OR OTHER CHARGE MAY BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE AIRCRAFT, ENGINE OR PART OR THIS LEASE. 24.2 Sale or Assignment by LESSOR. 24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent sell, assign or transfer its rights, interest and obligations hereunder, under any other Operative Document, or with respect to the Aircraft to a Permitted Transferee; provided, however, that no such transfer shall materially increase LESSEE's liabilities or obligations hereunder or materially adversely affect LESSEE's rights under this Lease. For a period of two (2) years after such sale or assignment and at LESSEE's cost, LESSEE will continue to name LESSOR as an additional insured under the Aviation and Airline General Third Party Liability Insurance specified in Exhibit C. 24.2.2 The term "LESSOR" as used in this Lease means the lessor of the Aircraft at the time in question. In the event of the sale of the Aircraft and transfer of LESSOR's rights and obligations under this Lease to a Permitted Transferee, such Permitted Transferee will become "LESSOR" of the Aircraft under this Lease and the transferring party (the prior "LESSOR") will be relieved of all liability to LESSEE under this Lease for obligations arising on and after the date the Aircraft is sold. LESSEE will acknowledge and accept the Permitted Transferee as the new "LESSOR" under this Lease and will look solely to the Permitted Transferee for the performance of all LESSOR obligations and covenants under this Lease arising on and after the Aircraft sale date. 24.3 LESSOR's Lender. Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent grant security interests over the Aircraft and assign the benefit of this Lease to a lender ("LESSOR's Lender") as security for LESSOR's obligations to LESSOR's Lender. 24.4 LESSEE Cooperation. On request by LESSOR, LESSEE will execute all such documents (such as a consent to a lease assignment agreement) as LESSOR may reasonably require to confirm LESSEE's obligations under this Lease and obtain LESSEE's acknowledgment that LESSOR is not in breach of the Lease. LESSEE will provide all other reasonable assistance and cooperation to LESSOR in connection with any such sale or assignment or the perfection and maintenance of any such security interest, including, at LESSOR's cost, making all necessary filings and registrations in the State of Registration and providing all opinions of counsel with respect to matters reasonably requested by LESSOR. LESSOR will reimburse LESSEE for its reasonable out of pocket costs and expenses (including reasonable legal fees) in reviewing documents required by LESSOR and cooperating with a transfer pursuant to this Article 24. 24.5 Protections. 24.5.1 LESSOR will obtain for the benefit of LESSEE a written acknowledgment from any Permitted Transferee or LESSOR's Lender that, so long as no Event of Default has occurred and is continuing hereunder, neither such Person nor any Person claiming by, through or under such Person will not interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft. 24.5.2 Wherever the term "LESSOR" is used in this Lease in relation to any of the provisions relating to disclaimer, title and registration, indemnity and insurance contained in ARTICLES 8, 14, 17 and 18, respectively, or with respect to Article 20.2.6, the term "LESSOR" will be deemed to include any Permitted Transferee and its lenders, if applicable. For avoidance of doubt, in the event of LESSOR's sale or financing of the Aircraft, the disclaimer and indemnity provisions contained in Articles 8 and 17 will continue to be applicable after the sale or assignment to International Lease Finance Corporation, as well as being applicable to any Permitted Transferee and its lenders. ARTICLE 25 82 DEFAULT OF LESSEE ARTICLE 25 DEFAULT OF LESSEE 25.1 LESSEE Notice to LESSOR. LESSEE will promptly notify LESSOR if LESSEE becomes aware of the occurrence of any Default. 25.2 Events of Default. The occurrence of any of the following will constitute an Event of Default and material breach of this Lease by LESSEE: * 25.3 LESSOR's General Rights. Upon the occurrence and continuance of any Event of Default, LESSOR may do all or any of the following at its option (in addition to such other rights and remedies which LESSOR may have by statute or otherwise but subject to any requirements of applicable Law): (a) terminate this Lease by giving written notice to LESSEE; (b) require that LESSEE immediately move the Aircraft to an airport or other location designated by LESSOR; (c) for LESSEE's account, do anything that may reasonably be required to cure any default and recover from LESSEE all reasonable costs, including legal fees and expenses incurred in doing so and Default Interest; (d) proceed as appropriate to enforce performance of this Lease and to recover any damages for the breach hereof, including the amounts specified in Article 25.5; (e) terminate this Lease by taking possession of the Aircraft or by serving notice requiring LESSEE to return the Aircraft to LESSOR at the location specified by LESSOR. If LESSOR takes possession of the Aircraft, it may enter upon LESSEE's premises where the Aircraft is located without liability except for the willful misconduct of LESSOR. Upon repossession of the Aircraft, LESSOR will then be entitled to sell, lease or otherwise deal with the Aircraft as if this Lease had never been made. LESSOR will be entitled to the full benefit of its bargain with LESSEE; or (f) apply all or any portion of the Security Deposit and any other security deposits held by LESSOR pursuant to any other agreements between LESSOR and LESSEE to any amounts due. 25.4 Deregistration and Export of Aircraft. If an Event of Default has occurred and is continuing, LESSOR may take all steps necessary to deregister the Aircraft in and export the Aircraft from the State of Registration. 25.5 LESSEE Liability for Damages. Upon the occurrence and during the continuance of an Event of Default, in addition to all other remedies available at law or in equity, LESSOR has the right to recover from LESSEE and LESSEE will pay LESSOR within two (2) Business Days after LESSOR's written demand, all of the following: (a) all amounts which are then due and unpaid hereunder and which become due prior to the earlier of LESSOR's recovery of possession of the Aircraft or LESSEE making an effective tender thereof; (b) subject to LESSOR's obligations at Law to mitigate its damages, any losses suffered by LESSOR because of LESSOR's inability to place the Aircraft on lease with another lessee or to otherwise utilize the Aircraft on financial terms as favorable to LESSOR as the terms hereof or, if LESSOR elects to dispose of the Aircraft, the funds arising from a sale or other disposition of the Aircraft are not as profitable to LESSOR as leasing the Aircraft in accordance with the terms hereof would have been (and LESSOR will be entitled to accelerate any and all Rent which would have been due from the date of LESSOR's recovery or repossession of the Aircraft through the Expiration Date); (c) all costs associated with LESSOR's exercise of its remedies hereunder, including but not limited to repossession costs, legal fees, Aircraft storage costs and Aircraft re lease or sale costs; (d) any amount of principal, interest, fees or other sums paid or payable on account of funds borrowed in order to carry any unpaid amount; (e) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to LESSOR's financing of the Aircraft; (f) direct expenses incurred by LESSOR to correct non conformance of the Aircraft with return conditions in accordance with Article 23.13.3; and (g) an amount sufficient to fully compensate LESSOR for any loss of or damage to the Aircraft caused by LESSEE's default. 25.6 Waiver of Default. By written notice to LESSEE, LESSOR may at its election waive any Default or Event of Default and its consequences and rescind and annul any prior notice of termination of this Lease. The respective rights of the parties will then be as they would have been had no Default or Event of Default occurred and no such notice been given. 25.7 Present Value of Payments. In calculating LESSOR's damages hereunder, upon an Event of Default all Rent and other amounts which would have been due hereunder during the Lease Term if an Event of Default had not occurred will be calculated on a present value basis using a discounting rate of six percent (6%) per annum discounted to the earlier of the date on which LESSOR obtains possession of the Aircraft or LESSEE makes an effective tender thereof. 25.8 Use of "Termination Date". For avoidance of doubt, it is agreed that if this Lease terminates and the Aircraft is repossessed by LESSOR due to an Event of Default, then, notwithstanding the use of the term "Termination Date" in this Lease, the period of the Lease Term and the "Expiration Date" will be utilized in calculating the damages to which LESSOR is entitled pursuant to Article 25.5. For example, it is agreed and understood that LESSOR is entitled to receive from LESSEE the Rent and the benefit of LESSEE's insurance and maintenance of the Aircraft until expiration of the Lease Term. 25.9 LESSEE's Remedies. Except as otherwise set forth in the Operative Documents, upon a breach by LESSOR of any of the terms and conditions of this Lease, LESSEE shall have all rights available at law or in equity. 25.10 Waiver of Consequential Damages. LESSEE and LESSOR each agree that it shall not be entitled to recover, and hereby disclaims and waives any right that it may otherwise have to recover, any special, indirect or consequential damages as a result of any breach or alleged breach by the other party of any of the agreements, representations or warranties contained in this Lease or the other Operative Documents; provided, however, that nothing herein shall be deemed to disclaim or waive any of LESSOR's remedies expressly set forth in Article 25.5(a) through 25.5 (g). ARTICLE 26 NOTICES 26.1 Manner of Sending Notices. Any notice, request or information required or permissible under this Lease will be in writing and in English. Notices will be delivered in person or sent by fax, letter (mailed airmail, certified and return receipt requested), or by expedited delivery addressed to the parties as set forth in Article 26.2. In the case of a fax, notice will be deemed received upon actual receipt (and the date of actual receipt will be deemed to be the date set forth on the confirmation of receipt produced by the sender's fax machine immediately after the fax is sent). In the case of a mailed letter, notice will be deemed received on the tenth (10th) day after mailing. In the case of a notice sent by expedited delivery, notice will be deemed received on the date of delivery set forth in the records of the Person which accomplished the delivery. If any notice is sent by more than one of the above listed methods, notice will be deemed received on the earliest possible date in accordance with the above provisions. 26.2 Notice Information. Notices will be sent: If to LESSOR: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attention: Legal Department Fax: 310 788 1990 Telephone: 310 788 1999 If to LESSEE: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Suite 200 Denver, CO 80239 Attention: General Counsel Fax: 303 371 7007 Telephone: 303 371 7400 or to such other places and numbers as either party directs in writing to the other party. ARTICLE 27 GOVERNING LAW AND JURISDICTION 27.1 California Law. This Lease is being delivered in the State of California and will in all respects be governed by and construed in accordance with the Laws of the State of California (notwithstanding the conflict Laws of the State of California). 27.2 Non Exclusive Jurisdiction in California. As permitted by Section 410.40 of the California Code of Civil Procedure, the parties hereby irrevocably submit to the non exclusive jurisdiction of the Federal District Court for the Central District of California and the State of California Superior or Municipal Court in Los Angeles, California. Nothing herein will prevent either party from bringing suit in any other appropriate jurisdiction. 27.3 Service of Process. The parties hereby consent to the service of process (a) out of any of the courts referred to above, (b) in accordance with Section 415.40 of the California Code of Civil Procedure by mailing copies of the summons and complaint to the person to be served by air mail, certified or registered mail to the address set forth in Article 26.2, postage prepaid, return receipt requested or (c) in accordance with the Hague Convention, if applicable. 27.4 Prevailing Party in Dispute. If any legal action or other proceeding is brought in connection with or arises out of any provisions in this Lease, the prevailing party will be entitled to recover reasonable attorneys' fees and other actual and reasonable costs incurred in such action or proceedings. The prevailing party will also, to the extent permissible by Law, be entitled to receive pre and post judgment Default Interest. 27.5 Waiver. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS LEASE BROUGHT IN ANY OF THE COURTS REFERRED TO IN ARTICLE 27.2, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. ARTICLE 28 MISCELLANEOUS 28.1 Transportation of Personnel. LESSEE will provide transportation to LESSOR's personnel on a positive space basis on the Aircraft or any other aircraft operated by LESSEE for the purposes of conducting business between LESSEE and LESSOR. 28.2 Press Releases. The parties will give copies to one another, in advance if possible, of all news, articles and other releases provided to the public media regarding this Lease or the Aircraft. 28.3 Power of Attorney. LESSEE hereby irrevocably appoints LESSOR as its attorney for the purpose of putting into effect the intent of this Lease following and during the continuation of an Event of Default, including without limitation, the return, repossession, deregistration and exportation of the Aircraft. To evidence this appointment, LESSEE has executed the Power of Attorney in the form of Exhibit G. LESSEE will take all steps required under the Laws of the State of Registration to provide such power of attorney to LESSOR. 28.4 LESSOR Performance for LESSEE. The exercise by LESSOR of its remedy of performing a LESSEE obligation hereunder is not a waiver of and will not relieve LESSEE from the performance of such obligation at any subsequent time or from the performance of any of its other obligations hereunder. 28.5 LESSOR's Payment Obligations. Any obligation of LESSOR under this Lease to pay or release any amount to LESSEE is conditioned upon and will be delayed until (a) all amounts then due and payable by LESSEE to LESSOR under this Lease or under any other agreement between LESSOR and LESSEE having been paid in full and (b) no payment or other material Default having occurred and continuing hereunder at the time such payment or release of payment is payable to LESSEE. 28.6 Application of Payments. Any amounts paid or recovered in respect of LESSEE liabilities hereunder may be applied to Rent, Default Interest, fees or any other amount due hereunder in such proportions, order and manner as LESSOR determines. 28.7 Usury Laws. The parties intend to contract in strict compliance with the usury Laws of the State of California and, to the extent applicable, the U.S. Notwithstanding anything to the contrary in the Operative Documents, LESSEE will not be obligated to pay Default Interest or other interest in excess of the maximum non usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by LESSOR in connection with the Operative Documents. During any period of time in which the then applicable highest lawful rate is lower than the Default Interest rate, Default Interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the Default Interest rate, then LESSEE will pay Default Interest at the highest lawful rate until the Default Interest which is paid by LESSEE equals the amount of interest that would have been payable in accordance with the interest rate set forth in Article 5.6. 28.8 Delegation by LESSOR. LESSOR may delegate to any Person(s) all or any of the rights, powers or discretion vested in it by this Lease and any such delegation may be made upon such terms and conditions as LESSOR in its absolute discretion thinks fit, provided that no such delegation shall relieve LESSOR of any of its obligations hereunder. 28.9 Confidentiality. The Operative Documents and all non public information obtained by either party about the other are confidential and are between LESSOR and LESSEE only and will not be disclosed by a party to third parties (other than (i) to such party's auditors or professional advisors, (ii) to potential equity investors or lenders or (iii) as required in connection with any filings of this Lease in accordance with Article 14 or as otherwise required by Law) without the prior written consent of the other party. If disclosure is required as a result of applicable Law, LESSEE and LESSOR will cooperate with one another to obtain confidential treatment as to the commercial terms and other material provisions of this Lease. 28.10 Rights of Parties. The rights of the parties hereunder are cumulative, not exclusive, may be exercised as often as each party considers appropriate and are in addition to its rights under general Law. The rights of one party against the other party are not capable of being waived or amended except by an express waiver or amendment in writing. Any failure to exercise or any delay in exercising any of such rights will not operate as a waiver or amendment of that or any other such right any defective or partial exercise of any such rights will not preclude any other or further exercise of that or any other such right and no act or course of conduct or negotiation on a party's part or on its behalf will in any way preclude such party from exercising any such right or constitute a suspension or any amendment of any such right. 28.11 Further Assurances. Each party agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by Law or reasonably requested by the other party to establish, maintain or protect the rights and remedies of the requesting party or to carry out and effect the intent and purpose of this Lease. 28.12 Use of Word "including". The term "including" is used herein without limitation. 28.13 Headings. All article and paragraph headings and captions are purely for convenience and will not affect the interpretation of this Lease. Any reference to a specific article, paragraph or section will be interpreted as a reference to such article, paragraph or section of this Lease. 28.14 Invalidity of any Provision. If any of the provisions of this Lease become invalid, illegal or unenforceable in any respect under any Law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. 28.15 Time is of the Essence. Time is of the essence in the performance of all obligations of the parties under this Lease and, consequently, all time limitations set forth in the provisions of this Lease will be strictly observed. 28.16 Amendments in Writing. The provisions of this Lease may only be amended or modified by a writing executed by LESSOR and LESSEE. 28.17 Counterparts. This Lease may be executed in any number of identical counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument when each party has signed and delivered one such counterpart to the other party. 28.18 Delivery of Documents by Fax. Delivery of an executed counterpart of this Lease or of any other documents in connection with this Lease by fax will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Lease or other document by fax will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Lease or such other document will not affect the validity or effectiveness of this Lease or such other document. 28.19 Entire Agreement. The Operative Documents constitute the entire agreement between the parties in relation to the leasing of the Aircraft by LESSOR to LESSEE and supersede all previous proposals, agreements and other written and oral communications in relation hereto. The parties acknowledge that there have been no representations, warranties, promises, guarantees or agreements, express or implied, except as set forth herein. 28.20 Expenses. Each party shall be responsible for its own expenses in connection with the drafting, negotiation, execution and delivery of this Lease and the other Operative Documents. IN WITNESS WHEREOF, LESSEE and LESSOR have caused this Lease to be executed by their respective officers as of August 14, 2000. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT B AIRCRAFT DESCRIPTION Aircraft Manufacturer and Model: B737 300 Seating Configuration: 148Y Manufacturer's Serial Number: 26301 Registration Mark: N _____ Engine Manufacturer and Model: CFM56 3C1 Engine Serial Numbers: 726115 and 727103 Engine Thrust Rating: 22,000 pounds Maximum Gross Takeoff Weight: 139,500 pounds EXHIBIT C CONDITION AT DELIVERY 1. Technical Report Prior to the Delivery Date, LESSOR will provide LESSEE with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSEE's request, will make copies available of (a) drawings of the interior configuration of the Aircraft as it will exist at Delivery, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard time and life limited component listings, (e) a list of Prior Lessee initiated modifications and alterations, (f) information regarding Prior Lessee's maintenance program for the Aircraft, (g) the complete workscope for the checks, inspections and other work to be performed prior to Delivery, (h) a list of all no charge service bulletin kits with respect to the Aircraft which were ordered by LESSOR from Manufacturer or Engine manufacturer, (i) current Engine disk sheets and a description of the last shop visit for each Engine and (j) any other data which is reasonably requested by LESSEE. 2. Full Aircraft Documentation Review Prior to the Scheduled Delivery Date and continuing until the date on which the Aircraft is delivered to LESSEE in the condition required by this Exhibit B, LESSOR will provide for the review of LESSEE and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft delivery location. 3. Aircraft Inspection (a) During the maintenance checks performed prior to Delivery, LESSEE and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSEE's satisfaction. Any deficiencies from the delivery condition requirements set forth in this Exhibit B will be corrected by LESSOR at its cost prior to Delivery. (b) Immediately prior to the Delivery of the Aircraft, LESSOR will carry out for LESSEE and/or LESSEE's representatives one takeoff and one landing phase. If LESSEE identifies any discrepancies immediately following such takeoff and landing phase and requests LESSOR to correct such discrepancies at LESSOR's cost, such discrepancies will be corrected. 4. Certificate of Airworthiness Matters The Aircraft will possess a current Certificate of Airworthiness issued by the FAA. 5. General Condition of the Aircraft at Delivery (a) The Aircraft, Engines and Parts will have been maintained and repaired in accordance with Prior Lessee's maintenance program and the rules and regulations of the FAA. (b) Aircraft Documentation (including records and manuals) will have been maintained in accordance with the rules and regulations of the FAA. (c) All pilot discrepancies and deferred maintenance items will be cleared on a terminating action basis. (d) The Aircraft will be airworthy (conform to type design and be in a condition for safe operation under FAR Part 121), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer and the FAA. (e) The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. (f) No special or unique Manufacturer, Engine manufacturer or FAA inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. (g) All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA approved data supported by FAA Form 8110 3) for the Aircraft, as applicable. (h) All Airworthiness Directives which are issued prior to the Delivery Date and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery of the Aircraft to LESSEE or within one (1) year after the Delivery Date will have been complied with on the Aircraft on a terminating action basis at LESSOR's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. (i) The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. (j) If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives were granted by the FAA or permitted by Prior Lessee's maintenance program, such maintenance or operating requirements, repairs or Airworthiness Directives will have been performed as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry overs did not exist. (k) The Aircraft will be free of fuel, oil and hydraulic leaks. Any temporary fuel leak repairs will have been replaced by permanent repairs. (l) The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. (m) The Aircraft will be fully fueled. (n) The Aircraft will be painted in the livery of Prior Lessee. 6. Checks Prior to Delivery Prior to Delivery of the Aircraft to LESSEE, the following will have been performed: (a) A full and complete zonal, systems and structural check ("C" or its equivalent) and the corresponding lower checks ("A" and "B" or equivalent) at an FAA approved repair station in accordance with the MPD sufficient to clear the Aircraft until the next full and complete zonal, systems and structural check. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA approved data. (b) All required external placards, signs and markings will be properly attached, free from damage, clean and legible. (c) Cleaning the exterior and interior of the Aircraft. (d) If reasonably required by LESSEE, repainting the interior of the Aircraft, including flight deck, and replace placards. (e) In accordance with Manufacturer's Structural Repair Manual, permanently repairing damage to the Aircraft that exceeds Manufacturer's limits. Any non flush structural patch repairs installed on the Airframe will be replaced with flush type repairs if such flush type repairs are available unless it is unreasonable to install a flush type repair. 7. Condition of the Engines At Delivery (a) Prior to Delivery of the Aircraft to LESSEE, the following checks of the Engines will have been performed: (i) With LESSEE or its representatives present, performance of a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (ii) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSOR will correct, to LESSEE's satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (iii) With LESSEE or its representatives present, LESSOR will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Estoppel and Acceptance Receipt. (b) Each Engine will meet all of the following: (i) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (1) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (2) the remaining EGT margin on such Engine; and (3) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (ii) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (iii) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (iv) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSOR will correct any discrepancies in the required condition of the Engines set forth in this Exhibit B in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Exhibit B, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Exhibit B will be rectified. 8. Hour/Cycle/Calendar Times At Delivery The condition of the Aircraft and installed systems upon Delivery to LESSEE will be as follows: (a) The Aircraft will have no more that fifteen (15) months consumed since the last 24,000 Hour Structural Check. (b) The Aircraft will have not more than nine hundred forty (940) hours consumed since the last "C" check or its equivalent in accordance with the MPD. (c) The APU will be in serviceable condition. (d) The Landing Gear will be cleared for four thousand five hundred (4,500) cycles/hours (depending on Prior Lessee's maintenance program) of operation until the next Overhaul or scheduled removal. (e) Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. (f) Each life limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. (g) Each Part which has a calendar limit (including emergency equipment and excluding Landing Gear which is addressed in paragraph 8(d) above) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the Delivery Date of the Aircraft to LESSEE or (ii) one hundred percent (100%) of such Part's total approved life. (h) With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. (i) The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). EXHIBIT D CERTIFICATE OF INSURANCE [Refer to Aircraft Lease Agreement dated as of August 14, 2000 between LESSEE and LESSOR (the "Lease"). If applicable, insurance certificates from both the insurers and reinsurers will be provided. If there is a LESSOR's Lender, include references to it where appropriate after references to LESSOR.] To: INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR") 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Re: FRONTIER AIRLINES, INC. ("LESSEE") Boeing B737 300 Manufacturer's Serial No.: 26301 Registration Mark: N _____ (the "Aircraft") The following security has subscribed to the insurance and/or reinsurance policies: [LIST COMPANIES & PERCENTAGES] THIS IS TO CERTIFY THAT, as Insurance Brokers, we have effected Fleet Insurance in respect of aircraft owned or operated by LESSEE (including the Aircraft) as specified below. AIRCRAFT HULL ALL RISKS COVERING: * DEDUCTIBLES: * GEOGRAPHICAL COVERAGE: Worldwide. AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY COVERING: * GEOGRAPHICAL LIMITS: Worldwide. HULL WAR AND ALLIED PERILS COVERING: * DEDUCTIBLE: * GEOGRAPHICAL LIMITS: Worldwide. AIRCRAFT SPARES ALL RISKS INSURANCE COVERING: * DEDUCTIBLE: * GEOGRAPHICAL COVERAGE: Worldwide. INSURANCE REQUIRED BY MANUFACTURER LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. CONTRACTUAL INDEMNITY LESSEE has insurance coverage for the indemnities agreed to by LESSEE pursuant to Article 17 of the Lease to the extent provided in the relevant policies. PERIOD OF COVERAGE (ALL POLICIES) From Delivery Date of Aircraft to [EXPIRATION DATE] It is further certified that LESSOR has an interest in respect of the Aircraft under the Lease. Accordingly, with respect to losses occurring during the period from the Effective Date until the expiry of the Insurance or until the expiry or agreed termination of the Lease or until the obligations under the Lease are terminated by any action of the Insured or LESSOR and in consideration of the Additional Premium it is confirmed that the Insurance afforded by the Policy is in full force and effect and it is further agreed that the following provisions are specifically endorsed to the Policy. 1. UNDER THE HULL (ALL RISKS AND HULL WAR AND ALLIED RISKS) AND AIRCRAFT SPARES INSURANCES (a) * (b) * (c) Insurers have no right to replace the Aircraft on a Total Loss (arranged, constructive or otherwise). (d) Insurers recognize that LESSEE and LESSOR have agreed that a Total Loss of the Airframe will constitute a Total Loss of the Aircraft. (e) In the event of Total Loss of the Aircraft, Insurers agree to pay LESSOR all amounts up to the Agreed Value based solely upon LESSOR's (not LESSEE's) execution of the appropriate form of release/discharge document. LESSOR may sign any required release in lieu of the Insured in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss. (f) "Cut through clause": Insurers confirm that in the event of any claim arising under the hull insurances, the Reinsurers will in lieu of payment of the Insurers, its successors in interest and assigns, pay to the person named as sole loss payee under the original insurances that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Insurers (subject to proof of loss), it being understood and agreed that any such payment by any Reinsurers will fully discharge and release such Reinsurer from any and all further liability in connection therewith and provide for payment to be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of the Insurers and (ii) that the Insurers have made no payment under the original insurance policies. (g) Insurers confirm that under the insurance policies, if the Insured installs an engine owned by a third party on the Aircraft, either (i) the hull insurance will automatically increase to such higher amount as is necessary in order to satisfy both LESSOR's requirement to receive the Agreed Value in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss and the amount required by the third party engine owner, or (ii) separate additional insurance on such engine will attach in order to satisfy separately the requirements of the Insured to such third party engine owner. 2. UNDER THE LEGAL LIABILITY INSURANCE (a) Subject to the provisions of this Endorsement, the Insurance will operate in all respects as if a separate Policy had been issued covering each party insured hereunder, but this provision will not operate to include any claim arising howsoever in respect of loss or damage to the Aircraft insured under the Hull or Spares Insurance of the Insured. Notwithstanding the foregoing the total liability of Insurers in respect of any and all Insureds will not exceed the limits of liability stated in the Policy. (b) The Insurance provided hereunder will be primary and without right of contribution from any other insurance which may be available to LESSOR. 3. UNDER ALL INSURANCES (a) LESSOR, its successors and assigns, and (with respect to Aviation and Airline General Third Party Liability only) its directors, officers and employees for their respective rights and interests, are included as Additional Insureds. (b) The cover afforded to LESSOR by the Policy in accordance with this Endorsement will not be invalidated by any act or omission (including misrepresentation and non disclosure) of any other person or party which results in a breach of any term, condition or warranty of the Policy provided that LESSOR has not caused, contributed to or knowingly condoned the said act or omission. (c) LESSOR will have no responsibility for premium and insurers will waive any right of set off or counterclaim against LESSOR except in respect of outstanding premium in respect of the Aircraft, provided that Insurer may only set off for premiums against the proceeds of the hull insurance for outstanding premiums in connection with hull all risks and hull war and allied perils insurance. (d) Upon payment of any loss or claim to or on behalf of LESSOR, Insurers will to the extent and in respect of such payment be thereupon subrogated to all legal and equitable rights of LESSOR indemnified hereby (but not against LESSOR). Insurers will not exercise such rights without the consent of those indemnified, such consent not to be unreasonably withheld. At the expense of Insurers LESSOR will do all things reasonably necessary to assist the Insurers to exercise said rights. (e) Except in respect of any provision for Cancellation or Automatic Termination specified in the Policy or any endorsement thereof, cover provided by this Endorsement may only be cancelled or materially altered in a manner adverse to LESSOR by the giving of not less than thirty (30) days notice in writing to LESSOR. Notice will be deemed to commence from the date such notice is given by the Insurers. Such notice will NOT, however, be given at normal expiry date of the Policy or any endorsement. 4. EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THIS CERTIFICATE (a) LESSOR IS COVERED BY THE POLICY SUBJECT TO ALL TERMS, CONDITIONS, LIMITATIONS, WARRANTIES, EXCLUSIONS AND CANCELLATION PROVISIONS THEREOF. (b) THE POLICY WILL NOT BE VARIED BY ANY PROVISIONS CONTAINED IN THE LEASE WHICH PURPORT TO SERVE AS AN ENDORSEMENT OR AMENDMENT TO THE POLICY. SUBJECT (save as specifically stated in this Certificate) to policy terms, conditions, limitations and exclusions. Yours faithfully, [BROKERS] EXHIBIT E BROKERS' LETTER OF UNDERTAKING To: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Date: Our Ref: Re: FRONTIER AIRLINES, INC. ("LESSEE") B737 300 Manufacturer's Serial No.: 26301 Registration Mark: N _____ (the "Aircraft") Dear Sirs: We confirm that insurance has been effected for the account of [LESSEE] (the "Operator") covering all aircraft owned or operated by them, including the above referenced aircraft (the "Aircraft"). [Also confirm, if applicable, the amount of any hull all risks or hull war and allied perils on the Aircraft which LESSEE is carrying in excess of the Agreed Value (which excess insurance would be payable to LESSEE). Such excess insurance may not exceed ten percent (10%) of the Agreed Value.] Pursuant to instructions received from the Operator and in consideration of your approving the arrangement of the Operator's "Fleet Policy" (under which the above referenced Aircraft is insured) through the intermediary of ourselves as Brokers in connection with the insurance (the "Insurance") mentioned in our Certificate of Insurance (Reference No. [ ] dated [ ] and attached hereto), we undertake as follows: 1. In relation to the Hull and War Risks Insurance to hold to your order the insurance Slips or Contracts and any Policies which may be issued or any policies substituted (with your consent) therefor (but only insofar as the same relate to the Aircraft only) and the benefit of the Hull and War Risks Insurance thereunder, but subject to our requirements to operate the Fleet Policy insofar as it relates to any other aircraft insured thereunder. 2. To advise you of any of the following: (a) If any insurer cancels or gives notice of cancellation of any of the Insurance at least thirty (30) days (or such lesser period as may be available in the case of War and Allied Perils) before such cancellation is to take effect in respect of the Aircraft. (b) Of any act or omission or of any event (including non payment of premium) of which we have knowledge or are notified and which might invalidate or render unenforceable in whole or in part any of the Insurance, insofar as the same relate to the Aircraft. (c) If we do not receive instructions to renew all or any of the Insurance at least thirty (30) days prior to their expiration. (d) If any of the Insurance are not renewed on the same terms (save as to premium and period of cover and as you might otherwise have notified us to be acceptable to you) seven (7) days prior to expiry thereof. The above undertakings are given subject to our continuing appointment for the time being as Insurance Brokers to the Operator. We also undertake to advise you if we cease to be Insurance Brokers to the Operator. Yours faithfully, EXHIBIT F ESTOPPEL AND ACCEPTANCE CERTIFICATE FRONTIER AIRLINES, INC. ("LESSEE"), a corporation organized under the laws of Colorado does hereby agree as follows: 1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of August 14, 2000 (hereinafter referred to as the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSEE has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSOR possession of: (a) One (1) Boeing B737 300 aircraft bearing Manufacturer's serial number 26301 and United States registration mark N _____, together with two (2) CFM56 3C1 engines bearing manufacturer's serial numbers 726115 and 727103 (each of which has 750 or more rated take off horsepower), all in airworthy condition. (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts. 3. All of the foregoing has been delivered on the date set forth above pursuant to the terms and provisions of the Lease. 4. The amount of fuel on board at Delivery is __________ (circle one) pounds/kilos (________ gallons). 5. The Aircraft, Engines, Parts and Aircraft Documentation as described in the Lease have been fully examined by LESSEE and, except as set forth in the attached Discrepancies List, have been received and accepted by LESSEE in a condition fully satisfactory to LESSEE and in full conformity with the Lease in every respect. 6. The Lease is in full force and effect, LESSOR has fully, duly and timely performed all of its obligations of every kind or nature thereunder and LESSEE has no claims, offsets, deductions, set off or defenses of any kind or nature in connection with the Lease. 7. LESSEE has obtained all required permits, authorizations, licenses and fees of the State of Registration or any Government Entity thereof necessary in order for LESSEE to operate the Aircraft as permitted by the terms of the Lease. Dated on the date set forth above FRONTIER AIRLINES, INC. By: Title: EXHIBIT G OPINION OF COUNSEL [SEE ATTACHED] EXHIBIT H FORM OF POWER OF ATTORNEY FRONTIER AIRLINES, INC. ("Frontier") hereby irrevocably appoints INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that ILFC may take any of the following actions in the name of and for Frontier with respect to the Boeing B737 300 aircraft bearing manufacturer's serial number 26301 (the "Aircraft") leased by ILFC to Frontier pursuant to an Aircraft Lease Agreement dated as of August 14, 2000 (the "Lease"): 1. Pursuant to the Lease, Frontier has procured and is maintaining insurances for the Aircraft. ILFC has been named sole loss payee on the all risk hull and war risk insurances for the Aircraft. In the event of a total loss or constructive total loss of the Aircraft, ILFC is entitled to receive insurance proceeds in an amount equal to *. ILFC may take all action and sign all documents otherwise required to be performed by Frontier, including execution on behalf of Frontier of an appropriate form of discharge/release document, in order for ILFC to collect such insurance proceeds. 2. In the exercise of the rights of ILFC under the Lease to recover the Aircraft from Frontier and United States after termination of the Lease due to an Event of Default under the Lease or for termination of the Lease due to any other reason, ILFC may take all action otherwise required to be performed by Frontier before the authorities and courts in United States in order to cause the Aircraft to be repossessed by ILFC, deregistered from the U.S. Federal Aviation Administration and exported from the United States. 3. In the exercise of the rights mentioned in paragraphs 1 and 2, ILFC may make any declarations or statements and sign any public or private documents which may be considered necessary or appropriate. 4. ILFC may delegate the powers conferred hereby, in whole or in part, to any individual(s), including but not limited to employees of ILFC or legal counsel in United States. ILFC is empowered to determine in its sole discretion when to exercise the powers conferred upon ILFC pursuant to this Power of Attorney. Any person, agency or company relying upon this Power of Attorney need not and will not make any determination or require any court judgment as to whether an Event of Default has occurred under the Lease or whether the Lease has been terminated. Frontier hereby waives any claims against (a) any person acting on the instructions given by ILFC or its designee pursuant to this Power of Attorney and (b) any person designated by ILFC or an officer of ILFC to give instructions pursuant to this Power of Attorney. Frontier also agrees to indemnify and hold harmless any person, agency or company which may act in reliance upon this Power of Attorney and pursuant to instructions given by ILFC or its designee. This Power of Attorney is irrevocable until the Aircraft has been returned to the possession of ILFC, deregistered and exported from United States. FRONTIER AIRLINES has made and delivered this Power of Attorney on _________ in ____________. FRONTIER AIRLINES By: Title: EXHIBIT I ASSIGNMENT OF RIGHTS (AIRFRAME) [DATE] Boeing Commercial Airplane Group P.O. Box 3707 Seattle, Washington 98124 2207 Attention: Vice President Contracts Mail Code 21 34 Subject: Full Assignment of Rights and Obligations International Lease Finance Corporation as Lessor and Frontier Airlines, Inc. as Lessee of Model B737 300 aircraft bearing manufacturer's serial number 26301 Ladies and Gentlemen: In connection with International Lease Finance Corporation's lease to Frontier Airlines, Inc. ("Lessee") of a Boeing aircraft (more fully described below), reference is made to the following documents: A. Purchase Agreement No. 1500 dated August 25, 1988 between The Boeing Company ("Boeing") and International Lease Finance Corporation ("ILFC") (the "Boeing Agreement") under which ILFC purchased a certain Boeing Model B737 300 aircraft bearing manufacturer's serial number 26301 (the "Aircraft"). B. Aircraft Lease Agreement (the "Lease") for the Aircraft dated as of November __, 1999 between ILFC and Lessee. Capitalized terms used herein without definition will have the same meaning as in the Boeing Agreement. In connection with ILFC's lease of the Aircraft under the Lease, ILFC is transferring to Lessee certain rights of ILFC related to the Aircraft under the Boeing Agreement. To accomplish this transfer of rights, as authorized by the provisions of the Boeing Agreement: 1. Lessee acknowledges that it has received copies of the following specific provisions of the Boeing Agreement applicable to the Aircraft and agrees to be bound by and comply with all the terms, conditions, and limitations contained in such provisions, including without limitation the disclaimer and release, exclusion of liabilities, indemnity and insurance provisions thereof: (a) Boeing Agreement Article 6 Excusable Delay 6.1 General Article 8 Assignment, Resale or Lease 8.1 Title and Risk with Boeing 8.2 Buyer's Indemnification of Boeing; Insurance Article 10 Assignment, Resale or Lease 10.1 No Increase in Boeing Liability 10.3 Sale by Buyer after Delivery 10.4 Lease by Buyer after Delivery 10.5 No Increase in Boeing Liability 10.6 Exculpatory or Indemnity Clause in Post delivery Sale or Lease Article 12 Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance (in its entirety) Article 14 Contractual Notices and Requests Article 15 Miscellaneous 15.4 Governing Law Exhibit B Product Assurance Document Part A Boeing Warranty Part B Warranty Repairs and Modifications by Buyer Part C Boeing Service Life Policy Part D Boeing Indemnity Against Patent Infringement Part D 1 Boeing Indemnity Against Copyright Infringement Part E Supplier Warranties and Patent Indemnities Part G Boeing Interface Commitment Part H General Exhibit C 1 Customer Support Document Part B Boeing Customer Support Services Part D Technical Data and Documents Part E Buyer's Indemnification of Boeing and Insurance Exhibit E Buyer Furnished Equipment Provisions Document Paragraph 8 Indemnification of Boeing Paragraph 9 Patent Indemnity Paragraph 10 Definitions Paragraph 11 Notice of Claim Letter Agreement No. 1500 __ Seller Purchased Equipment Paragraph 6 Buyer's Indemnification of Boeing 2. Lessee recognizes that Boeing's obligation to provide support and services to Lessee pursuant to Exhibit C of the Boeing Agreement is conditioned on the receipt by Boeing of evidence of compliance by Lessee with the insurance requirements set forth in paragraph 2 of Part E of Exhibit C or in such other form as may be satisfactory to Boeing, prior to the commencement of such support and services. 3. ILFC reserves to itself all rights, claims and interests it may have under the Boeing Agreement not expressly assigned to Lessee hereunder. ILFC will remain responsible to Boeing for any amounts with respect to the Aircraft owed to Boeing under the Boeing Agreement prior to the effective date of this letter, including any amounts owed by ILFC to Boeing under the specific portions of the Boeing Agreement referenced in paragraph 1 above based upon the events or incidents relating to the Aircraft occurring prior to the effective date of this letter. 4. ILFC hereby assigns to Lessee the sole authority to exercise in Lessee's name all rights and powers of ILFC with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above. Such authorization will continue until Boeing receives from ILFC written notice to the contrary addressed to Boeing's Vice President, Contracts, P.O. Box 3707, Seattle, Washington 98124 2207 with a copy to Lessee. Until Boeing receives such notice, Boeing will be entitled to deal exclusively with Lessee with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above and, with respect to the rights, powers, duties or obligations under such portions of the Boeing Agreement, any and all actions taken by Lessee or agreements entered into by Lessee during the period prior to Boeing's receipt of such notice will be final and binding on ILFC. In addition, any payment made by Boeing as a result of claims made by Lessee will be made to the credit of Lessee. 5. Lessee hereby accepts the authorization set forth in paragraph 4 above and agrees to be bound by and to comply with all the terms, conditions and limitations of the portion of the Boeing Agreement referenced in paragraph 1 above. 6. This Assignment may be signed by the parties hereto in separate counterparts, each of which when executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 7. This Assignment shall be governed by, and construed in accordance with, the laws of the State of Washington, including all matters of construction, validity and performance. We request that Boeing, upon receipt of this letter, acknowledge receipt thereof and the transfer of rights set forth above by signing the acknowledgment and forwarding one copy of this letter to each of the undersigned. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be duly executed as of the dates written below. INTERNATIONAL LEASE FINANCE CORPORATION, as Lessor and FRONTIER AIRLINES, INC., as Lessee Buyer By: By: Its: Its: Receipt of the above letter is acknowledged and transfer of certain rights under the Boeing Agreement with respect to the Aircraft is confirmed, effective as of this date. THE BOEING COMPANY By: Its: Date: EXHIBIT J ASSIGNMENT OF RIGHTS (ENGINES) November __, 1999 CFM INTERNATIONAL, INC. 1 Neumann Way, F 17 Cincinnati, Ohio 45215 Attention: Riv Goldman Commercial Contracts Warranty Assignment Administrator Dear Ms. Goldman: Reference is hereby made to that Consent to Assignment made as of April 29, 1988, (the "Consent to Assignment"), by and between CFM INTERNATIONAL, INC. ("CFMI") and INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC"). Terms defined in the Consent to Assignment are used herein with the same meaning as in the Consent to Assignment. As of November ___, 1999, ILFC has assigned all of its rights and interest in, to and under the Engine Warranties to Frontier Airlines, Inc. ("Assignee") in connection with its lease to Assignee of a used B737 300 aircraft (the "Aircraft") together with two (2) CFMI Model 56 3C1 bearing Manufacturer's Serial Numbers 726115 and 727103 (the "Engines") as of the date each such Engine was delivered to Assignee. Such assignment shall be effective from such date until ILFC provides written notice to CFMI (with a copy to Assignee) that such assignment has been terminated. The Assignee has accepted such assignment and all the limitations and liabilities pertaining to the Engine Warranties as stated in the provisions of the GTA listed in Schedule 2 to the Consent to Assignment. A copy of the aforesaid assignment is attached hereto. Very truly yours, INTERNATIONAL LEASE FINANCE CORPORATION By: Title: cc: Ruben M. Cabrera Director, Commercial Contracts ASSIGNMENT OF WARRANTIES November __, 1999 In consideration of Frontier Airlines, Inc. ("Lessee") leasing from International Lease Finance Corporation ("ILFC") one (1) B737 300 aircraft together with two (2) CFMI Model 56 3C1 engines bearing manufacturer's serial numbers 726115 and 727103, it is hereby agreed as follows: 1. ILFC hereby assigns and transfers to Lessee all of ILFC's respective rights and interest in and to and in and under the Engine Warranties set forth in and subject to the limitations and liabilities set forth in Exhibit B Warranty, Section X (the "Engine Warranties") of CFM International, Inc. ILFC General Terms Agreement No. 6 3987 dated 22 June 1984 (the "GTA") during the term of such leases so long as Lessee is not in default thereunder. 2. Lessee hereby accepts such assignment including all the limitations and liabilities pertaining to said Engine Warranties as stated in the provisions of Exhibit B Warranty, Section X of the GTA. In addition, any payment made by CFM International, Inc. as a result of claims made by Lessee will be made to the credit of Lessee. 3. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns to the extent permitted by the GTA and hereunder. 4. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 5. This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument and any party may execute this Agreement by signing any counterpart. IN WITNESS WHEREOF, the authorized representative of the parties hereto have executed this Agreement as of the day and year first above written. For and on behalf of For and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT K RETURN ACCEPTANCE RECEIPT Date: _________________ ___, ____ 1. FRONTIER AIRLINES, INC. as LESSEE, and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of August 14, 2000 (the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSOR has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSEE possession of: (a) One (1) Boeing B737 300 Aircraft bearing Manufacturer's serial number 26301, together with two (2) CFM 56 3C1 Engines bearing manufacturer's serial numbers 726115 and 727103, and all Parts attached thereto and thereon in an airworthy condition and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts, as listed in the Document Receipt attached hereto. 3. The Airframe, Engines, and Parts had the following hours/cycles at return: (a) Airframe: Total hours: _______________ Total Landings: _______________ Date last "C" check performed: _________________ ______ hours/ ______ cycles since last "C" check Date last "D" check performed: _________________ ______ hours/ ______ cycles since last "D" check (b) Engines: Position Serial No. Total Hours Total Cycles Hrs/Cycles since last shop visit Time Remaining to Next Life Limited Part Removal Part Name Hours Cycles MSN MSN (c) APU: MSN __________ Total hours: __________ ______ hours/ ______ cycles since last Overhaul ______ hours/ ______ cycles remaining on APU life limited Parts (d) Landing Gears: Position Serial No. Total Hrs/Cycles Hrs/Cycles since Date of last last Overhaul Overhaul Nose Right Main Left Main (e) Fuel on board at return: ______ (circle one) pounds/kilos (______ gallons) 4. Other technical information regarding the Aircraft and its components are correctly set forth on the Technical Evaluation Report (in the form of Exhibit M) attached hereto. 5. With reference to Article 13.7 of the Lease regarding reimbursement from the Reserves after return of the Aircraft: _____ There are no claims for reimbursement from the Reserves which will be submitted after the date hereof. or _____ Claims for reimbursement from the Reserves will be submitted after the date hereof for the following: Type of Work Estimated Invoice Amount 6. The above specified aircraft, engines and documentation are hereby accepted by LESSOR subject to correction by LESSEE (or procurement by LESSEE at LESSEE's cost) as soon as reasonably possible of the discrepancies specified in Attachment 2 hereto. 7. Subject to the following paragraph, the leasing of the Aircraft by LESSOR to LESSEE pursuant to the Lease is hereby terminated without prejudice to LESSEE's continuing obligations under the Lease including, without limitation, paragraph 6 above, paragraph 8 below, and Articles 10.5, 16 and 17. 8. LESSEE represents and warrants that during the term of the Lease all maintenance and repairs to the Airframe and Engines were performed in accordance with the requirements contained in the Lease. LESSEE further confirms that all of its obligations under the Lease whether accruing prior to the date hereof or which survive the termination of the Lease by their terms and accrue after the date hereof, will remain in full force and effect until all such obligations have been satisfactorily completed. 9. This Return Acceptance Supplement is executed and delivered by the parties in [place]. IN WITNESS WHEREOF, the parties hereto have caused this Return Acceptance Receipt to be executed in their respective corporate names by their duly authorized representatives as of the day and year first above written. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: ATTACHMENTS: 1. List of Aircraft Documentation 2. List of Loose Equipment 3. List of Discrepancies 4. Engine Maximum Power Assurance Test Conditions and Results 5. Dent and Damage Chart 6. Form of No Accident/Incident Letter 7. Technical Evaluation Report (in the form of Exhibit M) ATTACHMENT 1 TO RETURN ACCEPTANCE RECEIPT LIST OF AIRCRAFT DOCUMENTATION [INSERT LIST] . ATTACHMENT 2 TO RETURN ACCEPTANCE RECEIPT LIST OF LOOSE EQUIPMENT ATTACHMENT 3 TO RETURN ACCEPTANCE RECEIPT LIST OF DISCREPANCIES ATTACHMENT 4 TO RETURN ACCEPTANCE RECEIPT ENGINE MAXIMUM POWER ASSURANCE TEST CONDITIONS AND RESULTS ATTACHMENT 5 TO RETURN ACCEPTANCE RECEIPT DENT AND DAMAGE CHART ATTACHMENT 6 TO RETURN ACCEPTANCE RECEIPT FORM OF NO ACCIDENT/INCIDENT LETTER EXHIBIT L MONTHLY REPORT (SEE FOLLOWING SHEET) MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT Page 1 of 2 Report Due Date: To: INTERNATIONAL LEASE FINANCE CORPORATION Fax: (310) 788 1990 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, United States Attn: Finance Department From: FRONTIER AIRLINES Contact: Fax: AIRCRAFT TYPE: Boeing B737 300 ENGINE TYPE: CFM56 3C1 REGISTRATION: N _____ SERIAL NUMBER: 26301 MONTH OF: NOTE: PLEASE RECORD TIME IN HOURS AND MINUTES NOT DECIMALS. Aircraft Total Time Since New As Of Last Month: Hours: Min: Aircraft Total Time Since New: Hours: Min: Aircraft Total Cycles Since New: Cycles: Airframe Hours Flown During Month: Hours: Min: Airframe Cycles/Landings During Month: Cycles: Time Remaining to "D" or Heavy Maintenance Check: HOURS OR CYCLES FLOWN x US$ PER HOUR OR = RESERVES DURING MONTH (as CYCLE (as applicable) applicable) TOTAL AIRFRAME: Hrs: x = TOTAL LANDING GEAR: Hrs: x = Original Engine Serial Number: Hrs: Min: x = Cycles = Original Engine Serial Number: Hrs: Min: x = Cycles = TOTAL AMOUNT OF RESERVES (US$) PAID THIS MONTH: US$ Monthly Aircraft Utilization and Status Report From: FRONTIER AIRLINES Page 2 of 2 ENGINE SERIAL NUMBER: ENGINE SERIAL NUMBER: ORIGINAL POSITION: ORIGINAL POSITION: ACTUAL LOCATION: ACTUAL LOCATION: CURRENT THRUST RATING: CURRENT THRUST RATING: ============================================================= =========================================================== HOURS:/MIN: HOURS:/MIN: Total Time Since New As Of Last Total Time Since New As Of Last Month: Month: Total Time Since New: Total Time Since New: Total Cycles Since New: Total Cycles Since New: Hours Flown During Month: Hours Flown During Month: Cycles During Month: Cycles During Month: IMPORTANT: IF ILFC OWNED ENGINE IS REMOVED OR INSTALLED ON ANOTHER AIRCRAFT, IT MUST BE REPORTED MONTHLY ON THIS FORM. EXHIBIT M AIRCRAFT DOCUMENTATION AIRCRAFT RECORDS 1. Copies of original Certificates delivered by Boeing a. Airworthiness Certificate for Export b. Radio installation conformity certificate c. Noise limitation certificate 2. Copies of original Documents delivered by Boeing: a. Airworthiness Directive Compliance list b. Aircraft inspection report c. Aircraft Definition Report d. Weighing report 3. Copies of current Certificates: a. Airworthiness Certificate b. Noise limitation c. Radio license d. Interior material burn certificates e. Certificate of Export f. Aircraft deregistration confirmation e. Aircraft Registration 4. Letters signed and stamped by Quality Assurance: a. Current aircraft hours and cycles b. Current engines hours and cycles c. Accident and Incident report d. Summary of Maintenance Program e. AD compliance during the lease term 5. Aircraft log books and Aircraft readiness log. 6. Aircraft Hard Time (HT) inspection status. 7. One year forecast for HT inspection. 8. Aircraft Modification status, including service bulletins. 9. Last weighing report prior to redelivery. 10. AD compliance report with original signoffs. 11. Routine and non routine job cards of the last "C" and "D" checks. 12. Past year pilots and maintenance discrepancies. 13. Major and Minor structural repairs with applicable approvals. 14. Compass Swing report of the last three years. 15. Cabin Configuration drawing (LOPA). 16. Emergency equipment location drawing. 17. Last X RAYs ENGINES RECORDS 1. Last test cell run reports. 2. Life Limited Parts status and traceability. 3. AD compliance report with original signoffs. 4. Engine Modification / service bulletin /inspection report and applicable forms. 5. Last heavy maintenance records for each module. 6. Engine log books. 7. Engine removal history. 8. Past year trend monitoring reports. 9. Historical borescope reports. 10. Engine component report. APU RECORDS 1. APU status (FH, FC, limits). 2. Life limited Part status and traceability. 3. AD compliance with original signoffs. 4. Modification status. 5. Last heavy maintenance documents. 6. APU log books. 7. Last test cell report. COMPONENT RECORDS 1. Aircraft component inventory. 2. Hard time component inventory. 3. All serviceable tags. 4. Landing Gear status with last overhaul and life limited Part status. 5. AD compliance with original signoffs. 6. Modification status. EXHIBIT N TECHNICAL EVALUATION REPORT (SEE FOLLOWING SHEETS) INTERNATIONAL LEASE FINANCE CORPORATION AIRCRAFT / OPERATOR TECHNICAL EVALUATION REPORT 133 TABLE OF CONTENTS AIRCRAFT SUMMARY......................................................................................1 MAINTENANCE & INSPECTION..............................................................................2 LANDING GEAR..........................................................................................4 ENGINES...............................................................................................5 AUXILIARY POWER UNIT (APU)............................................................................8 PASSENGER CABIN CONFIGURATION (Seating)...............................................................9 GALLEY PROVISIONS....................................................................................10 LAVATORIES, AUDIO/ENTERTAINMENT, CARGO, INTERIOR.....................................................11 HYDRAULIC, FUEL, WEIGHT & BALANCE....................................................................12 AVIONICS SYSTEMS.....................................................................................13 INSPECTOR RECORD.....................................................................................16 CONFIDENTIAL INFORMATION REVISION 7 18 NOT FOR DISTRIBUTION January 1999 Page 18 AIRCRAFT SUMMARY as of / / Aircraft Make Boeing Model FUS No. S/N MFG Date: Current Registration: Country: Previous Registration: Country: Annual Utilization: Hour/Cycle Ratio: Total Aircraft Time: TAT (Hrs) As of (date): Total Aircraft Cycles: TAC (Cyc) Time Since Last "C" or equivalent Check: (Hrs) (Cyc) Time Since Last Structural Check: (Hrs) (Cyc) Engine Make: Model: Thrust Rating: Engine: 1 S/N: 2 S/N: TSN: (Hrs) CSN: (Cyc) IMPORTANT NOTE: THE ENGINE SERIAL NUMBERS SPECIFIED ON THIS REPORT REFLECT THE ENGINE SERIAL NUMBERS THAT DELIVERED WITH THE AIRCRAFT. IF THE ENGINE SERIAL NUMBER HAVE NOT BEEN FILLED IN FOR YOU, PLEASE PROVIDE DATA FOR THE ENGINES ORIGINALLY DELIVERED WITH THE AIRCRAFT (LESSOR OWNED ENGINES). MAINTENANCE PROGRAM GENERAL Aircraft Maintenance Program Provided By: [ ] Operator [ ] Other: Program Approved By Authority Of: [ ] FAA Approved [ ] Other: Repair Station Providing Service: Repair Station Number: FAA Approved?: [ ] Yes [ ] No Primary Line Maintenance Provided By: [ ] Operator [ ] Contract Service Reliability Controlled Maintenance Program?: [ ] Yes [ ] No Component Tags Available For Controlled Components: [ ] Yes [ ] No At Aircraft Delivery Currently Approved By Local Currently Operated/Maintained Aviation Authority ETOPS Qualification: Minutes Minutes Minutes Auto Land Qualification: CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc (Circle one that applies) MAINTENANCE & INSPECTION PROGRAM DESCRIPTION Check Operator's Calendar Frequency Hours Cycles Number of Phases Nomenclature "C" "D" or Structural Program MAINTENANCE & INSPECTION PROGRAM STATUS Phase or Date Aircraft TAT Aircraft TAC Equivalent Next "C" Phase or Equivalent: / / Last "C" Phase or Equivalent: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Structural Cards Worked During Last "C" Phase?: [ ] Yes [ ] No CPCP Cards Worked During Last "C" Phase?: [ ] Yes [ ] No Next "D" Phase or Equivalent Structural: / / Last "D" Phase or Equivalent Structural: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) CPCP Cards Worked During Last "D" Phase?: [ ] Yes [ ] No Next CPCP Phase: / / Last CPCP Phase: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Date of Last ATC Transponder Test: #1 #2 Date of Last Flight Recorder Check: Date of Last Aircraft Weighing: LANDING GEAR MLG Tires: (Size) (MPH Rating) (MFG) NLG Tires: (Size) (MPH Rating) (MFG) Brake Manufacture: Type: [ ] Steel [ ] Carbon LEFT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) RIGHT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) NOSE: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) ENGINES ENGINE MAINTENANCE PROGRAM Engine Maintenance Program Provided By: Engine Condition Monitoring Trend Analysis Program?: [ ] Yes [ ] No Engine Oil Type: Engine(s) operated at INCREASED or DECREASED Thrust Rating; Program limitations & required Mods. to operate at designated thrust rating ENGINE SPECIFICATIONS ENGINE NUMBER 1 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. ENGINE SPECIFICATIONS ENGINE NUMBER 2 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (Visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. AUXILIARY POWER UNIT APU Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) APU Times Are Recorded By: [ ] APU Clock or [ ] A/C Time Ratio _____:_____ Time Between Overhaul: (Hrs) (Cyc) Time @ Last Hot Section (Date) (Hrs) (Cyc) Refurbishment: Time @ Last Overhaul: (Date) (Hrs) (Cyc) Time @ Last Shop Visit: (Date) (Hrs) (Cyc) Work Scope: Agency Performing Service: Location: Cert. #: Agency FAA Approved?: [ ] Yes [ ] No APU Oil Type: 1st LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) PASSENGER CABIN CONFIGURATION SEATING CONFIGURATION Present Configuration Occupancy: No. of Handicap Seats Installed: Passenger Exit Door Configuration: Air Stairs: Installed / Partial Provision/ Full Provision (Circle One) FIRST CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No BUSINESS CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No COACH CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No Provisions for Life Vests Under Seats?: [ ] Yes [ ] No Entertainment Controls(PCU) Installed?: [ ] Yes [ ] No Manufacturer: Part Number: Emergency Escape Path Lighting: [ ] Floor Mounted [ ] Seat Mounted Configuration Drawing Number: Source: Engineering Order / Installation Document: Installation FAA Approved?: [ ] Yes [ ] No Method of Approval: GALLEY PROVISIONS GALLEY's ARE (Check one): (___) Atlas Standard (___) KSSU Standard (____) Other GALLEY LOCATION MANUFACTURER MODEL NUMBER PART NUMBER EQUIPPED WaterPower 1. [ ] [ ] 2. [ ] [ ] 3. [ ] [ ] 4. [ ] [ ] 5. [ ] [ ] 6. [ ] [ ] 7. [ ] [ ] 8. [ ] [ ] 9. [ ] [ ] 10. [ ] [ ] NOTE: Galley Locations per Spec or LOPA drawing i.e., G1, G2 etc. Galley Location numbers above correspond to the numbers below. OVENS BUN WARMERS REFER CHILLERS COFFEE WATER HOT HOT BEV UNITS MAKERS BOILERS JUGS CUPS JUGS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. LAVATORIES Number of Lavatories: Handicap Provisions?: [ ] Yes [ ] No Locations: IN FLIGHT AUDIO & ENTERTAINMENT SYSTEM Boarding Music: [ ] Yes [ ] No Auto Evac & Warning: [ ] Yes [ ] No Pre Recorded Announcement: [ ] Yes [ ] No Passenger Entertainment (Audio): [ ] Yes [ ] No Passenger Entertainment (Video): [ ] Yes [ ] No VTR Format: [ ] VHS [ ]Hi 8 [ ] Other [ ] Projector [ ] PSU Monitor [ ] Isle Monitor [ ] In Seat (Check All That Apply) Passenger En Route Information Display: [ ] Yes [ ] No Telephone: [ ] Yes [ ] No [ ] Leased [ ] Owned Satellite: [ ] Yes [ ] No CARGO COMPARTMENT Cargo Loading System Installed: [ ] Yes [ ] No Smoke\Fire Detection System installed: [ ] Yes [ ] No Fire Suppression System installed: [ ] Yes [ ] No INTERIOR COLORS Interior Color Scheme: Carpets: Curtains: PLACARDS & LIGHTED SIGNS English?: [ ] Yes [ ] No Bi Lingual?: [ ] Yes [ ] No First Language: Second Language: HYDRAULIC SYSTEM Type of Hydraulic Fluid Used: (MFG): FUEL SYSTEM Total Fuel Capacity: U.S. gallons [ ] lbs or [ ] kilos Number of Tanks: Auxiliary Tanks Installed?: [ ] Yes [ ] No Auxiliary Tank Capacity: U.S. gallons [ ] lbs or [ ] kilos Fuel Instrumentation / Calibration: [ ] U.S. pounds [ ] kilograms WEIGHT & BALANCE Has Aircraft Been Modified For Increased Gross Weight by Current Lessee?: [ ] Yes [ ] No From MTOGW To MTOGW Weight & Balance Manual Document No.: Rev: For the below weights specify AFM approved limits: POUNDS KILOS Maximum Takeoff Gross Weight: (MTOGW) / Maximum Taxi Weight: (MTW) / Maximum Landing Weight: (MLW) / Manufacturer's Empty Weight: (MEW) / Maximum Zero Fuel Weight: (MZFW) / Operational Empty Weight: (OEW) / AVIONICS SYSTEMS 22 AUTO FLIGHT QTY COMPONENT MANUFACTURER MODEL or PART NUMBER FMGC Flight Management & Guidance Computer: FAC Flight Augmentation Computer: FCU Flight Control Unit: MCDU Multipurpose Control Display Unit: 23 COMMUNICATIONS QTY COMPONENT MANUFACTURER MODEL or PART NUMBER CIDS Director Cabin Intercommunications Data System HF Transceiver: VHF Transceiver: Cockpit Voice Recorder: PRAM Tape Reproducer (Pre Recorded PAX Address): MPES Tape Reproducer (Audio Entertainment): Tape Reproducer (Video Entertainment): Audio management unit/SELCAL Decoder: ACARS Management Unit: RMP Radio Management Panel: AVIONICS SYSTEMS (continued) 27 FLIGHT CONTROL COMPUTER QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ELAC Elevator/Aileron Computer: SFCC Slat/flap Control Computer: SEC Spoiler/Elevator Computer: FCDC Flight Control Data Concentrator: 31 INDICATING AND RECORDING QTY COMPONENT MANUFACTURER MODEL or PART NUMBER Multifunction Printer: DFDR Flight Data Recorder: FDIU Digital Flight Data Interface Unit: Accelerometer: FWC Flight Warning Computers: Windshear Activated: Yes / No QAR Quick Access Recorder: AIDS Aircraft Integrated Data System: ELECTRONIC INSTRUMENT SYSTEM (EIS) PFD Primary Flight Display: ND Navigation Display: SDACS System Data Acquisition Concentrators: Display Management Computers: EWD Engine/Warning Display: SD System Display: AVIONICS SYSTEMS (continued) QTY COMPONENT MANUFACTURER MODEL or PART NUMBER CFDIU Centralized Fault Display Interface: 34 NAVIGATION QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ADIRU Air Data/Intertial Reference System: DME Distance Measuring Equipment Interrogators: VHF VOR/Marker Beacon Receiver: VHF ILS Receiver: DDRMI Digital Distance & Radio Magnetic Indicator: Radio Altimeter Transceiver: Weather Radar Transceiver: TCAS Traffic Alert and Collision Avoidance System Computer: ATC Air Traffic Control System Transponder: Microwave Landing Receiver: GPWS Ground Proximity Warning System: ADF Automatic Direction Finder Receiver: INSPECTOR RECORD INSPECTED BY: DATE: OPERATOR: REGISTERED OWNER: ADDRESS OF OPERATOR: CONTACT (Name/Title): TELEPHONE: TELEFAX: Email Address: Department Contact Name Phone Fax Email Quality Control: Power Plant Engineering: Maintenance Programs/Planning:

EXHIBIT 10.i.(a)   SECOND AMENDMENT AND AGREEMENT UNDER THE PARTNERSHIP AGREEMENT        This Second Amendment and Agreement Under the Partnership Agreement (this "Agreement") dated as of January 1, 1997 by and among (i) IMC Global Operations Inc., a Delaware corporation ("Operations"), (ii) Agrico, Limited Partnership (the "FRP Partner"), a Delaware limited partnership of which Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership ("FRP"), owns a 99.8% limited partnership interest and Agrico, Inc., a Delaware corporation ("FRP GPCo"), owns a 0.2% general partnership interest, (iii) IMC-Agrico MP, Inc. (the "Managing Partner"), a Delaware corporation, and (iv) IMC-Agrico Company, a Delaware general partnership (the "Partnership").        WHEREAS, Operations, the FRP Partner and the Managing Partner are parties to an Amended and Restated Partnership Agreement dated as of July 1, 1993, as further amended and restated as of May 26, 1995, as further amended by the Amendment and Agreement under the Partnership Agreement dated January 23, 1996 (as amended, the "Partnership Agreement");      WHEREAS, IMC Global Inc., a Delaware corporation ("IMC"), has reorganized its operations into business units and has consolidated the Farmarkets Division and Rainbow Division (each as defined in the Partnership Agreement) into a single business unit referred to as IMC AgriBusiness ("IMC AgriBusiness");      WHEREAS, prior to the formation of the IMC AgriBusiness business unit, the Partnership Agreement provided for separate pricing for sales to the Farmarkets Division and the Rainbow Division; and      WHERAS, Operations, the FRP Partner, the Managing Partner and the Partnership believe that certain amendments to the Partnership Agreement are appropriate due to IMC's reorganization into business units;      NOW, THEREFORE, in consideration of the covenants and agreements herein set forth and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:      Section 1. Except as otherwise defined or amended herein, capitalized terms used in this Agreement shall have the meaning ascribed to such terms in Exhibit A to the Partnership Agreement.      Section 2. Section 9.12 of the Partnership Agreement is hereby amended and restated to read in its entirety as follows:          "9.12 Transactions with Affiliates. Except with respect to items (i)(B) and (ii) referred to in the parenthetical phrase in the following sentence, any transaction, agreement arrangement or understanding between or on behalf of the Partnership, on the one hand, and the Operating Partner or any Affiliate of the Operating Partner, on the other hand, must be on terms no less favorable to the Partnership than those which could be obtained from an independent third party providing similar goods or services of a like quality. All such transactions, agreements, arrangements and understandings in an aggregate amount in any Fiscal Year in excess of the Base Affiliate Transaction Amount for such Fiscal Year (other than (i) during any period during which the IMC Partner is Operating Partner, (A) any transactions, agreements, arrangements or understandings with Operations' railcar repair business located at Fitzgerald, Georgia on terms no less favorable to the Partnership than those which could be obtained from an independent third party providing similar goods or services of like quality and (B) any transactions, agreements, arrangements and understandings with IMC AgriBusiness or International Minerals & Chemical (Canada) Global Limited ("IMC Canada Ltd." , formerly International Minerals & Chemical Corporation (Canada) Limited) on the terms set forth on Schedule 9.12 and (ii) (A) the Marketing and Administrative Services Agreement, (B) the Leasing Agreement, (C) the Materials Purchase and Cost Sharing Agreement, (D) the Employee Cost Sharing Agreement and (E) the Limestone Cost Sharing Agreement) shall be subject to the approval of the Policy Committee or the CEOs , as the case may be, in accordance with Section 6.07(a) or (b). Partnership sales to IMC AgriBusiness shall be on the terms set forth in Schedule 9.12. Nothing in Schedule 9.12 shall in any way restrict or affect the right of the Partnership to enter into transactions with Affiliates of the Non-Operating Partner. The Operating Partner will, and will cause its affiliates to (i) give the Non-Operating Partner and its auditors and other authorized representatives such access to the offices, properties, books and records of such party, (ii) furnish to the Non-Operating Partner and its auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request and (iii) instruct its employees and auditors to cooperate with the Non-Operating Partner and its auditors and other authorized representatives, in each case as may be reasonably requested by the Non-Operating Partner to evaluate any transactions, agreements, arrangements or understandings between the Partnership or the Managing Partner on the one hand, and the Operating Partner and its Affiliates, on the other hand; provided that any investigation pursuant to this Section shall be conducted in such a manner as not to interfere unreasonably with the conduct of business of the Operating Partner and its Affiliates."   Section 3. Schedule 9.12 of the Partnership Agreement is hereby amended and restated to read in its entirety as follows:      "A. Sales to IMC Canada Ltd. of GTSP, DAP, GMAP 11-52-0, GMAP 10-50-0 and PFS ("Canada Products") shall be invoiced to Operations by IMC-Agrico Company at the estimated IMC-Agrico Company quarterly weighted average domestic sales realization F.O.B plant, subject to the limitation described in Section D below, ("Quarterly Market Price") for each of Florida, Louisiana, or Offsites, depending upon the source of the Canada Products, less 10%, so long as the aggregate volume for the Canada Products does not exceed 57,619 P2O5 tons for the fiscal year beginning July 1. Sales of the Canada Products in any annual period in excess of 57,619 P2O5 tons shall be invoiced at 100% of the Quarterly Market Price for Florida, Louisiana or Offsites, depending upon the source of the product.      Sales to IMC Canada Ltd. of any products other than those listed above shall be invoiced to Operations by IMC-Agrico Company at the Quarterly Market Price for Florida, Louisiana or Offsites, depending upon the source of the product. B.     (i) Sales of amounts set forth below in any Fiscal Year to IMC AgriBusiness of GTSP, DAP, GMAP 11-52-0 and GMAP 10-50-0 (collectively, "Concentrated Phosphates") shall be invoiced to IMC AgriBusiness by IMC-Agrico Company as follows: (a)     Up to 300,000 tons in the aggregate of Concentrated Phosphates to be resold in the Southeast United States shall be sold to IMC AgriBusiness at the low price reported in the most recent issue of Green Markets at the time of shipment, less a discount of 3%. (b)     Up to 300,000 tons in the aggregate of Concentrated Phosphates to be used in production in the Southeast United States and all sales of Concentrated Phosphates in the Midwest United States shall be sold to IMC AgriBusiness at the low price reported in the most recent issue of Green Markets at the time of shipment, less a discount of 1.5%.      Sales of tons of Concentrated Phosphates in excess of the 300,000 tons specified in subparagraph (a) or (b) above in any Fiscal Year shall be made on terms to be mutually agreed between IMC AgriBusiness and IMC-Agrico.      (ii) Sales of up to 78,000 tons to IMC AgriBusiness of PMAP shall be invoiced to IMC AgriBusiness by IMC-Agrico Company at a price equal to the Partnership's domestic weighted average sales realization F.O.B. plant (excluding sales to IMC AgriBusiness) less a discount of 18%.      Sales of tons of PMAP in excess of 78,000 tons in any Fiscal Year shall be made on terms to be mutually agreed between IMC AgriBusiness and IMC-Agrico. (iii) Sales to IMC AgriBusiness of PFS shall be invoiced to IMC AgriBusiness by IMC-Agrico Company at a price equal to (a) the Partnership's domestic weighted average sales realizations F.O.B. plant (excluding sales to IMC AgriBusiness) for DAP minus (b) the market cost component of DAP attributable to anhydrous ammonia.      C. Any transfer of sales responsibility from IMC's wholesale division to IMC AgriBusiness must be approved by the Policy Committee.      D. Estimated prices invoiced by IMC-Agrico Company to IMC Canada Ltd. shall be adjusted to actual quarterly sales prices at the end of each quarter. Final price adjustments shall be made within 20 days of the end of each fiscal quarter and within 45 days of the end of each fiscal year."           Section 4. Exhibit A to the Partnership Agreement shall be amended to add a definition of "IMC AgriBusiness" as follows: "'IMC AgriBusiness ' shall mean the business of the Farmarkets Division and the Rainbow Division as operated by IMC and Operations as of the formation of the IMC AgriBusiness business unit."      Section 5. The parties acknowledge that the amendments provided for herein result in a reduction of the services provided by Operations under the Marketing and Administrative Services Agreement and that the substitution of IMC AgriBusiness for Operations in this regard is reflected in the discount structure for sales to IMC AgriBusiness. Consequently, the parties agree to reduce the Administrative Fee by $150,000 per year.      Section 6. This Agreement is solely for the benefit of the parties hereto and no provision of this Agreement shall be deemed to confer upon third parties, any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.      Section 7. This Agreement may be signed in counterparts. Any single counterpart or set of counterparts signed, in either case, by all the parties hereto shall constitute a full and original agreement for all purposes.      IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first written above. IMC Global Operations Inc. (formerly IMC Fertilizer, Inc.)   By: /s/ Robert E. Fowler, Jr. Name Printed: Robert E. Fowler, Jr. Title: President   Agrico, Limited Partnership By: Freeport-McMoran Inc., its general partnership   By: /s/ Rene L. Latiolais Name Printed: Rene L. Latiolais Title: President and CEO   IMC-Agrico MP, Inc. By: /s/ Marshall I. Smith Name Printed: Marshall I. Smith Title: Vice President   IMC-Agrico Company By: IMC-Agrico MP, Inc.   By: /s/ Richard H. Block Name Printed: Richard H. Block Title: President

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 WAIVER AND AMENDMENT AGREEMENT     WHEREAS, the City of Chaska, Minnesota (the "Municipality") and Lifecore Biomedical, Inc., a Minnesota corporation (the "Borrower") entered into a certain Loan Agreement dated as of September 1, 1990 (the "Loan Agreement"), which agreement was assigned by the Municipality to Norwest Bank Minnesota, National Association, as Trustee (the "Trustee") pursuant to a Trust Indenture dated as of September 1, 1990 (the "Indenture") in connection with the issuance and sale by the Municipality of its Industrial Development Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 1990 (the "Bonds"). Terms not defined herein shall have the meanings set forth in the Indenture;     WHEREAS, the Borrower has requested the waiver of the current terms of Sections 6.09(a)(i) and 6.09(d)(i) of the Loan Agreement and the modification of Sections 6.09(a)(i) and (ii) and 6.09(d)(i) and (ii) of the Loan Agreement, as amended by the Waiver and Amendment Agreement dated August 3, 1992, as further amended by the Waiver and Amendment Agreement dated July 28, 1994, as further amended by the Waiver and Amendment Agreement dated July 27, 1995, as further amended by the Waiver and Amendment Agreement dated July 8, 1996, as further amended by the Waiver and Amendment Agreement dated July 1, 1997, as further amended by the Waiver and Amendment Agreement dated June 5, 1998 and as further amended by the Waiver and Amendment Agreement dated June 10, 1999.     WHEREAS, the registered owners of all of the outstanding Bonds (herein the "Bondholders") are willing to agree to the request of the Borrower and direct the Trustee to consent thereto based on the Borrower's agreements set forth herein;     NOW, THEREFORE, the parties hereto hereby agree as follows: (1)Compliance with the current provisions of Section 6.09(a)(i) of the Loan Agreement is hereby waived and Sections 6.09(a)(i) and (ii) of the Loan Agreement are hereby amended to read as follows:     Section 6.09 (a) Cash Flow Coverage Test. (i) For the Fiscal Year ending June 30, 2001, Borrower shall not be subject to a minimum Cash Flow Coverage Ratio.     (ii) For each Fiscal Year commencing with the Fiscal Year ending June 30, 2002 ("Fiscal 2002"), the Borrower will, for the twelve-month period ending at each fiscal quarter, maintain a minimum Cash Flow Coverage Ratio of 2.00:1. At the Borrower's option, for purposes of computing the Cash Flow Coverage Ratio for any of the first three quarters of Fiscal 2002, the Borrower shall be permitted to base such calculation either upon Consolidated Adjusted Net Income for the preceding twelve-month period or upon the Consolidated Adjusted Net Income for the preceding six-month period, multiplied by two. (2)Compliance with the current provisions of Section 6.09(d)(i) of the Loan Agreement is hereby waived and Sections 6.09(d)(i) and (ii) of the Loan Agreement are hereby amended to read as follows:     Section 6.09 (d) Fixed Charges Coverage Test. (i) For the Fiscal Year ending June 30, 2001, Borrower shall not be subject to a minimum Fixed Charges Coverage Ratio.     (ii) For each Fiscal Year commencing with Fiscal 2002, the Borrower will, for the twelve-month period ending at each fiscal quarter, maintain a minimum Fixed Charges Coverage Ratio of 1.30:1. At the Borrower's option, for purposes of computing the Fixed Charges Coverage Ratio for any of the first three quarters of Fiscal 2002, the Borrower shall be permitted to base such calculation either upon Consolidated Adjusted Net Income plus rental payments on operating leases for the preceding twelve-month period or upon the Consolidated Adjusted Net Income plus rental payments on operating leases for the preceding six-month period, multiplied by two. -------------------------------------------------------------------------------- (3)Borrower agrees that, through July 1, 2001, it will make advance payments of cash into the Bond Fund established pursuant Section 5.01 of the Indenture. At all times during this period, Borrower shall have made advance payments in a sufficient amount to satisfy the next two monthly payments payable by Borrower pursuant to the Loan Agreement. (4)The Bondholders hereby direct the Trustee, as assignee of the Loan Agreement by the Municipality, to consent to the foregoing pursuant to Article XII.     IN WITNESS WHEREOF, the parties have caused this agreement to be signed on their behalf as of this 8th day of June, 2000. LIFECORE BIOMEDICAL, INC.   NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee Signature   /s/ JAMES W. BRACKE    --------------------------------------------------------------------------------   Signature   /s/ MARTHA KANTOROWICZ    -------------------------------------------------------------------------------- Print   James W. Bracke --------------------------------------------------------------------------------   Print   Martha Kantorowicz -------------------------------------------------------------------------------- Title   President & CEO --------------------------------------------------------------------------------   Title   Corporate Trust Officer --------------------------------------------------------------------------------   PUTNAM MANAGED MUNICIPAL INCOME TRUST       MINNESOTA TAX EXEMPT INCOME FUNDII Signature   /s/ BLAKE ANDERSON    --------------------------------------------------------------------------------   Signature   /s/ BLAKE ANDERSON    -------------------------------------------------------------------------------- Print   Blake Anderson --------------------------------------------------------------------------------   Print   Blake Anderson -------------------------------------------------------------------------------- Title   VP & MD --------------------------------------------------------------------------------   Title   VP & MD --------------------------------------------------------------------------------   PUTNAM MANAGED MUNICIPAL INCOME TRUST                 Signature   /s/ BLAKE ANDERSON    --------------------------------------------------------------------------------         Print   Blake Anderson --------------------------------------------------------------------------------         Title   VP & MD --------------------------------------------------------------------------------         -------------------------------------------------------------------------------- QUICKLINKS WAIVER AND AMENDMENT AGREEMENT

Exhibit 10.3 SECURITY AGREEMENT            THIS SECURITY AGREEMENT ("Agreement") is dated as of October 31, 2000 between RECOTON CANADA LTD., an Ontario corporation ("Debtor"), and HELLER FINANCIAL, INC., a Delaware corporation, in its capacity as Senior Agent, on behalf of Agents (as herein defined), Senior Lenders (as herein defined), Subordinated Agent (as herein defined) and Subordinated Creditors (as herein defined). W I  T  N E  S S E T H:           WHEREAS, Recoton Corporation, a New York corporation (“Recoton”), Interact Accessories, Inc., a Delaware corporation (“InterAct”), Recoton Audio Corporation, a Delaware corporation (“Audio”), AAMP of Florida, Inc., a Florida corporation (“AAMP”), and Recoton Home Audio, Inc., a California corporation (“RHAI”), (Recoton, InterAct, Audio, AAMP, and RHAI are sometimes referred individually as “Borrower” and collectively, as “Borrowers”), Guarantors, Agents and Senior Lenders are parties to a Loan Agreement dated as of October 31, 2000 (as the same may be amended, supplemented, restated or otherwise modified from time to time, the “Loan Agreement”), pursuant to which Senior Lenders have agreed to make loans and other financial accommodations available to Borrowers;           WHEREAS, Borrowers, The Chase Manhattan Bank as administrative agent (the “Subordinated Agent”) and Subordinated Creditors are concurrently herewith entering into that certain Credit Agreement (the “Subordinated Credit Agreement”) of even date herewith pursuant to which Subordinated Creditors shall extend financial accommodations to Borrowers;           WHEREAS, Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors and Loan Parties are parties to a Subordination and Intercreditor Agreement dated as of October 31, 2000 (as the same may be amended, supplemented, restated or otherwise modified from time to time, the “Subordination Agreement”) pursuant to which Subordinated Agent, Subordinated Creditors, and Senior Agent, on behalf of Agents and Senior Lenders and Borrowers have agreed on the relative rights and priorities of Agents, Senior Lenders, Subordinated Lenders and Subordinated Creditors under the Senior Debt Documents and the Subordinated Debt Documents (each as defined in the Subordination Agreement);           WHEREAS, as an inducement to Subordinated Creditors to enter into the Subordinated Credit Agreement and the Subordination Agreement Debtor shall have granted the security interests contemplated by this Agreement in order to secure the payment and performance of Debtor’s indebtedness and obligations under the Subordinated Debt Documents;           WHEREAS, Debtor has executed and delivered to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, the Guarantee, pursuant to which Debtor has agreed to guarantee for the benefit of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, the repayment and performance of all of the obligations of Borrowers under the Senior Debt Documents and Subordinated Debt Documents; and           WHEREAS, in order to secure the payment and performance of Debtor’s obligations under the Guarantee, Debtor has agreed to grant to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, the security interests contemplated by this Agreement;          NOW, THEREFORE, in consideration of the premises and in order to induce (i) Senior Lenders to make the loans and other financial accommodations available to Borrowers under the Loan Agreement, (ii) Subordinated Creditors to make the loans and other financial accommodations available to Borrowers under the Subordinated Credit Agreement, and (iii) Subordinated Creditors to enter into the Subordination Agreement, Debtor hereby agrees with Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, as follows: Section 1.    Definitions             1.1    Certain Defined Terms. The capitalized terms and the accounting terms used in this Agreement shall have the meanings set forth in Defined Terms of this Agreement. Capitalized terms not otherwise defined herein shall have the respective meanings provided for in the Subordination Agreement.           1.2     Other Definition Provisions. References to “Sections”, “subsections”, “Exhibits” and “Schedules” shall be to Sections, subsections, Exhibits and Schedules, respectively, of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Defined Terms may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. All references to statutes and related regulations shall include (unless otherwise specifically provided herein) any amendments of same and any successor statutes and regulations. Section 2.    Grant of Security Interests           To secure the payment and performance of the Secured Obligations, including all renewals, extensions, restructurings and refinancings of any or all of the Secured Obligations, Debtor hereby grants, conveys, assigns and pledges to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, a continuing security interest, lien and mortgage in and to all right, title and interest of Debtor’s personal property, whether tangible or intangible, and whether now owned or existing or hereafter acquired or arising and regardless of where located including, without limitation, (A) Accounts, and all guarantees and security therefor, and all goods and rights represented thereby or arising therefrom including the rights of stoppage in transit, replevin and reclamation; (B) Inventory; (C) General Intangibles; (D) Documents or other receipts covering, evidencing or representing goods; (E) Instruments; (F) chattel paper (as defined in the PPSA and the UCC); (G) Equipment; (H) owned and leased real property; (I) Investment Property including, without limitation, all securities (certificated and uncertificated), security accounts, security entitlements, commodity contracts and commodity accounts; (J) Intellectual Property, except that, with respect to Trade-marks, any such grant, conveyance, assignment and pledge shall be by way of security only (and except to the extent such grant would violate the terms of or constitute a default under any applicable licenses with non-Affiliates with respect to such Intellectual Property); (K) all deposit accounts of Debtor maintained with any bank or financial institution; (L) all cash and other monies and property of Debtor in the possession or under the control of Senior Agent, Collateral Agent, any Senior Lender or any participant, Subordinated Agent or any Subordinated Creditor; (M) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the property described above or are otherwise necessary or helpful in the collection thereof or realization thereon; and (N) Proceeds and products of all or any of the property described above, including, without limitation, the Proceeds of any insurance policies covering any of the above described property (all being collectively referred to as the “Collateral”).           Notwithstanding the foregoing, Collateral shall not include (a) the last day of the term of any lease (but upon the enforcement of Senior Agent’s rights hereunder, Senior Agent shall stand possessed of such last day in trust to assign the same to any person acquiring such term) or (b) any Consumer Goods (as such term is defined in the PPSA).           In addition, notwithstanding anything herein to the contrary, but without limiting the grant of a security interest pursuant to clause (I) above, in no event shall the Collateral include, and Debtor shall not be deemed to have granted, a security interest in any of Debtor’s rights or interests in any contract (other than with respect to all Accounts that may be or become payable or owing under or in respect of such contract) to which Debtor is a party (other than any such contract between or among Debtor and/or its Affiliates only) to the extent, but only to the extent, that such a grant would, under the terms of such contract, result in a breach of the terms of, or constitute a default under such contract (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-318(4) of the UCC or any similar provision of the PPSA or any other applicable law (including the Bankruptcy Code and any other Bankruptcy Laws) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such term, the Collateral shall include, and Debtor shall be deemed to have granted a security interest in, all such rights and interests as if such term had never been in effect.            Furthermore, Debtor shall use its best efforts not to enter into agreements which by their terms prohibit assignments or sub-licenses. Insofar as the terms of any agreement prohibits the assignment or sublicense of Debtor's rights under such contract, Debtor shall use its best efforts to obtain a consent to such assignment or sublicense from the other parties to such contract and if Debtor fails to obtain such consent, then Debtor shall hold all of its rights in or under such contract in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated and Subordinated Creditors. Section 3.    Security for Obligations           This Agreement secures the payment and performance of the Debtor’s indebtedness and obligations under the Guarantee and all indebtedness, liabilities and obligations of Debtor now existing or hereafter created or arising under this Agreement, all Subordinated Debt and all renewals, extensions, restructurings and refinancings of any of the above including, without limitation, any additional indebtedness which may be extended to Debtor pursuant to any restructuring or refinancing of Debtor’s indebtedness under the Loan Agreement, and including any post-petition interest accruing during any bankruptcy, reorganization or other similar proceeding, regardless of whether such amounts can be collected during the pendency of such proceedings (all such indebtedness, liabilities and obligations of Debtor being collectively referred to herein as the “Secured Obligations”). Section 4.    Debtor Remains Liable           Anything herein to the contrary notwithstanding: (a) Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (b) the exercise by Senior Agent of any of the rights hereunder shall not release Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral; and (c) none of Senior Agent, any Agent, any Senior Lender, Subordinated Agent or any Subordinated Creditor shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Senior Agent, any Agent, any Senior Lender, Subordinated Agent or any Subordinated Creditor be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 5.    Representations and Warranties           In order to induce Senior Agent to enter into this Agreement, Debtor represents and warrants to Senior Agent, to each Senior Lender and to Subordinated Agent and each Subordinated Creditor as follows:           5.1    Authorization; No Conflict. Debtor has the power and authority to incur the Secured Obligations and to grant security interests in the Collateral. On the Closing Date, the execution, delivery and performance of the Loan Documents and the Subordinated Debt Documents by Debtor will have been duly authorized by all necessary corporate and shareholder or equivalent action. The execution, delivery and performance by Debtor of each Loan Document Subordinated Debt Document to which it is a party and the consummation of the transactions contemplated by the Loan Documents and the Subordinated Debt Documents by Debtor (i) do not contravene any applicable law, the corporate charter or bylaws (or equivalent governing and organizational documents) of Debtor or any material agreement or any order by which Debtor or Debtor’s property is bound, (ii) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Debtor is a party or by which Debtor or any of its property is bound; (iii) do not result in the creation or imposition of any Lien upon any of the property of Debtor other than those in favour of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, pursuant to the Loan Documents; and (iv) do not require the consent or approval of any Governmental Authority or any other Person, except those which will have been duly obtained, made or complied with prior to the Closing Date. The Loan Documents and the Subordinated Debt Documents are the legally valid and binding obligations of Debtor each enforceable against Debtor in accordance with their respective terms. Debtor represents and warrants to Senior Agent that the execution, delivery and performance of this Agreement by Debtor will not violate or cause a default under any of the Intellectual Property or any agreement in connection therewith.           5.2    Binding Obligation. This Agreement is the legally valid and binding obligation of Debtor, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditor’s rights generally.           5.3    Account Warranties and Covenants. Except as otherwise disclosed to Senior Agent in writing, as to each Account that, at the time of its creation, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named account debtor for goods actually sold and delivered or for services completely rendered and such Account is not evidenced by a judgment, Instrument or chattel paper; there are no setoffs, offsets or counterclaims, genuine or otherwise, against the Account other than any credit balances in the ordinary course of business; the Account does not represent a sale to an Affiliate (other than for sales in the ordinary course of business to employees or directors in accordance with Section 7.8 of the Loan Agreement) or a consignment, sale or return or a bill and hold transaction; no agreement exists permitting any deduction or discount (other than the discount stated on the invoice) and deductions for allowances in accordance with market expansion agreements in the ordinary course of business; Debtor lawfully owns the Account and has the right to assign the same to Senior Agent, for the benefit of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors; the Account is free of all security interests, liens and encumbrances other than those in favour of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and the Account is due and payable in accordance with its terms and the amount of all Accounts set forth on any Collateral report or invoice delivered to Senior Agent are actually owing to Debtor and not contingent. No discounts, credits or allowances will be issued, granted or allowed by Debtor to customers and no returns will be accepted without Senior Agent’s prior written consent; provided, that until Senior Agent notifies Debtor to the contrary, Debtor may presume consent. No payment shall be made on any Account except payment immediately delivered to the applicable Blocked Account or to Senior Agent. Debtor will promptly notify Senior Agent in the event that a customer alleges any dispute or claim with respect to an Account or of any other circumstances known to Debtor that may impair the validity or collectibility of an Account (it is understood and agreed that notification by delivery of the Borrowing Base Certificate (as defined in the Loan Agreement) shall be considered delivery of “prompt” notice). Senior Agent shall have the right, at any time or times hereafter, to verify the validity, amount or any other matter relating to an Account, by mail, telephone or in person. After the occurrence of a Default or an Event of Default, Debtor shall not, without the prior consent of Senior Agent, adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any customer or obligor thereof, or allow any credit or discount thereon. Debtor shall, at its own expense: (a) cause all invoices evidencing Accounts and all copies thereof to bear a notice that such invoices are payable to the lockboxes established in accordance with Section Collection of Accounts and Payments. Debtor shall establish lockboxes and blocked accounts (collectively, “Blocked Accounts”) in Debtor’s name with such banks (“Collecting Banks”) as are reasonably acceptable to Senior Agent (subject to irrevocable instructions acceptable to Senior Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts and in which Debtor will immediately deposit all payments it otherwise directly receives for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or cheque. The Collecting Banks shall acknowledge and agree, pursuant to an agreement substantially in the form of Exhibit A and with such changes which shall be satisfactory to the Agents, that all payments made to the Blocked Accounts are the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to the Senior Agent’s Account. Debtor hereby agrees that all payments made to such Blocked Accounts or otherwise received by Senior Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Debtor shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into the Senior Agent’s Account. If Debtor, Loan Parties or any of their Affiliates, employees, agents or other Person acting for or in concert with Debtor, shall receive any monies, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, Debtor or such Person shall hold such instrument or funds in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Senior Agent at its address set forth in the Subordination Agreement. For the purpose of calculating interest on the Secured Obligations, all proceeds received in the Agent’s Account shall be credited to the Secured Obligations on the Business Day of Senior Agent’s receipt of immediately available federal funds. and (b) use its best efforts to assure prompt payment of all amounts due or to become due under the Accounts. Senior Agent may at any time after a Default or Event of Default shall have occurred and be continuing, without prior notice to Debtor, notify account debtors, parties to all contracts (as defined in the PPSA and UCC) and obligors in respect of instruments and chattel paper, that the Accounts and the right, title and interest of Debtor in and under such contracts, instruments and chattel paper have been assigned to Senior Agent, for the benefit of the Agents and Senior Lenders, Subordinated Agent and Subordinated Creditors, and that payments shall be made directly to Senior Agent, for the benefit of the Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Upon the request of Senior Agent, during the occurrence and continuation of an Event of Default, Debtor shall so notify account debtors, parties to such contracts and obligors in respect of instruments and chattel paper.           5.4     Names and Locations. Schedule I sets forth the location of Debtor’s principal place of business, domicile (as such term is defined in the Civil Code of Quebec) and chief executive office, the location of Debtor’s books and records, the location of all other offices of Debtor and all Collateral locations except for Inventory that is in transit, and such locations are Debtor’s sole locations for its business and the Collateral. None of said locations are leased by Debtor as lessee except those designated as such on Schedule I. Schedule III sets forth, as of the date hereof, all names, trade names, fictitious names and business names under which Debtor currently conducts business or has at any time during the past five years conducted business and the name of any entity which Debtor has acquired in whole or in part or from whom Debtor has acquired a significant amount of assets within the past five years.           5.5    Intellectual Property. Debtor owns or has the valid right to use all material Intellectual Property used or necessary for the conduct of the business, free and clear of any and all Liens except for Liens permitted under item (j) of Permitted Encumbrances. All registrations for such Intellectual Property are in full force and effect and are valid and enforceable. The conduct of the business of Debtor as currently conducted, including, but not limited to, all products, processes, or services, made offered or sold by Debtor, does not infringe upon, violate, misappropriate or dilute any Intellectual Property Rights of any third party, which infringement could reasonably be expected to have a Material Adverse Effect. To the best of Debtor’s knowledge, no third party is infringing upon the Intellectual Property owned or used by Debtor in any material respect. Except as set forth in Schedule IV, there is no pending or, to the best of Debtor’s knowledge, threatened claim or litigation contesting Debtor’s right to own or use any material Intellectual Property or the validity or enforceability thereof. Schedule IV sets forth a true and accurate list of (i) all Canadian, United States, provincial, state and foreign registrations of and applications for Patents, Trade-marks, Industrial Designs and Copyrights owned by Debtor and (ii) all Patent Licenses, Trade-mark Licenses, Industrial Design Licenses and Copyright Licenses to which Debtor is a party or is otherwise bound.           5.6    Bank Accounts. Schedule V sets forth the account numbers and locations of all bank accounts of Debtor and its Subsidiaries. Debtor shall not establish any new bank accounts (except for disbursement accounts), or amend or terminate any Blocked Account or lockbox agreement without Senior Agent’s prior written consent.           5.7    Collection of Accounts and Payments. Debtor shall establish lockboxes and blocked accounts (collectively, “Blocked Accounts”) in Debtor’s name with such banks (“Collecting Banks”) as are reasonably acceptable to Senior Agent (subject to irrevocable instructions acceptable to Senior Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts and in which Debtor will immediately deposit all payments it otherwise directly receives for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or cheque. The Collecting Banks shall acknowledge and agree, pursuant to an agreement substantially in the form of Exhibit A and with such changes which shall be satisfactory to the Agents, that all payments made to the Blocked Accounts are the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to the Senior Agent’s Account. Debtor hereby agrees that all payments made to such Blocked Accounts or otherwise received by Senior Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Debtor shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into the Senior Agent’s Account. If Debtor, Loan Parties or any of their Affiliates, employees, agents or other Person acting for or in concert with Debtor, shall receive any monies, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, Debtor or such Person shall hold such instrument or funds in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Senior Agent at its address set forth in the Subordination Agreement. For the purpose of calculating interest on the Secured Obligations, all proceeds received in the Agent’s Account shall be credited to the Secured Obligations on the Business Day of Senior Agent’s receipt of immediately available federal funds.           5.8    Location of Equipment, Inventory and Fixtures. All of the existing or hereafter acquired Equipment, Inventory and Fixtures are located and shall be located at the locations specified on Schedule I.           5.9     Ownership of Collateral; Bailees. Except for matters disclosed on Schedule II, other Permitted Encumbrances and the Security Interests, Debtor owns the Collateral, and will own all Collateral (including all after-acquired Collateral), free and clear of any Lien. No effective financing statement or other form of lien notice covering all or any part of the Collateral is on file in any recording office, except for (i) those in favour of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, (ii) those in favour of lenders whose liens and security interests will be terminated effective with the financing secured hereby and (iii) those disclosed on Schedule II. Except as disclosed on Schedule II, none of the Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor. Debtor does not sell any Inventory to any customer on approval or on any other basis which entitles the customer to return, or which may obligate Debtor to repurchase, such Inventory (provided, however, that Debtor is permitted to have stock balancing programs and consigned inventory programs).           5.10    Perfection. Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, has a valid, perfected and, except for the Permitted Encumbrances, first priority security interest in the Collateral (other than de minimis amounts outside Canada and the United States), securing the payment of the Secured Obligations, and such Security Interests are entitled to all of the rights, priorities and benefits afforded by the PPSA and the UCC or other applicable law as enacted in any relevant jurisdiction which relates to perfected security interests.           5.11    Inventory. All Inventory (other than Inventory which has been returned or quality controlled as defective) is of good and merchantable quality, free from any defects, such Inventory is not subject to any licensing, patent, trade-mark, trade name, industrial design or copyright agreement with any Person that restricts Debtor’s ability to manufacture and/or sell the Inventory (other than those which give any other party to such licensing, patent, trade-mark, trade name, industrial design or copyright agreement the right to terminate its obligations thereunder). The sale, completion and manufacturing process of such Inventory by a Person other than Debtor would be permitted under any contract to which Debtor is a party or to which the Inventory is subject.           5.12    Accurate Information. All information heretofore, herein or hereafter supplied to Senior Agent, Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors by or on behalf of Debtor with respect to the Collateral is and will be accurate and, taken in conjunction with other information supplied, complete in all material respects. Section 6.    Further Assurances; Covenants           6.1    Other Documents and Actions. Debtor will, from time to time, at its expense, promptly execute and deliver all further Instruments and Documents and take all further action that may be necessary or desirable, or that Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may request, in order to create, perfect and protect any security interests granted or purported to be granted hereby or pursuant to any other Loan Document or to enable Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to exercise and enforce its rights and remedies hereunder, or under any other Loan Document with respect to any Collateral. Without limiting the generality of the foregoing, Debtor will: (a) execute and file such financing or continuation statements, or financing change statements or amendments thereto, and such other Instruments, Documents or notices, as may be necessary or desirable, or as Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may request, in order to create, perfect and preserve the security interests granted or purported to be granted hereby or pursuant to any other Loan Document; (b) at any reasonable time (but in no event more than four times per calendar year unless an Event of Default has occurred and is continuing), upon demand by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, exhibit the Collateral to allow inspection of the Collateral by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, or Persons designated by Senior Agent and to examine and make copies of the records of Debtor related thereto, and to discuss the Collateral and the records of Debtor with respect thereto with, and to be advised as to the same by, an executive officer of Debtor and, after the occurrence and during the continuance of an Event of Default, in the case of the Accounts, Documents, General Intangibles, Instruments and Investment Property with any Person which is or may be obligated thereon; (c) upon request of Senior Agent appear in and defend any action or proceeding that may affect Debtor’s title to or security interest of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in the Collateral and (d) transfer Collateral to Senior Agent’s possession (for the benefit of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors) if such Collateral consists of chattel paper or Instruments or if a Lien on such Collateral can be perfected only by possession, or if requested by Senior Agent in writing. It is understood and agreed that in making such request, Administrative Agent shall take into account the effect the laws, rules and regulations of Canada and foreign countries may have on the granting of security, pledging of assets and entering into guaranties and that Administrative Agent shall not knowingly request any of the foregoing which would cause a Material Adverse Effect on the Loan Parties and their Subsidiaries.           6.2     Senior Agent Authorized. Debtor hereby authorizes Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to file one or more financing or continuation statements, and financing change statements and amendments thereto (or similar Documents required by any laws of any applicable jurisdiction), relating to all or any part of the Collateral without the signature of Debtor where permitted by law.           6.3     Corporate or Name or Location Changes. Debtor will give Senior Agent at least thirty (30) days (or such shorter notice period as is acceptable to the Senior Agent) advance written notice of: (a) any change of name or of any new trade name or fictitious business name, (b) change of principal place of business, (c) any change in the chief executive office or domicile (as such term is defined in the Civil Code of Quebec) or in the location or new location of Debtor’s books and records or (d) any new location for Debtor’s Collateral. With respect to any such change, Debtor will promptly execute and deliver such Documents and take such actions as Senior Agent deems necessary or desirable to create, perfect and preserve the security interests of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in the Collateral.           6.4    [Reserved.]           6.5    Bailees. No Collateral, or negotiable bills of lading, shall at any time be in the possession or control of any warehouseman, bailee, freight forwarder, packager, customs agent or any of Debtor’s agents or processors without prior written consent of Senior Agent and unless Senior Agent, if Senior Agent has so requested, has received warehouse receipts or bailee lien waivers satisfactory to Senior Agent, prior to the commencement of such storage. Debtor shall, upon the request of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, notify any such warehouseman, bailee, freight forwarder, packager, agent or processor of the Security Interests created hereby and shall instruct such Person to hold all such Collateral for account of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, subject to instructions of Senior Agent.           6.6    Instruments and Chattel Paper. Debtor will deliver and pledge, and cause its account debtors to deliver, to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, all Instruments duly endorsed and accompanied by duly executed Instruments of transfer or assignment, all in form and substance satisfactory to Senior Agent. Debtor will also deliver to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, all security agreements securing any Instruments and execute PPSA and UCC-3 financing statements assigning to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, any PPSA or UCC financing statements filed by Debtor in connection with such security agreements. Debtor will mark conspicuously all chattel paper with a legend, in form and substance satisfactory to Senior Agent, indicating that such chattel paper is subject to the Security Interests. If applicable, Debtor shall take all steps necessary to grant the Senior Agent control of all electronic chattel paper in accordance with the UCC as revised effective July 1, 2001.           6.7     Filing Requirements. None of the Equipment (other than motor vehicles not having a book value in excess of $100,000 in the aggregate) is covered by any certificate of title. Upon request of Senior Agent, Debtor shall promptly deliver to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, any and all certificates of title, applications for title or similar evidence of ownership of all Equipment and shall cause Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to be named as lienholder on any such certificate of title or other evidence of ownership. None of the Collateral is of a type in which security interests or Liens may be registered, recorded or filed under, or notice thereof given under, any provincial or federal statute or regulation except for Collateral described in Schedule IV hereof. Debtor shall promptly notify Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in writing upon acquiring any material interest hereafter in Collateral that is of a type where a security interest or lien may be registered, recorded of filed under, or notice thereof given under, any federal statute or regulation. Debtor shall promptly inform Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, of any additions to or deletions (other than Asset Dispositions permitted by and as defined in the Loan Agreement) from the Equipment and shall not permit any such items to become Fixtures to real estate other than real estate subject to mortgages or deeds of trust in favour of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. The legal description and street address of the property on which any Fixtures are located is set forth on Schedule I, together with the name and common address of the record owner of each such property.           6.8    Investment Property Covenants. Subject to the provisions of Grant of Security Interests and Other Documents and Actions. Debtor will, from time to time, at its expense, promptly execute and deliver all further Instruments and Documents and take all further action that may be necessary or desirable, or that Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may request, in order to create, perfect and protect any security interests granted or purported to be granted hereby or pursuant to any other Loan Document or to enable Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to exercise and enforce its rights and remedies hereunder, or under any other Loan Document with respect to any Collateral. Without limiting the generality of the foregoing, Debtor will: (a) execute and file such financing or continuation statements, or financing change statements or amendments thereto, and such other Instruments, Documents or notices, as may be necessary or desirable, or as Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may request, in order to create, perfect and preserve the security interests granted or purported to be granted hereby or pursuant to any other Loan Document; (b) at any reasonable time (but in no event more than four times per calendar year unless an Event of Default has occurred and is continuing), upon demand by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, exhibit the Collateral to allow inspection of the Collateral by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, or Persons designated by Senior Agent and to examine and make copies of the records of Debtor related thereto, and to discuss the Collateral and the records of Debtor with respect thereto with, and to be advised as to the same by, an executive officer of Debtor and, after the occurrence and during the continuance of an Event of Default, in the case of the Accounts, Documents, General Intangibles, Instruments and Investment Property with any Person which is or may be obligated thereon; (c) upon request of Senior Agent appear in and defend any action or proceeding that may affect Debtor’s title to or security interest of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in the Collateral and (d) transfer Collateral to Senior Agent’s possession (for the benefit of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors) if such Collateral consists of chattel paper or Instruments or if a Lien on such Collateral can be perfected only by possession, or if requested by Senior Agent in writing. It is understood and agreed that in making such request, Administrative Agent shall take into account the effect the laws, rules and regulations of Canada and foreign countries may have on the granting of security, pledging of assets and entering into guaranties and that Administrative Agent shall not knowingly request any of the foregoing which would cause a Material Adverse Effect on the Loan Parties and their Subsidiaries., Debtor will take any and all actions required or requested by Senior Agent, from time to time, to (a) cause Senior Agent to obtain exclusive Control of any Investment Property owned by Debtor in a manner satisfactory to Senior Agent, and (b) obtain from any issuers of Investment Property and such other Persons, for the benefit of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, written confirmation of Senior Agent’s Control on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, over such Investment Property. For purposes of this subsection, Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, shall have exclusive Control of Investment Property if (i) such Investment Property consists of certificated securities and Debtor delivers such certificated securities to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors (with appropriate endorsements if such certificated securities are in registered form); (ii) such Investment Property consists of uncertificated securities and either (x) Debtor delivers such uncertificated securities to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, or (y) the issuer thereof agrees, pursuant to documentation in form and substance satisfactory to Senior Agent, that it will comply with instructions originated by Senior Agent, without further consent by Debtor; and (iii) such Investment Property consists of security entitlements and either (x) Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, becomes the entitlement holder thereof or (y) the appropriate securities intermediary agrees, pursuant to documentation in form and substance satisfactory to Senior Agent, that it will comply with entitlement orders originated by Senior Agent without further consent by Debtor.           6.9     Account Covenants. Except as otherwise provided in this subsection, Debtor shall continue to collect, at its own expense, all amounts due or to become due Debtor under the Accounts and apply such amounts as are so collected to the outstanding balances thereof. In connection with such collections, Debtor may take (and, at the direction of Senior Agent shall take during the occurrence and continuance of an Event of Default) such action Debtor or Senior Agent may deem necessary or advisable to enforce collection of the Accounts; provided that Senior Agent shall have the right at any time after the occurrence and during the continuance of an Event of Default to: (a) notify the customers or obligors under any Accounts of the assignment of such Accounts to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and to direct such customers or obligors to make payment of all amounts due or to become due directly to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors; (b) enforce collection, in each case in accordance with the terms of this Agreement, of any such Accounts; and (c) adjust, settle or compromise the amount or payment of such Accounts. After the occurrence and during the continuance of an Event of Default (i) all amounts and Proceeds received by Debtor with respect to the Accounts shall be received in trust for the benefit of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, shall be segregated from other funds of Debtor and shall be forthwith paid over to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in the same form as so received (with any necessary endorsement) to be held in the Depository Account pursuant to Section Collection of Accounts and Payments. Debtor shall establish lockboxes and blocked accounts (collectively, “Blocked Accounts”) in Debtor’s name with such banks (“Collecting Banks”) as are reasonably acceptable to Senior Agent (subject to irrevocable instructions acceptable to Senior Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts and in which Debtor will immediately deposit all payments it otherwise directly receives for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or cheque. The Collecting Banks shall acknowledge and agree, pursuant to an agreement substantially in the form of Exhibit A and with such changes which shall be satisfactory to the Agents, that all payments made to the Blocked Accounts are the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to the Senior Agent’s Account. Debtor hereby agrees that all payments made to such Blocked Accounts or otherwise received by Senior Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Debtor shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into the Senior Agent’s Account. If Debtor, Loan Parties or any of their Affiliates, employees, agents or other Person acting for or in concert with Debtor, shall receive any monies, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, Debtor or such Person shall hold such instrument or funds in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Senior Agent at its address set forth in the Subordination Agreement. For the purpose of calculating interest on the Secured Obligations, all proceeds received in the Agent’s Account shall be credited to the Secured Obligations on the Business Day of Senior Agent’s receipt of immediately available federal funds. or applied pursuant to Application of Proceeds. During the occurrence and continuance of an Event of Default, Debtor shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any customer or obligor thereof, or allow any credit or discount thereon (other than credits and discounts in the ordinary course of business and in amounts which are not material to Debtor) without the prior written consent of Senior Agent.           6.10    Intellectual Property Covenants.   (i) Affirmative Covenants (a) Debtor shall concurrently herewith deliver to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, all Documents, Instruments and other items as may be necessary for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to file such agreements with the Canadian Intellectual Property Office, the U.S. Copyright Office and the U.S. Patent and Trademark Office, as applicable. (b) Debtor shall, within thirty (30) days of the creation or acquisition of any work susceptible of copyright protection which is material to the business of Debtor, apply to register the Copyright in the Canadian Intellectual Property Office or the United States Copyright Office, as applicable. (c) Debtor shall promptly notify Senior Agent if it knows or has reason to know that any item of the Intellectual Property that is material to the business of Debtor may become (a) abandoned or dedicated to the public or placed in the public domain other than through normal expiration of rights with respect to Patents, (b) invalid or unenforceable, or (c) subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the Canadian Intellectual Property Office, the United States Patent and Trademark Office, the United States Copyright Office, any provincial or state registry, any foreign counterpart of the foregoing, or any court. (d) Debtor shall take all commercially reasonable steps in the Canadian Intellectual Property Office, the United States Patent and Trademark Office, the United States Copyright Office, any provincial or state registry or any foreign counterpart of the foregoing, to pursue each application and maintain each registration of each Trade-mark, Patent, Industrial Design and Copyright owned by Debtor and material to its business which is now or shall become included in the Intellectual Property pledged to the Senior Agent hereunder including, but not limited to, those items on Schedule IV. (e) In the event that any Intellectual Property owned by or exclusively licensed to Debtor which is material to its business is infringed, misappropriated, or diluted by a third party, Debtor shall promptly take all reasonable actions to stop such infringement, misappropriation, or dilution and protect its exclusive rights in such Intellectual Property including, but not limited to, the initiation of a suit for injunctive relief and to recover damages. Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to exercise its remedies with respect to the Intellectual Property. (f) Debtor shall within thirty (30) days after the end of each calendar quarter report to Senior Agent (i) the filing of any application to register any Intellectual Property with the Canadian Intellectual Property Office, the United States Patent and Trademark Office, the United States Copyright Office, or any provincial or state registry or foreign counterpart of the foregoing (whether such application is filed by Debtor or through any agent, employee, licensee, or designee thereof) and (ii) the registration of any Intellectual Property by any such office. Debtor on a quarterly basis shall amend the schedules to the respective security agreements to include any such new Patents, Trade-marks, Industrial Designs or federally registered Copyrights and indicate therein if any have expired. Debtor hereby authorizes Senior Agent to modify this Agreement by amending Schedule IV and will otherwise cooperate with Senior Agent in effecting any such amendment to include any item Intellectual Property which shall become part of the Intellectual Property pledged to Senior Agent hereunder after the date hereof. (g) Debtor shall, promptly upon the reasonable request of Senior Agent, execute and deliver to Senior Agent any document required to acknowledge, confirm, register, record, or perfect Senior Agent's interest in any part of the Intellectual Property, whether now owned or hereafter acquired. (ii) Negative Covenants (a) Debtor shall not do or omit to do any act whereby any of the Intellectual Property which is material to the business of Debtor may lapse prior to its scheduled termination (to the extent that the Intellectual Property has a scheduled termination date), or become abandoned, dedicated to the public, or unenforceable, or which would adversely affect the validity, grant, or enforceability of the security interest granted in any Intellectual Property. (b) Debtor shall not, with respect to any Trade-marks which are material to the business of Debtor, cease the use of any of such Trade-marks or fail to maintain the level of the quality of products sold and services rendered under any of such Trade-mark at a level at least substantially consistent with the quality of such products and services as of the date hereof, and Debtor shall take all steps necessary to insure that licensees of such Trade-marks use such consistent standards of quality. (c) Except with the prior consent of Senior Agent or as permitted under this Agreement, Debtor will not execute, and there will not be on file in any public office, any financing statement or other document or instruments with respect to Intellectual Property pledged to Senior Agent hereunder, except financing statements or other documents or instruments filed or to be filed in favour of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and Debtor will not sell, assign, transfer, license, grant any option, or create or suffer to exist any Lien upon or with respect to such Intellectual Property, except for the Lien created by and under this Agreement.           6.11    Equipment Covenants. Debtor shall cause the Equipment to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with any manufacturer’s manual, and shall promptly make or cause to be made all repairs, replacements, and other improvements in connection therewith that are commercially reasonable and necessary or desirable to such end.           6.12    Protection of Collateral; Insurance. Debtor will do nothing to impair the rights of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, in the Collateral. Debtor shall at all times maintain insurance with respect to the Collateral in compliance with the requirements of the Loan Agreement. Debtor assumes all liability and responsibility in connection with the Collateral acquired by it, and the liability of Debtor to pay the Secured Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, stolen, damaged, or for any reason whatsoever unavailable to Debtor.           6.13     Taxes and Claims. Debtor will pay when due all property and other taxes, assessments and governmental charges imposed upon, and all claims against, the Collateral (including claims for labour, materials and supplies); provided that no such tax, assessment or charge need be paid if Debtor is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if Debtor has established such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP; and provided further that the same can be contested without risk of loss or forfeiture or material impairment of the Collateral or the use thereof.           6.14    Collateral Description. Debtor will furnish to Senior Agent from time to time upon request, statements and schedules further identifying and describing the Collateral and such other information, reports and evidence concerning the Collateral (and in particular the Accounts) as Senior Agent may reasonably request, all in reasonable detail.           6.15     Use of Collateral. Debtor will not use or permit any Collateral to be used in violation of any policy of insurance covering the Collateral or any provision of applicable laws, rules, regulations and orders of any Governmental Authority as now in effect and which may be imposed in the future in all jurisdictions in which Debtor or any of its Subsidiaries is now doing business or may hereafter be doing business, other than those laws the non-compliance with which could not reasonably be expected to have a Material Adverse Effect.           6.16     Records of Collateral. Debtor shall keep full and accurate books and records relating to the Collateral. Upon the reasonable request of Administrative Agent, Debtor shall mark such negotiable instruments, invoices and other instruments or documents relating to the Collateral, to indicate Administrative Agent’s security interests in the Collateral, for the benefit of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors.           6.17     Federal Claims. Debtor shall notify Senior Agent of any Collateral which constitutes a claim against the Canadian government or the United States government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal law. Upon the request of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, Debtor shall take such steps as may be necessary to comply with any applicable federal assignment of claims laws and other comparable laws. Section 7.    Senior Agent, on behalf of Agents, Senior Lenders and Subordinated Creditors, Appointed Attorney-in-Fact           Debtor hereby irrevocably appoints Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, as Debtor’s attorney-in-fact, with full authority in the place and stead of Debtor and in the name of Debtor, Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, or otherwise, from time to time while an Event of Default is continuing (except that the Administrative Agent shall at all times be able to file under the PPSA and Uniform Commercial Code financing statements in the name of Debtor, and record in any intellectual property registry, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of Debtor as assignor), in the sole discretion of Senior Agent to take any action and to execute any instrument that Senior Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to obtain and adjust insurance required to be paid to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors; (b) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) to receive, endorse, and collect any drafts or other Instruments, Documents and chattel paper, in connection with clauses 0 and 0 above; (d) to file any claims or take any action or institute any proceedings that Senior Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, with respect to any of the Collateral; (e) to pay or discharge taxes or Liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Senior Agent in its sole discretion, and such payments made by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, to become obligations of Debtor to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, due and payable immediately without demand; (f) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, assignments, verifications and notices in connection with Accounts and other Documents relating to the Collateral; (g) to make, endorse, sign, declare or swear to any entry, withdrawal, declaration, certificate, bill of lading, carnet or other document required by law or regulation in connection with the importation, transportation or exportation of any merchandise shipped or consigned by or to Debtor; to perform any act or condition which may be required by law or regulation in connection with such merchandise; and to receive any merchandise deliverable to Debtor; (h) to make endorsements on bills of lading conferring authority to transfer title, make entry or collect drawback and to make, sign, declare or swear to any statement, supplemental statement, schedule, supplemental schedule, certificate of delivery, certificate of manufacture, certificate of manufacture and delivery, abstract of manufacturing records, declaration of proprietor on drawback entry, declaration of exporter on drawback entry or any other affidavit or document which may be required by law or regulation for drawback purposes, regardless of whether such bill of lading, sworn statement, schedule, certificate, abstract, declaration, or other affidavit or document is intended for filing in any customs district;. (i) to sign, seal and deliver for and as the act of Debtor any bond required by law or regulation in connection with the entry or withdrawal of imported merchandise or merchandise exported with or without benefit of drawback or in connection with the entry, clearance, lading, unlading or navigation of any vessel or other means of conveyance owned or operated by Debtor and any and all bonds which may be voluntarily given and accepted under applicable laws and regulations, consignee's and owner's declarations or affidavits in connection with the entry of merchandise; (j) to authorize customs brokers to act as Debtor's agent; to receive, endorse and collect cheques issued for Canada Customs or U.S. Customs duty refunds in Debtor's name drawn on the Treasurer of the United States or Canada to accept service of process on behalf of Debtor; (k) generally to transact at the customhouses in any district any and all customs business, including making, signing and filing of protests in which Senior Agent is or may be concerned or interested and which may properly be transacted or performed by an agent and attorney, giving to said agent and attorney full power and authority to do anything whatever requisite and necessary to be done in the premises as fully as Senior Agent could do if present and acting, hereby ratifying and confirming all that the said agent and attorney shall lawfully do by virtue of these presents; and (l) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, were the absolute owner thereof for all purposes, and to do, at option of Senior Agent, and at Debtor's expense, at any time or from time to time, all acts and things that Senior Agent deems necessary to protect, preserve or realize upon the Collateral. This power, being coupled with an interest, is irrevocable so long as this Agreement shall remain in force. Debtor hereby ratifies and approves all acts of Senior Agent, made or taken pursuant to this Senior Agent, on behalf of Agents, Senior Lenders and Subordinated Creditors, Appointed Attorney-in-Fact. None of Senior Agent, any Agent, Senior Lender, Subordinated Agent, Subordinated Creditor or any Person designated by Senior Agent or any of their respective Affiliates, officers, directors, employees, agents or representatives, shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law under any power of attorney or otherwise, except for its gross negligence and willful misconduct. Section 8.   Transfers and Other Liens            Except as otherwise permitted herein or by the Loan Agreement, Debtor shall not: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral; or (b) create or suffer to exist any Lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral to secure indebtedness of any Person except for the security interest created by this Agreement. Section 9.    Remedies (a) If any Event of Default shall have occurred and be continuing, Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the PPSA and the UCC (whether or not the PPSA or the UCC applies to the affected Collateral) and also may: (i) require Debtor to, and Debtor hereby agrees that it will, at its expense and upon request of Senior Agent, forthwith, assemble all or part of the Collateral as directed by Senior Agent, and make it available to Senior Agent at any reasonable place or places designated by Senior Agent in which event Debtor shall at its own expense (A) forthwith cause the same to be moved to the place or places so designated by Senior Agent and thereby delivered to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, (B) store and keep any Collateral so delivered to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, at such place or places pending further action by Senior Agent, and (C) while Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain the Collateral in good condition; (ii) withdraw all cash in the Depository Accounts and apply such monies in payment of the Secured Obligations; and (iii) without notice except as specified below, sell, lease or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, and without the necessity of gathering at the place of sale of the property to be sold, at any of the offices of Senior Agent, or elsewhere, at such time or times, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Senior Agent may deem commercially reasonable. Debtor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Collateral, if permitted by law, Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Collateral or any portion thereof for the account of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Senior Agent, may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law, Debtor hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter enacted. (b) Upon the occurrence and during the continuance of an Event of Default, Senior Agent, or its agents or legal counsel or shall have the right without notice or demand or legal process (unless the same shall be required by applicable law), personally, or by agents or legal counsel, (i) subject to the terms of any Collateral Access Agreement, to enter upon, occupy and use any premises owned or leased by Debtor or where the Collateral is located (or is believed to be located) until the Secured Obligations are paid in full without any obligation to pay rent to Debtor, to render the Collateral useable or saleable and to remove the Collateral or any part thereof therefrom to the premises of Senior Agent, or any agent of Senior Agent, for such time as Senior Agent, may desire in order to effectively collect or liquidate the Collateral and use in connection with such removal any and all services, supplies and other facilities of Debtor; (ii) to take possession of Debtor's original books and records, to obtain access to Debtor's data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Senior Agent, deems appropriate; and (iii) to notify postal authorities to change the address for delivery of Debtor's mail to an address designated by Senior Agent, and to receive, open and dispose of all mail addressed to Debtor. (c) Senior Agent may appoint, remove and reappoint any person or persons, including an employee or agent of Senior Agent, to be a receiver (the "Receiver") which term shall include an interim receiver and a receiver and manager of, or agent for, all or any part of the Collateral. Any such Receiver shall, as far as concerns responsibility for his acts, be deemed to be the agent of Debtor and not of Senior Agent, Agents, Senior Lenders or Subordinated Creditors, and none of Senior Agent, Agents, Senior Lenders or Subordinated Creditors shall in any way be responsible for any misconduct, negligence or non-feasance of such Receiver, its employees or agents. Except as otherwise directed by Senior Agent, all money received by such Receiver shall be received in trust for and paid to Senior Agent on behalf of Agents, Senior Lenders or Subordinated Creditors. Such Receiver shall have all of the powers and rights of Senior Agent described in this Remedies. Senior Agent may, either directly or through its agents or nominees, exercise any or all powers and rights of a Receiver. (d) Debtor shall pay all costs, charges and expenses incurred by Senior Agent, Agents, Senior Lenders, Subordinated Creditors or any Receiver or any nominee or agent of Senior Agent, whether directly or for services rendered (including, without limitation, solicitor's costs on a solicitor and his own client basis, auditor's costs, other legal expenses and Receiver remuneration) in enforcing this Agreement or any other Loan Document and in enforcing or the Secured Obligations and all such expenses together with any money owing as a result of any borrowing permitted hereby shall be a charge on the proceeds of realization and shall be secured hereby. (e) Debtor acknowledges and agrees that a breach of any of the covenants contained in Representations and Warranties, Further Assurances; Covenants, Senior Agent, on behalf of Agents, Senior Lenders and Subordinated Creditors, Appointed Attorney-in-Fact and Transfers and Other Liens hereof will cause irreparable injury to Senior Agent, and that Senior Agent has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of Senior Agent to seek and obtain specific performance of other obligations of Debtor contained in this Agreement, that the covenants of Debtor contained in the Sections referred to in this Section shall be specifically enforceable against Debtor. Section 10.    Assignment of Intellectual Property           To the extent that Intellectual Property is assignable, Debtor hereby assigns, transfers and conveys to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, effective upon the occurrence of any Event of Default, all Intellectual Property (with the exception of Trade-marks) owned or used by Debtor to the extent necessary to enable Senior Agent to realize on the Collateral and any successor or assign to enjoy the benefits of the Collateral. This right and assignment shall inure to the benefit of Senior Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and assignment is granted free of charge, without requirement that any monetary payment whatsoever including, without limitation, any royalty or license fee, be made to Debtor or any other Person by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, or by any Lender. Section 11.    License of Intellectual Property           To the extent that Intellectual Property of Debtor may be licensed or sublicensed, Debtor hereby grants and conveys to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, effective upon the occurrence of any Event of Default, an irrevocable non-exclusive royalty-free, worldwide right and license to use all Intellectual Property owned or used by Debtor to the extent necessary to enable Senior Agent to exercise its rights and remedies under this License of Intellectual Property. and to realize on the Collateral and for any successor or assign to enjoy the benefits of the Collateral subject, in the case of Trade-marks, to sufficient rights of the quality control and inspection in favour of the owner of such Trade-mark as is reasonably necessary to avoid the risk of invalidation of such Trade-marks). This right and license shall inure to the benefit of all successors, assigns and transferees of Senior Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Section 12.    Assigned Agreements           If an Event of Default has occurred and is continuing, Debtor hereby irrevocably authorizes and empowers Senior Agent, without limiting any other authorizations or empowerments contained in any of the other Loan Documents, to assert, either directly or on behalf of Debtor, any claims Debtor may have, from time to time, against any other party to any of the agreements to which Debtor is a party or to otherwise exercise any right or remedy of Debtor under any such agreements (including, without limitation, the right to enforce directly against any party to any such agreement all of Debtor’s rights thereunder, to make all demands and give all notices and to make all requests required or permitted to be made by Debtor thereunder). Section 13.    Limitation on Duty of Senior Agent with Respect to Collateral           Beyond the safe custody thereof, Senior Agent shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. Senior Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property. Senior Agent shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Senior Agent in good faith. Notwithstanding anything herein to the contrary, the Debtor shall have no indemnity obligations with respect to any actions taken by the Senior Agent, the Senior Lenders and the Subordinated Creditors which constitute gross negligence or willful misconduct. Section 14.    Application of Proceeds           Upon the occurrence and during the continuance of an Event of Default and in the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain) of all or any part of the Collateral, the Proceeds resulting therefrom (including insurance proceeds) and any cash held in the Depository Accounts shall be promptly applied in accordance with the terms of the Subordination Agreement. Section 15.    Expenses           Debtor shall pay all costs, fees and expenses of protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the Collateral, all costs, fees and expenses of creating, perfecting, maintaining and enforcing the Security Interests, and any and all excise, property, sales and use taxes imposed by any federal, provincial, state, local or foreign authority on any of the Collateral, or with respect to periodic appraisals and inspections of the Collateral, or with respect to the sale or other disposition thereof. If Debtor fails to promptly pay any portion of the above costs, fees and expenses when due or to perform any other obligation of Debtor under this Agreement, Senior Agents and Senior Lenders, at their option may, but shall not be required to, pay or perform the same and charge Debtor’s account for all fees, costs and expenses incurred therefor, and Debtor agree to reimburse Senior Agent, or such Senior Lender or Subordinated Agent therefor on demand. All sums so paid or incurred by Senior Agent, or any other Senior Lender or Subordinated Agent for any of the foregoing, any and all other sums for which Debtor may become liable hereunder and all fees, costs and expenses (including reasonable legal fees, legal expenses and court costs) incurred by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors or by any other Senior Lender or Subordinated Creditor in enforcing or protecting the Security Interests or any of their rights or remedies under this Agreement shall be payable on demand, shall constitute Secured Obligations, shall bear interest until paid at the highest rate provided in the Loan Agreement and shall be secured by the Collateral. Section 16.    Termination of Security Interests; Release of Collateral           Upon the indefeasible payment in full in cash of all Secured Obligations (other than unasserted indemnity claims) and the termination of all Commitments under and as defined in the Loan Agreement and all Lender Letters of Credit and risk participation agreements under the Loan Agreement, the Security Interests shall terminate and all rights to the Collateral shall revert to Debtor. Upon such termination of the Security Interests or release of any Collateral, Senior Agent will, at the expense of Debtor, execute and deliver to Debtor such Documents as Debtor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. Section 17.    Notices           Unless otherwise specifically provided herein, any notice delivered under this Agreement shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or certified or registered Canadian or U.S. mail and shall be deemed to have been given (a) if delivered in person, when delivered; (b) if delivered by telecopy, on the date of transmission if transmitted on a Business Day before 4:00 p.m. (Toronto time) or, if not, on the next succeeding business day; (c) if delivered by overnight courier, one business day after delivery to such courier properly addressed; or (d) if by Canadian or U.S. mail, four business days after deposit in the Canadian or U.S. mail, postage prepaid and properly addressed.            Notices shall be addressed as follows:   If to Debtor: c/o Recoton Corporation 2950 Lake Emma Road Lake Mary, FL 32746 Attn.: Arnold Kezsbom Telecopy No.: (407) 333-8903 With a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, NY 10038 Attn.: Theodore S. Lynn Telecopy No.: (212) 806-6006            If to Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors:   Heller Financial, Inc. 500 West Monroe Street Chicago, Illinois 60661 Attention: Account Manager - [Recoton      Corporation] Corporate Finance Telecopy: (312) 441-7367 With a copy to: Heller Financial, Inc. 500 West Monroe Street Chicago, Illinois 60661 Attention: Legal Services Corporate Finance Telecopy: (312) 441-6876 -and to-   The Chase Manhattan Bank 380 Madison Avenue, 9th Fl. New York, NY 10017 Attention: Roger Odell Telecopy: (212) 622-4834 or in any case, to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Notices. Section 18.    Successors and Assigns           This Agreement is for the benefit of Senior Agent, and for the benefit of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors and their respective successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the Secured Obligations so assigned, may be transferred with such Secured Obligations. This Agreement shall be binding on Debtor and its successors and assigns; provided that Debtor may not delegate its obligations under this Agreement without prior written consent of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. It is understood and agreed that Section 21 of the Subordination Agreement is, mutatis mutandis, incorporated here by reference. Section 19.    Changes in Writing           No amendment, modification, termination or waiver of any provision of this Agreement shall be effective unless the same shall be in writing signed by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors or as otherwise permitted by the Loan Agreement. Section 20.    Applicable Law           THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE PROVINCE OF ONTARIO AND THE LAWS OF CANADA APPLICABLE THEREIN. Section 21.    CONSENT TO JURISDICTION.           DEBTOR HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE ONTARIO SUPERIOR COURT OF JUSTICE AND IRREVOCABLY AGREES THAT, SUBJECT TO SENIOR AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURT. DEBTOR EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURT AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON DEBTOR BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO DEBTOR, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE 10 DAYS AFTER THE SAME HAS BEEN POSTED. IN ANY LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF DEBTOR OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF DEBTOR FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). DEBTOR AGREES THAT ANY AGENT’S, SENIOR LENDER’S, SUBORDINATED AGENT’S OR SUBORDINATED CREDITOR’S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. DEBTOR IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY ANY AGENT, SENIOR LENDER, SUBORDINATED AGENT OR SUBORDINATED CREDITOR, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE. Section 22.    WAIVER OF JURY TRIAL.           EACH OF DEBTOR, SENIOR AGENT, SENIOR LENDERS, SUBORDINATED AGENT AND SUBORDINATED CREDITORS HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. EACH OF DEBTOR, SENIOR AGENT, SENIOR LENDERS, SUBORDINATED AGENT AND SUBORDINATED CREDITORS ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF DEBTOR, SENIOR AGENT, SENIOR LENDERS, SUBORDINATED AGENT AND SUBORDINATED CREDITORS WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. Section 23.    Failure or Indulgence Not Waiver; Remedies Cumulative           No failure or delay on the part of Senior Agent, or any Senior Lender or Subordinated Creditor in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 24.    Headings           Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Section 25.    Counterparts           This Agreement may be executed by facsimile transmission and 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. Section 26.    Survival           All representations and warranties of Debtor contained in this Agreement shall survive the execution and delivery of this Agreement. Section 27.    Amendment of Schedules           Debtor may amend any one or more of the Schedules referred to in this Agreement (subject to prior notice to Administrative Agent, as applicable) and any representation, warranty, or covenant contained herein which refers to any such Schedule shall from and after the date of any such amendment refer to such Schedule as so amended; provided however, that in no event shall the amendment of any such Schedule constitute a waiver by Administrative Agent and Lenders of any existing Default or Event of Default that exists notwithstanding the amendment of such Schedule. Section 28.    Events of Defaults           So long as the obligations under the Loan Agreement have not been indefeasibly paid in full in cash, the term Default and Event of Default shall have the meaning assigned to such term in the Loan Agreement. After the indefeasible payment in full in cash of the obligations under the Loan Agreement, the term Default and Event of Default shall have the meaning assigned to such term in the Subordinated Credit Agreement. Section 29.    Judgment Currency           To the extent permitted by applicable law, the obligations of Debtor in respect of any amount due under this Agreement shall, notwithstanding any payment in any other currency (the “Other Currency”) (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the currency in which it is due (the “Agreed Currency”) that a Senior Lender or Subordinated Creditor may, in accordance with normal banking procedures, purchase with the sum paid in the Other Currency (after any premium and costs of exchange) on the Business Day immediately after the day on which such Senior Lender or Subordinated Creditor receives the payment. If the amount in the Agreed Currency that may be so purchased for any reason falls short of the amount originally due, Debtor shall pay all additional amounts, in the Agreed Currency, as may be necessary to compensate for the shortfall. Any obligation of Debtor not discharged by that payment shall, to the extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided in this Section, continue in full force and effect. Section 30.    Amalgamation           Debtor acknowledges and agrees that, notwithstanding any provision of this Agreement, in the event it amalgamates with any other company or companies it is the intention of the parties hereto that the term “Debtor” when used herein shall apply to each of the amalgamating companies and to the amalgamated company, such that the security interest granted hereby: (a) shall extend to "Collateral" (as that term is herein defined) owned by each of the amalgamating companies and the amalgamated company at the time of amalgamation and to any "Collateral" thereafter owned or acquired by the amalgamated company, and (b) shall secure the "Secured Obligations" (as that term is herein defined) of each of the amalgamating companies and the amalgamated company to Senior Agent at the time of amalgamation and any "Secured Obligations" of the amalgamated company to Senior Agent thereafter arising. The Security Interests shall attach to "Collateral" owned by each company amalgamating with Debtor, and by the amalgamated company, at the time of the amalgamation, and shall attach to any "Collateral" thereafter owned or acquired by the amalgamated company when such becomes owned or is acquired. Section 31.    Attachment and Acknowledgment           The Security Interests created hereby are intended to attach when this Agreement is executed by Debtor and delivered to Senior Agent. Debtor acknowledges receipt of a copy of this Agreement. Section 32.    Defined Terms            The following terms used in this Agreement shall have the following meanings:           “Accounts” means all “accounts” (as defined in the PPSA and the UCC), accounts receivable, contract rights and general intangibles relating thereto, notes, drafts and other forms of obligations owed to or owned by Debtor arising or resulting from the sale of goods or the rendering of services, whether or not earned by performance.           “Affiliate” means any Person (other than any Agent, Senior Lenders, Subordinated Agent or Subordinated Creditors): (a) directly or indirectly controlling, controlled by, or under common control with, Debtor; (b) directly or indirectly owning or holding 10% or more of any equity interest in Debtor; (c) 10% or more of whose stock or other equity interest having ordinary voting power for the election of directors or the power to direct or cause the direction of management, is directly or indirectly owned or held by Debtor; or (d) which has a senior officer who is also a senior officer of Debtor. For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”) means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or other equity interest, or by contract or otherwise.            “Agent” means the Senior Agent and the Collateral Agent.           “Asset Disposition” means the disposition, whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise, of any or all of the assets of Debtor or any of its Subsidiaries other than sales of Inventory in the ordinary course of business.            “Bankruptcy Code” means the United States Bankruptcy Code, being Title 11 of the United States Code, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all official rules, regulations and interpretations thereunder or related thereto.           “Bankruptcy Laws” means any of the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) and the Winding-Up and Restructuring Act (Canada) each as now and hereafter in effect, any successors to such statutes and any other applicable insolvency or other similar law of any jurisdiction including, without limitation, any law of any jurisdiction permitting a debtor to obtain a stay or a compromise of the claims of its creditors against it, and all rules and regulations promulgated thereunder.           “Blocked Accounts” shall have the meaning assigned to such term in Section Collection of Accounts and Payments. Debtor shall establish lockboxes and blocked accounts (collectively, “Blocked Accounts”) in Debtor’s name with such banks (“Collecting Banks”) as are reasonably acceptable to Senior Agent (subject to irrevocable instructions acceptable to Senior Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts and in which Debtor will immediately deposit all payments it otherwise directly receives for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or cheque. The Collecting Banks shall acknowledge and agree, pursuant to an agreement substantially in the form of Exhibit A and with such changes which shall be satisfactory to the Agents, that all payments made to the Blocked Accounts are the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to the Senior Agent’s Account. Debtor hereby agrees that all payments made to such Blocked Accounts or otherwise received by Senior Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Debtor shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into the Senior Agent’s Account. If Debtor, Loan Parties or any of their Affiliates, employees, agents or other Person acting for or in concert with Debtor, shall receive any monies, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, Debtor or such Person shall hold such instrument or funds in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Senior Agent at its address set forth in the Subordination Agreement. For the purpose of calculating interest on the Secured Obligations, all proceeds received in the Agent’s Account shall be credited to the Secured Obligations on the Business Day of Senior Agent’s receipt of immediately available federal funds.           “Business Day” means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the States of Illinois, Florida or New York and Province of Ontario, or is a day on which banking institutions located in any such state or province are closed and any other business day as defined in the Loan Agreement.           "Cleanup” shall mean all actions required to: (a) cleanup, remove, treat or remediate Hazardous Materials in the indoor or outdoor environment; (b) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (c) perform pre-remedial studies and investigations and post-remedial monitoring and care; or (d) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Materials in the indoor or outdoor environment.            “Closing Date” means October 31, 2000.            “Collateral” has the meaning assigned to that term in Grant of Security Interests. "Collateral Agent" means General Electric Capital Corporation.           "Collecting Banks" shall have the meaning assigned to such term in Section Collection of Accounts and Payments. Debtor shall establish lockboxes and blocked accounts (collectively, “Blocked Accounts”) in Debtor’s name with such banks (“Collecting Banks”) as are reasonably acceptable to Senior Agent (subject to irrevocable instructions acceptable to Senior Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts and in which Debtor will immediately deposit all payments it otherwise directly receives for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or cheque. The Collecting Banks shall acknowledge and agree, pursuant to an agreement substantially in the form of Exhibit A and with such changes which shall be satisfactory to the Agents, that all payments made to the Blocked Accounts are the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to the Senior Agent’s Account. Debtor hereby agrees that all payments made to such Blocked Accounts or otherwise received by Senior Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors. Debtor shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into the Senior Agent’s Account. If Debtor, Loan Parties or any of their Affiliates, employees, agents or other Person acting for or in concert with Debtor, shall receive any monies, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, Debtor or such Person shall hold such instrument or funds in trust for Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Senior Agent at its address set forth in the Subordination Agreement. For the purpose of calculating interest on the Secured Obligations, all proceeds received in the Agent’s Account shall be credited to the Secured Obligations on the Business Day of Senior Agent’s receipt of immediately available federal funds..            “Commitment” or “Commitments” means the commitment or commitments of Senior Lenders to make Loans as set forth in subsections 2.1(A) and 2.1(B) of the Loan Agreement and to provide Lender Letters of Credit as set forth in subsection 2.1(F) of the Loan Agreement.            “Control” shall have the meaning assigned to such term in the Loan Agreement.           “Copyright Licenses” means all of Debtor’s right, title and interest in and to any and all agreements providing for the granting of any right in or to Copyrights (whether Debtor is the licensor or the licensee thereunder) including, without limitation, each agreement referred to in Schedule IV hereof.           “Copyrights” means any and all Canadian, United States and foreign copyrights, all mask works fixed in semi-conductor chip products, whether registered or unregistered, now or hereafter in force throughout the world, all registrations and applications therefor including, without limitation, the applications referred to in Schedule IV of this Agreement, therefor all rights corresponding thereto throughout the world, all extensions and renewals of any thereof, the right to sue for past infringements of any of the foregoing, and all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and Proceeds of suit.           “Default” means a condition, act or event that, after notice or lapse of time or both, would constitute an Event of Default if that condition, act or event were not cured or removed within any applicable grace or cure period.           “Depository Account” shall mean collectively, one or more depository accounts established by Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors, at each Collecting Bank or at a centrally located Bank.           “Documents” means all “documents of title” (as defined in the PPSA) and “documents” (as defined in the UCC) or other receipts covering, evidencing or representing goods of Debtor including, without limitation, all bills of lading, seaway bills, dock warrants, dock receipts, warehouse receipts and orders for the delivery of goods, and any other document which in the regular course of business or financing is treated as adequately evidencing that the Person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers.           “Environmental Claim” shall mean any claim, action, cause of action, investigation or notice (written or oral) by any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, or Release of any Hazardous Materials at any location, whether or not owned, leased or operated by Debtor or any of its Subsidiaries, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.           “Environmental Law” shall mean all federal, provincial, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, disposal, transport or handling of Hazardous Materials, laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials and laws relating to the management or use of natural resources.           “Equipment” means all “equipment” (as defined in the PPSA and the UCC), all furniture, furnishings, Fixtures, machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts thereof and all additions and accessions thereto and replacements therefor.            “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder.            “Event of Default” has the meaning assigned to that term in Section 28.            “Fixtures” shall have the meaning assigned to such term in the Loan Agreement and includes, without limitation, plant fixtures, trade fixtures and business fixtures, wherever located, and all additions and accessions thereto and replacements therefor.            “GAAP” means 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 that are applicable to the circumstances as of the date of determination.           “General Intangibles” shall mean “intangibles” (as defined in the PPSA) and “general intangibles” as such term is defined in Section 9-106 of the UCC, including, without limitation, rights to the payment of money (other than receivables), Trade-marks, Copyrights, Patents, Trade Secrets, and licenses including, without limitation, Copyright Licenses, Patent Licenses, Trade-mark Licenses, and Trade Secret Licenses, and franchises (except in the case of licenses and franchises in respect of which the assignor is the licensee or franchisee if the agreement in respect of such license or franchise prohibits by its terms any assignment or grant of a security interest), limited and general partnership interests, limited liability company interests and joint venture interests, federal, provincial and state income tax refunds, trade names, distributions on certificated securities and uncertificated securities, computer programs and other computer software, inventions, designs, goodwill, proprietary rights, customer lists, supplier contracts, sale orders, correspondence, advertising materials, payments due in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any property, reversionary interests in pension and profit-sharing plans and reversionary, beneficial and residual interests in trusts, credits with and other claims against any Person, together with any collateral for any of the foregoing and the rights under any security agreement granting a security interest in such collateral.           “Governmental Authority” means any nation or government, any province or state or any political subdivision of any of the foregoing and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.            “Guarantors” shall have the meaning assigned to such term in the Loan Agreement.           “Hazardous Material” shall mean any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any Environmental Laws or regulations as “hazardous substances”, “hazardous materials”, “hazardous wastes”, “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, or toxicity; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; and (d) asbestos in any form or electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls.           “Industrial Design License” means rights under any written agreement now owned or hereafter acquired by Debtor granting any right to use any Industrial Design.           “Industrial Designs” means collectively, all of the following now owned or hereafter created or acquired by Debtor: (a) all industrial designs, design patents and other designs, (including, without limitation, those listed in Schedule IV) and all registrations and recordings thereof and all applications in connection therewith including, without limitation, all registrations, recordings and applications in the Canadian Industrial Designs Office or any similar office in any country and all records thereof; (b) all reissues, extensions or renewals thereof; (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all rights corresponding to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing.           “Instruments” means all “instruments” and “chattel paper” (each as defined in the PPSA and the UCC) and “letters of credit” (as defined in the UCC) in which Debtor has any rights including, without limitation, all cheques, drafts, notes, bonds, debentures and certificates of deposit.           “Intellectual Property” shall mean, collectively, Copyrights, Copyright Licenses, Patents, Patent Licenses, Trade-marks, Trade-mark Licenses, Industrial Designs, Industrial Design Licenses, Trade Secrets, and Trade Secret Licenses, and all memoranda, notes and records with respect to any research and development, whether now owned or hereafter acquired, all goodwill associated with any of the foregoing, and Proceeds of all of the foregoing, including, without limitation, Proceeds of insurance policies thereon.           “Inventory” means all “inventory” (as defined in the PPSA and UCC), including, without limitation, finished goods, raw materials, work in process and other materials and supplies used or consumed in a Person’s business, and goods which are returned or repossessed, including any Inventory in the possession of any consignee, bailee, warehouseman, agent or processor and/or subject to, described in or covered by, any Document and, including, without limitation, any Inventory in transit from one location to another, including on the “high seas” and otherwise outside Canada or the United States and their respective territorial waters.           “Investment Property” means any “security” (as defined in the PPSA) and all “investment property” (as defined in the UCC) of Debtor, including, without limitation, all securities (certificated and uncertificated), securities accounts, securities entitlements, commodity contracts and commodity accounts (as each such term is defined in the UCC).           “Lender Letters of Credit” means (i) the issuance of letters of credit by Senior Agent; or with Senior Agent’s consent any Senior Lender, or (ii) the issuance by Senior Agent of risk participations to banks to induce such banks to issue Bank Letters of Credit for the account of Borrowers.           “Lien” means any lien, claim, hypothec, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary, (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest).           “Loan” or “Loans” means an advance or advances under the Term Loan Commitment or the Revolving Loan Commitment as such terms are defined in the Loan Agreement.           “Loan Documents” means the Loan Agreement, this Agreement, the Security Documents and all other documents, instruments and agreements executed by or on behalf of a Borrower, such Borrower’s Subsidiaries or Debtor and delivered concurrently herewith or at any time hereafter to or for Senior Agent, any Agent, Senior Lender or Subordinated Creditor in connection with the Loans, any Lender Letter of Credit, and any other transaction contemplated by the Loan Agreement, including, without limitation, the Subordination Agreement, all as amended, restated, supplemented or modified from time to time.           “Material Adverse Effect” means (i) any material adverse effect on the business, financial position, results of operations, or prospects of the Borrowers and their Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of all the Agents and Lenders, or (iii) any material impairment of the Loan Parties’ ability to perform their obligations under the Loan Documents.           “Patent Licenses” means all of Debtor’s right, title and interest in and to any and all agreements providing for the granting of any right in or to any Patents (whether Debtor is the licensor or the licensee thereunder) including, without limitation, each agreement referred to in Schedule IV hereof.           “Patents” means any and all Canadian, United States and foreign patents and applications for letters patent throughout the world, including, but not limited to, each patent and patent application referred to in Schedule IV of this Agreement, all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and re-examinations of any of the foregoing, all rights corresponding thereto throughout the world, and all Proceeds of the foregoing including, without limitation, licenses, royalties, income, payments, claims, damages, and Proceeds of suit and the right to sue for past infringements of any of the foregoing.           “Permitted Encumbrances” means the following types of Liens: (a) Liens (other than Liens relating to Environmental Claims or ERISA) for taxes, assessments or other governmental charges not yet due and payable or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if Debtor or such Subsidiary has established appropriate reserves as shall be required in conformity with GAAP in; (b) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other similar liens imposed by law, which are incurred in the ordinary course of business for sums not more than 30 days delinquent and that attach only to Real Estate, inventory, fixtures and equipment; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) easements, rights-of-way, restrictions, and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Debtor or any of its Subsidiaries; (e) Liens for purchase money obligations, provided that (i) the Indebtedness secured by any such Lien is permitted under subsection 7.1 of the Loan Agreement or, after the indefeasible payment in full of the Subordinated Debt, Section 6.1 of the Subordinated Credit Agreement, and (ii) such Lien encumbers only the asset so purchased; (f) Liens in favour of Senior Agent, on behalf of Agents and Senior Lenders, Subordinated Agent and Subordinated Creditors; (g) Liens on deposits on other property of the Borrowers or any Subsidiary to secure up to $500,000 of insurance obligations incurred in the ordinary course of business; (h) Liens on the Inventory of the Borrowers or any of their Subsidiaries that is consigned in an aggregate amount not to exceed $500,000 at any one time outstanding; (i) any interest or title of a lessor or sublessor under any real property lease not prohibited by the Loan Agreement; and (j) Liens set forth on Schedule 11.1(B) of the Loan Agreement as of the date hereof; and (k) Liens arising in respect of judgments in an aggregate amount of less than $2,000,000 or, after the indefeasible payment in full of the Subordinated Debt, Section 6.1 of the Subordinated Credit Agreement at any one time outstanding in circumstances not constituting a Default or an Event of Default.            “PPSA” means the Personal Property Security Act (Ontario) and any other applicable Canadian or provincial personal property security legislation as all such legislation now exists or may from time to time hereafter be amended, modified, recodified, supplemented or replaced, together with all rules, regulations and interpretations thereunder or related thereto. References to sections of the PPSA shall be construed to also refer to any successor sections.            “Proceeds” means all “proceeds” (as defined in the PPSA and the UCC) of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, any Collateral including, without limitation, all claims of Debtor against third parties for loss of, damage to or destruction of, or for Proceeds payable under, or unearned premiums with respect to, policies of insurance with respect to any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising.            “Real Estate” means all of the real property owned, leased, subleased or used by Debtor, as listed on Schedule 4.5 to the Loan Agreement.           “Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of any property, including the movement of any Hazardous Material through the air, soil, surface water, groundwater or property.            “Secured Obligations” has the meaning assigned to that term in Security for Obligations.           “Security Interests” means the security interests granted pursuant to Grant of Security Interests hereof and pursuant to all other security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Agreement and the other Loan Documents.            “Senior Agent” means Heller Financial, Inc., a Delaware Corporation and its successors and assigns pursuant to Section 21 of the Subordination Agreement.            “Senior Debt” has the meaning assigned to that term in the Subordination Agreement.            “Senior Lenders” means the holders of the Senior Debt.            “Subordinated Creditors” means the Subordinated Creditors as defined in the Subordination Agreement.           "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof.           “Trade-marks” means any and all Canadian, United States and foreign trade-marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to the registrations and applications referred to in Schedule IV of this Agreement, all extensions or renewals of any of the foregoing; all of the goodwill of the business connected with the use of and symbolized by the foregoing; the right to sue for past infringement or dilution of any of the foregoing or for any injury to goodwill, and all Proceeds of the foregoing, including, without limitation, license royalties, income, payments, claims, damages, and Proceeds of suit.           “Trademark Licenses” means all of Debtor’s right, title and interest in and to any and all agreements providing for the grant of any right in or to any Trade-marks (whether Debtor is the licensor or the licensee thereunder) including, without limitation, each agreement referred to in Schedule IV hereof.           “Trade Secrets” means all of Debtor’s right, title and interest in and to trade secrets and all other confidential or proprietary information and know-how now or hereafter owned or used in, or contemplated at any time for use in, the business of Debtor (all of the foregoing being collectively called a “Trade Secret”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, the right to sue for past infringement of any Trade Secret, and all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit.           “Trade Secret Licenses” means all of Debtor’s right, title and interest in and to any and all agreements providing for the granting of any right in or to any Trade Secrets (whether Debtor is the licensor or the licensee thereunder) including, without limitation, each agreement referred to in Schedule VI hereof.           “UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy. Section 33.    Subordination           Notwithstanding anything to the contrary contained herein, the rights and obligations of the parties hereto are subject to the terms and provisions of the Subordination Agreement. In the event of any conflict or inconsistency between the terms, conditions and provisions of this Agreement and the terms, conditions and provisions of the Subordination Agreement, the terms, conditions and provisions of the Subordination Agreement shall prevail. [SIGNATURE PAGE TO FOLLOW] Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above.   RECOTON CANADA LTD. By:            /s/ Arnold Kezsbom                                                Name:       Arnold Kezsbom Title:          Vice President HELLER FINANCIAL, INC., as Senior Agent, on behalf of Agents, Senior Lenders, Subordinated Agent and Subordinated Creditors By:            /s/ Dwayne L. Coker                                                Name:       Dwayne L. Coker Title:         Vice President

EXHIBIT 10.40 MODEL MANAGEMENT CONTINUITY AGREEMENT [FOR UNITED STATES EMPLOYEES] E*TRADE GROUP, INC. July 7, 1999 Jarrett Lilien Dear Jarrett:              We are pleased to offer you the position of CEO—TIR. This letter, if accepted, sets forth the terms of your employment with E*TRADE Group, Inc. (hereafter “E*TRADE” or the “Company”), following the Closing (as defined in the Exchange Agreement). As a full-time employee, you would receive an annual base salary of $200,000.00, paid biweekly, less all applicable deductions.              All TIR (Holdings) LTD (“TIR”) employee benefits will continue uninterrupted until E*TRADE transitions your benefits coverage from TIR benefits to E*TRADE benefits. You will be offered E*TRADE’s standard Company-sponsored benefits which will ensure that you receive benefits consistent with and comparable to those offered similarly situated E*TRADE employees. You will, in particular, participate in E*TRADE’s existing paid time off plan and will be eligible to accrue paid time off based on your prior years of service with TIR. It is E*TRADE’s intention to transition your benefits coverage from TIR benefits to E*TRADE benefits during the first few months after the Closing. The Company wants to make this transition as smooth as possible. Commencement Date              This offer is contingent on the occurrence of the closing of E*TRADE’s acquisition (the “Acquisition”) of TIR, and, if you accept this offer, it would take effect as of that Closing Date. Bonus Participation              Upon achievement of the mutually agreed-upon operating milestones ending in fiscal years 2000 and 2001, as set out in Exhibit “A” hereto, you will be entitled to participate in a special bonus pool set aside for TIR Executive Committee members in lieu of the Team Quality Incentive (“TQI”) Bonus Program. Milestone factors for the special bonus pool shall be equally weighted among three categories of performance including the following: (1) individual performance; (2) integration; and (3) project leadership. Such bonuses shall be payable in two installments in October and April of each applicable fiscal year. The management of TIR may recommend individual allocations of bonus amounts from such bonus pool; however, E*TRADE shall make the final determinations of eligibility and bonus awards. The TIR special bonus program will terminate at the end of E*TRADE’s fiscal year 2001, and you will no l onger be eligible for any further bonus payments under that plan. Beginning in E*TRADE’s fiscal year 2002, that is, September 1, 2001, you will be eligible to participate in the E*TRADE bonus program, subject to the same terms and conditions applicable to other similarly situated E*TRADE employees. Stock Options              Your existing and outstanding stock options with TIR have been assumed by E*TRADE in accordance with your Stock Option Assumption Agreement. In addition, at the Closing you will be granted an option to purchase 20,000 shares of E*TRADE common stock under the Company’s 1996 Stock Incentive Plan. The per-share exercise price of the option will be equal to the per-share fair market value of the common stock on the Closing Date, as determined by the E*TRADE Board of Directors. The option will be evidenced by E*TRADE’s standard stock option agreement. So long as you continue in service with E*TRADE, the option will vest and become exercisable with respect to twenty-five percent (25%) of the option shares on the one-year anniversary of your employment start -------------------------------------------------------------------------------- date and with respect to the balance at 25% upon each anniversary of the Closing Date until the fourth anniversary of the Closing Date. Term of Employment              You commit to remaining employed by E*TRADE for a period of three (3) years following the Closing Date (the “Term”). Nevertheless, E*TRADE may terminate your employment at any time for any reason, during the Term, with or without cause, by giving written notice of such termination. Similarly, you may resign your employment for “Good Reason,” as defined in this Agreement, without being deemed to have breached this Agreement. In addition, if E*TRADE wishes to terminate your employment for any reason within three (3) years after the Closing Date, it must obtain the written approval of the Chief Executive Officer—TIR, the President—TIR, the President of E*TRADE International and E*TRADE’s Vice President, Associates and Work Environment before taking such action. If any one of these four (4) individuals is not employed by E*TRADE at the time of the action in question, then such termina tion will require the approval of that individual’s replacement. E*TRADE will also provide you with one (1) month’s notice prior to the termination of your employment for any reason. Termination of Employment              For the purposes of this Agreement, a termination by E*TRADE for “Cause” shall mean a termination for any of the following reasons: (i) your failure to perform the duties of your position after receipt of a written warning and thirty (30) days in which to cure; (ii) engaging in misconduct as described in E*TRADE’s “Standards of Business Conduct”; (iii) being convicted of a felony; (iv) committing an act of fraud against or the misappropriation of property belonging to the Company or any of its employees; or (v) a material breach of this agreement or any confidentiality or proprietary information agreement between you and the Company. E*TRADE will provide written notice of the reason for termination in the case of any termination for “Cause.” A termination by E*TRADE for any other reason shall be a termination “Without Cause.”              For the purposes of this Agreement, a resignation for “Good Reason” will occur if you resign your employment within thirty (30) days after the occurrence of either of the following events: (i) a reduction in your base salary or benefits; (ii) a material diminution in your duties, responsibilities, position, or authority as described herein; (iii) failure by E*TRADE to establish and administer the bonus pool for fiscal years ending in 2000 and 2001, as set out herein and in Exhibit A; or (iv) failure by E*TRADE to comply with and satisfy any other material provision of this Agreement.              If E*TRADE terminates your employment “Without Cause” or you terminate your employment for “Good Reason” prior to the end of the Term, then E*TRADE will pay you a lump sum payment equal to (i) one (1) month’s salary for each year of service with TIR, providing for the continuity of your service with any E*TRADE business entity, not to exceed twelve (12) months and excluding the one month’s notice provision provided herein; and (ii) that amount of the bonus pool for which you are eligible prorated to the date of termination of your employment, less applicable deductions and withholdings, as severance (“Severance Payment”). Such Severance Payment would be in lieu of any entitlement you may have to notice of termination, pay in lieu of notice of termination, or severance pay under any Company policy or practice. If you are eligible to receive a greater amount of severance from an y other source or based on any written commitment, then you will have the option of selecting that severance benefit or this one, but not both. All benefits and future stock and option vesting would terminate as of the date of termination of your employment. You would, of course, be paid your salary through your date of termination and for the value of all unused paid time off earned through that date and allowed to continue your medical coverage to the extent provided for by COBRA, but you would not be entitled to any additional payments or benefits except as set forth herein. You would be allowed to exercise your vested options during the time period set forth in and in accordance with your option agreement and Stock Option Assumption Agreement.              If you were to resign your employment other than for “Good Reason” or your employment were to be terminated for “Cause” within three (3) years after the Closing Date, then you would be paid all salary and benefits through the date of termination of your employment, but nothing else.              If your employment were to continue beyond the Term, then your employment would be on an “at-will” basis. This means that either you or E*TRADE could terminate your employment at any time for any reason with or without cause and without the obligation to pay you, or your right to, any severance payment except as may be provided at such time under E*TRADE’s employee benefit plans for which you are eligible. -------------------------------------------------------------------------------- Your Position              You will initially have the title of CEO—TIR in your present work location; however, you may be relocated with the written approval of the Chief Executive Officer—TIR, the President—TIR, the President of E*TRADE International and E*TRADE’s Vice President, Associates and Work Environment, in consultation with you. You will have whatever reasonable duties are assigned to you consistent with your title and position as agreed to by the Chief Executive Officer—TIR, the President—TIR and the President of E*TRADE International. The President of E*TRADE International, with input from the Chief Executive Officer—TIR, the President—TIR and E*TRADE’s Vice President, Associates and Work Environment, may change your title, duties, compensation, and benefits as they reasonably see fit. In addition, the Company acknowledges that it will attempt to provide you with employment with E*TRAD E International focusing on global operations, at a later time consistent with the development of this entity and to the extent possible; however, this acknowledgement shall not give you “Good Reason” to terminate your employment pursuant to this Agreement. Non-Competition              You understand and agree that this Agreement is entered into in connection with the acquisition by E*TRADE of all of the outstanding stock of TIR. You further understand and agree that you were a shareholder or optionholder of TIR; a key and significant member of the management of TIR; and that E*TRADE paid substantial consideration in order to purchase your stock and/or option interest in TIR. In addition, the parties agree that, prior to acquisition by E*TRADE of the stock of TIR, TIR was engaged in its business in the United States and throughout the world. E*TRADE represents and you understand that, following the acquisition by E*TRADE of the stock of TIR, E*TRADE will continue conducting such business in the United States and throughout the world.              You agree that during your employment with E*TRADE you will not engage in any other employment, business, or business related activity unless you receive E*TRADE’s prior written approval to hold such outside employment or engage in such business or activity, except that E*TRADE agrees that you will be allowed to continue your membership on the Board of Directors of Barton Mines Corporation and Barton Joint Venture Corporation (BJVC) and devote up to ten (10) business days per year in such capacity. Such written approval will not be unreasonably withheld if such outside employment, business or activity would not in any way be competitive with the business or proposed business of E*TRADE or otherwise conflict with or adversely affect in any way your performance of your employment obligations to E*TRADE.              Subject to the approval of the Vice President, Associates and Work Environment or his replacement, commencing on the date of termination of your employment with E*TRADE and continuing for a period equal to one (1) month for each year of service with TIR (providing for the continuity of your service with any E*TRADE business entity and excluding the one (1) month’s notice provision provided herein) but not to exceed twelve (12) months, you will not, except as provided below, as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor, lender or guarantor of any corporation, partnership or other entity, or in any other capacity directly or indirectly:              1. engage in any activity, in any market where E*TRADE conducts business, in which you participate, manage or advise in the design, development, marketing, sale or servicing of any product related to global institutional and retail internet securities trading, clearing services or execution (hereafter referred to as “the Business”);              2. induce, encourage or solicit any individual who was employed by E*TRADE within six (6) months of the date your employment with E*TRADE terminates to leave the Company for any reason or to accept employment with any other company, or to employ, interview or arrange to have business opportunities offered to any such individual; or              3. permit your name to be used in connection with a business which is competitive or substantially similar to the Business.              Notwithstanding the foregoing, you may own, directly or indirectly, solely as an investment, up to one percent (1%) of any class of “publicly traded securities” of any person or entity which owns a business that is competitive or substantially similar to the Business. The term “publicly traded securities” shall mean securities that are traded on a national securities exchange or listed on the National Association of Securities Dealers Automated Quotation System.                            If any restriction set forth in this non-competition section is found by a court to be unreasonable, then you agree, and hereby submit, to the reduction and limitation of such prohibition to such area or period as shall be deemed reasonable. You acknowledge that the services that you will provide to E*TRADE under this Agreement are unique and that irreparable harm will be suffered by E*TRADE in the event of the breach by you of any of your obligations under this Agreement, and that E*TRADE will be entitled, in addition to its other rights, to enforce by an injunction or decree of specific performance the obligations set forth in this Agreement. Any claims asserted by you against E*TRADE shall not constitute a defense in any injunction action brought by E*TRADE to obtain specific enforcement of said paragraphs.              You agree that if the Company establishes that you, or those acting in concert with you or on your behalf, materially violate the Non-Competition provision in any way, the Company shall be entitled to recover the reasonable attorneys’ fees and litigation expenses incurred, arising out of or relating to the Company’s efforts to prevent the breach, to establish that a breach has occurred, to enforce the Non-Competition provisions or to seek to redress a breach, including any appeals if necessary. If the Company fails to establish that you, or those acting in concert with you or on your behalf, have materially violated any of the Non-Competition provisions in any way, you shall be entitled to reimbursement of reasonable attorneys’ fees and litigation expenses incurred in your defense. Arbitration              We each agree that any and all disputes between us which arise out of your employment, the termination of your employment, or under the terms of this Agreement shall be resolved through final and binding arbitration. This shall include, without limitation, disputes relating to this Agreement, any disputes regarding your employment by E*TRADE or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, and any claims of discrimination or other claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of your employment with E*TRADE or its termination. The only claims not covered by this section are the following: (i) claims for benefits under the unemployment insurance or workers’ compensation laws; (ii) claims concerning the validity, infringement o r enforceability of any trade secret, patent right, copyright, trademark or any other intellectual property held or sought by E*TRADE, or which E*TRADE could otherwise seek; in each of these instances such disputes or claims shall not be subject to arbitration, but rather, will be resolved pursuant to applicable California law. Binding arbitration will be conducted in Santa Clara County in accordance with the rules and regulations of the American Arbitration Association. The parties will split the cost of the arbitration filing and hearing fees and the cost of the arbitrator; each side will bear its own attorneys’ fees, unless otherwise decided by the arbitrator. You understand and agree that arbitration shall be instead of any civil litigation, that each side waives its right to a jury trial, and that the arbitrator’s decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. Miscellaneous Provisions              This Agreement and the accompanying Proprietary Information and Inventions Agreement will be the entire agreement between you and E*TRADE relating to your employment and the additional matters provided for herein. This Agreement supersedes and replaces (i) any prior verbal or written agreements between the parties except as provided for herein and (ii) any prior verbal or written agreements between the undersigned employee and TIR relating to the subject matter hereof. This Agreement may be amended or altered only in a writing signed by you and the President of E*TRADE International. This Agreement shall be construed and interpreted in accordance with the laws of the State of California. Each provision of this Agreement is severable from the others, and if any provision hereof shall be to any extent unenforceable it and the other provisions shall continue to be enforceable to the full extent allowable, as if such of fending provision had not been a part of this Agreement. This offer is also contingent on your executing the E*TRADE Proprietary Information and Invention Agreement, a copy of which is attached hereto.              As used in this Agreement, “E*TRADE Group, Inc.” and “Company” refer to E*TRADE and each of its subsidiaries.                            If you have any questions about this offer, please contact me at (650) 331-6097. Please sign and date this letter below and return it to me.                Sincerely,      E*TRADE GROUP INCORPORATED      /s/ Jerry A. Dark      Jerry A. Dark, Vice President Associates and Work Environment                            I agree to the terms and conditions in this offer.      Dated: July 12, 1999      /s/ Jarrett Lilien --------------------------------------------------------------------------------      Jarrett Lilien Exhibit A Bonus Milestones Milestone Factors for Determining Bonus Pool Pay-Outs:         1.  Individual Performance: The following criteria, to the extent applicable, will be used to determine the degree to which an individual has met his or her individual performance milestone.               a.  Business unit financial performance                      i.  Includes budget management                      ii.  Performance over revenue targets               b.  Key business initiatives                      i.  Includes performance compared with growth targets for sales, volumes by geography/line of business/function                      ii.  Customer growth and retention               c.  Personal impact on business results               d.  Participation and leadership in performance management process throughout the Company               e.  Remaining “engaged” and productive post-merger         2.  Integration: Degree to which the employee contributes to a seamless and effective transition:               a.  Contribution to employee selection and retention               b.  Leadership and participation in H&G/E*TRADE integration teams               c.  Facilitating successful cultural assimilation                      i.  Including positive, open, two-way communications, technology transfers and learning               d.  Succession planning to ensure smooth transitions for all key, high-impact positions.         3.  Project Leadership: Degree to which employee takes an active and effective role in identified projects. (Note: all existing projects will be reviewed and new projects may be jointly identified by Chief Executive Officer—TIR and President—E*TRADE International. The new projects may differ from the existing “godfather” strategic projects and may include projects necessary as part of integration.) Evaluation and “Fine Tuning” of Milestone Performance: Performance results associated with the three milestones will be “fine tuned” as follows:         1.  Internal Comparisons: Executive Committee members will be ranked approximately 1-12 relative to his or her peers.               a.  Factors used for “relative” ranking:                      i.  Executive Committee member’s success in attracting new talent                      ii.  Relative performance of regional offices/functions                      iii.  Motivation level         2.  External Comparisons: To ensure retention, market competitiveness of total compensation will be considered in light of planned bonus payouts. Process For Determining Bonus Pool Pay-Outs:         1.  Goals for TIR group to be set out by Executive Committee and finalized by the Chief Executive Officer—TIR and the President of E*TRADE International.         2.  Quarterly review of process executed by the Chief Executive Officer—TIR and the President of E*TRADE International, with input from E*TRADE’s Vice President, Associates and Work Environment         3.  Final determination of bonus pay-outs per individual by the Chief Executive Officer—TIR, the President—TIR, and the President of E*TRADE International, with input from E*TRADE’s Vice President, Associates and Work Environment

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.4 AMENDED AND RESTATED CREDIT AGREEMENT     THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 10, 2000, is by and between REUTER MANUFACTURING, INC., a corporation organized under the laws of the State of Minnesota (the "Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (the "Lender").     WHEREAS, Borrower and Lender have entered into a Financing Agreement dated December 3, 1997 as amended from time to time (the "Existing Agreement"); and     WHEREAS, the Borrower and the Lender wish to make certain revisions to and restate in its entirety the Existing Agreement as hereinafter provided;     NOW, THEREFORE, in consideration of the premises, the sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS     Section 1.1  Defined Terms.  As used in this Agreement the following terms shall have the following respective meanings:     "Accounts":  Each and every right to payment of Borrower, whether such right to payment arises out of a sale or lease of goods by Borrower, or other disposition of goods or other property of Borrower, out of a rendering of services by Borrower, out of a loan by Borrower, out of damage to or loss of goods in the possession of a railroad or other carrier or any other bailee, out of overpayment of taxes or other liabilities of Borrower, or which otherwise arises under any contract or agreement, or from any other cause, whether such right to payment now exists or hereafter arises and whether such right to payment is or is not yet earned by performance and howsoever such right to payment may be evidenced, together with all other rights and interest (including all liens and security interests) which Borrower may at any time have by law or agreement against any account debtor (as defined in the Uniform Commercial Code in effect in the State of Minnesota) or other obligor obligated to make any such payment or against any of the property of such account debtor or other obligor; specifically (but without limitation), the term includes all present and future instruments, documents, chattel papers, accounts and contract rights of Borrower.     "Advance":  As defined in Section 2.1(a).     "Affiliate":  When used with reference to any Person, (a) each Person that, directly or indirectly, controls, is controlled by or is under common control with, the Person referred to, (b) each Person which beneficially owns or holds, directly or indirectly, five percent or more of any class of voting stock of the Person referred to (or if the Person referred to is not a corporation, five percent or more of the equity interest), (c) each Person, five percent or more of the voting stock (or if such Person is not a corporation, five percent or more of the equity interest) of which is beneficially owned or held, directly or indirectly, by the Person referred to, and (d) each of such Person's officers, directors, joint venturers and partners. The term control (including the terms "controlled by" and "under common control with") means the possession, directly, of the power to direct or cause the direction of the management and policies of the Person in question.     "Borrowing Base":  As defined in Section 2.5.     "Borrowing Base Certificate":  As defined in Section 2.5.     "Business Day":  Any day (other than a Saturday, Sunday or legal holiday in the State of Minnesota) on which national banks are permitted to be open at the location of the Lender. --------------------------------------------------------------------------------     "Change in Control":  The occurrence, after the Closing Date, of any one entity owning, directly or indirectly, securities of the Borrower representing 10% of the securities of the Borrower entitled to vote in the election of directors.     "Closing Date":  Any Business Day between the date of this Agreement and September 30, 2000 selected by the Borrower for the making of the initial Advance on the Revolving Loan hereunder; provided that all the conditions precedent to the obligation of the Lender to make the initial Advance on the Revolving Loan, as set forth in Article III, have been, or, on such Closing Date, will be, satisfied. The Borrower shall give the Lender not less than one Business Day's prior notice of the day selected as the Closing Date.     "Commitments":  The Revolving Commitment and the Term Loan Commitments.     "Default":  Any event which, with the giving of notice (whether such notice is required under Section 7.1, or under some other provision of this Agreement, or otherwise) or lapse of time, or both, would constitute an Event of Default.     "Eligible Accounts":  Accounts owned by the Borrower which the Lender, in its sole and absolute discretion, deems eligible for Advances, but which, at a minimum, are subject to a first priority perfected security interest in favor of the Lender and not subject to any assignment, claim or Lien other than the Lien in favor of the Lender and other Liens consented to by the Lender in writing, but specifically excluding (a) Accounts which are not earned; (b) Accounts which are unpaid more than ninety (90) days after the original invoice date; (c) Accounts owed by debtors 25% or more of whose Accounts owed are otherwise ineligible; (d) Accounts representing progress billings, or retainages, or for work covered by any payment or performance bond; (e) Accounts owed by any of the Borrower's Affiliates; (f) Accounts owed by debtors not located in the United States, unless supported by a letter of credit issued by a U.S. bank in favor of the Borrower which has been delivered to the Lender; (g) Accounts as to which any warranty or representation contained in any security agreement or other agreement of the Borrower with or given to the Lender with respect to any such Account is untrue in any material respect; (h) Accounts as to which the account debtor has disputed liability, or made any claim with respect to any other Account due from such account debtor to the Borrower; (i) Accounts subject to setoff; (j) Accounts as to which the account debtor has filed a petition for bankruptcy or any other petition for relief under the Bankruptcy Code, assigned any assets for the benefit of creditors, or if any petition or other application for relief under the Bankruptcy Code has been filed against the account debtor, or if the account debtor has failed, suspended business, become insolvent, or has had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; (k) Accounts owed by any government or government agency; (l) Accounts evidenced by a promissory note or other instrument; and (m) Accounts as to which the Lender reasonably believes that collection of any such Account is insecure or that any such Account may not be paid by reason of the account debtor's financial inability to pay.     "Event of Default":  Any event described in Section 7.1.     "GAAP":  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 other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of any date of determination.     "Lien":  With respect to any Person, any security interest, mortgage, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device (including the interest of each lessor under any capitalized lease), in, of or on any assets or properties of such Person, now owned or hereafter acquired, whether arising by agreement or operation of law.     "Loan Documents":  This Agreement, the Note, and any documents described in Section 3.1(a)(vii). 2 --------------------------------------------------------------------------------     "Mortgage":  A Security Agreement of even date executed by the Lender in form and substance satisfactory to Lender.     "Note":  As defined in Section 2.3     "Obligations":  shall mean (a) all indebtedness, liabilities and obligations of the Borrower to Lender of every kind, nature or description under this Agreement, including the Borrower's obligation on any Note and any note or notes hereafter issued in substitution or replacement thereof, (b) all liabilities of the Borrower under the Security Agreement, and (c) any and all other liabilities and obligations of the Borrower to the Lender of every kind, nature and description, whether direct or indirect or hereafter acquired by the Lender from any Person, absolute or contingent, regardless of how such liabilities arise or by what agreement or instrument they may be evidenced, and in all of the foregoing cases whether due or to become due, and whether now existing or hereafter arising or incurred.     "Person":  Any natural person, corporation, partnership, limited partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.     "Reference Rate":  The rate of interest from time to time publicly announced by the Lender as its "reference rate." The Lender may lend to its customers at rates that are at, above or below the Reference Rate. For purposes of determining any interest rate hereunder or under the Note which is based on the Reference Rate, such interest rate shall change as and when the Reference Rate changes.     "Regulatory Change":  Any change after the date of this Agreement in federal, state or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including the Lender under any federal, state 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.     "Revolving Commitment":  The obligation of the Lender to make Advances to the Borrower on the Revolving Loan in an aggregate principal amount outstanding at any time not to exceed the Revolving Commitment Amount upon the terms and subject to the conditions and limitations of this Agreement.     "Revolving Commitment Amount":  As defined in Section 2.1(a).     "Revolving Credit Availability":  The lesser of all of the Revolving Commitment Amount minus outstanding Advances or (b) the Borrowing Base minus outstanding Advances.     "Revolving Loan":  As defined in Section 2.1(a).     "Revolving Maturity Date":  As defined in Section 2.1(a).     "Security Agreement":  A Security Agreement of even date executed by the Lender in form and substance satisfactory to Lender.     "Subsidiary":  Any corporation or other entity of which securities or other ownership interests having ordinary voting power for the election of a majority of the board of directors or other Persons performing similar functions are owned by the Borrower either directly or through one or more Subsidiaries.     "Term Loan A":  As defined in Section 2.1(b).     "Term Loan B":  As defined in Section 2.1(c).     "Term Loan C":  As defined in Section 2.1(d).     "Term Loans":  Term Loan A, Term Loan B and Term Loan C. 3 --------------------------------------------------------------------------------     Section 1.2  Accounting Terms and Calculations.  Except as may be expressly provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP.     Section 1.3  Other Definitional Terms, Terms of Construction.  The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, Exhibits, Schedules and the like references are to Sections, Exhibits, Schedules and the like of this Agreement unless otherwise expressly provided. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." Unless the context in which used herein otherwise clearly requires, "or" has the inclusive meaning represented by the phrase "and/or." All incorporations by reference of covenants, terms, definitions or other provisions from other agreements are incorporated into this Agreement as if such provisions were fully set forth herein, and include all necessary definitions and related provisions from such other agreements. All covenants, terms, definitions and other provisions from other agreements incorporated into this Agreement by reference shall survive any termination of such other agreements until the obligations of the Borrower under this Agreement and the Note is irrevocably paid in full and the Revolving Commitment is terminated. ARTICLE II TERMS OF LENDING     Section 2.1  The Commitments.  On the terms and subject to the conditions hereof, the Lender agrees to make the following lending facilities available to the Borrower:     2.1(a)  Revolving Credit.  A revolving loan (the "Revolving Loan") to the Borrower available as advances ("Advances") at any time and from time to time from the Closing Date to October 1, 2002 (the "Revolving Maturity Date"), during which period the Borrower may borrow, repay and reborrow in accordance with the provisions hereof, provided, that the unpaid principal amount of revolving Advances shall not at any time exceed $1,500,000 (the "Revolving Commitment Amount"); and provided, further, that no revolving Advance will be made if, after giving effect thereto, the unpaid principal amount of the Advances would exceed the Borrowing Base.     2.1(b)  Term Loan.  A term loan ("Term Loan A") from the Lender to the Borrower on the Closing Date in the amount of $2,800,000 (the "Term Loan A Commitment Amount").     2.1(c)  Term Loan B.  A term loan ("Term Loan B") from the Lender to the Borrower on the Closing Date in the amount of $1,100,000 ("Term Loan B Commitment Amount").     2.1(d)  Term Loan C.  A term loan ("Term Loan C") from the Lender to the Borrower on the Closing Date in the amount of $1,400,000 ("Term Loan C Commitment Amount"). Notwithstanding any provision hereof, this Agreement and the Revolving Commitment shall terminate and the Lender shall have no obligation hereunder if the Term Loan hereunder has not been made by September 30, 2000, provided, however, that the obligations of the Borrower under Section 8.2 shall survive any such termination.     Section 2.2  Procedure for Advances and the Term Loans.  Any request by the Borrower for an Advance on the Revolving Loan shall be in writing or by telephone and must be given so as to be received by the Lender not later than 10:00 (Minneapolis time) on the requested Advance date. Each request for an Advance shall be irrevocable and shall be deemed a representation by the Borrower that on the requested Advance date and after giving effect to such Advance the applicable conditions specified in Article III have been and will continue be satisfied. Each request for an Advance shall specify (i) the requested Advance date (which must be a Business Day) and (ii) the amount of such Advance which shall be in a minimum amount of $10,000. Unless the Lender determines that any applicable condition specified in Article III has not been satisfied, the Lender will make available to the Borrower at the Lender's principal office in 4 -------------------------------------------------------------------------------- Minneapolis, Minnesota in immediately available funds not later than 5:00 PM (Minneapolis time) on the requested Advance date the amount of the requested Advance.     Section 2.3  The Note.  The Advances on the Revolving Loan and the Term Loans shall be evidenced by a single amended and restated promissory note of the Borrower (the "Note"), substantially in the form of Exhibit 2.3 hereto. The Lender shall enter in its ledgers and records the payments made on the Term Loans and the amount of each Advance made and the payments made thereon, and the Lender is authorized by the Borrower to enter on a schedule attached to the Note a record of such Advances and payments.     Section 2.4  Interest Rates, Interest Payments and Default Interest.  Interest shall accrue and be payable on the unpaid balance of the Advances at a floating rate per annum equal to the sum of the Reference Rate plus 0% (the latter being the "Applicable Revolving Margin"); provided, however, that upon the happening of any Event of Default, then, at the option of the Lender, the Advances shall thereafter bear interest at a floating rate equal to the sum of (a) the Reference Rate, plus (b) the Applicable Revolving Margin, plus (c) 4%. Interest shall accrue and be payable on the unpaid balance of Term Loan A at a fixed rate equal to 10% per annum; provided, however, that upon the happening of any Event of Default, then, at the option of the Lender, Term Loan A shall thereafter bear interest at a fixed rate equal to 12% per annum. Interest shall accrue and be payable on the unpaid balance of Term Loan B at a floating rate per annum equal to the sum of the Reference Rate plus 1.0% (the latter being the "Applicable Term Margin"); provided, however, that upon the happening of any Event of Default, then, at the option of the Lender, Term Loan B shall thereafter bear interest at a floating rate equal to the sum of (a) the Reference Rate, plus (b) the Applicable Term Margin, plus (c) 2%. Term Loan C shall be non-interest bearing. Interest shall be payable monthly in arrears on the first day of each month and upon final payment of the Advances. Interest on Term Loan A and Term Loan B shall be payable as provided in Term Loan A and Term Loan B.     Section 2.5  Borrowing Base and Mandatory Prepayment.  The Borrowing Base shall be equal to (i) until September 30, 2002 the sum of 80% of the face value of Eligible Accounts plus $250,000 and (ii) if the Revolving Maturity Date is extended pursuant to Section 2.10 from October   , 2002 and thereafter 80% of the face value of Eligible Accounts. The Borrower shall deliver borrowing base certificates in the form attached hereto (a "Borrowing Base Certificate") to the Lender not less than weekly. Each such certificate shall state the amount of Eligible Accounts and the Borrowing Base as of the end of the previous month or the date of the Lender's request, as appropriate. Any limitations on advances or required prepayments relating to the Borrowing Base shall be based on the latest borrowing base certificate the Borrower shall have delivered to the Lender. If the principal balance of the Advances at any time exceeds the Borrowing Base, the Borrower shall immediately prepay the Advances by the amount of that excess.     Section 2.6  Repayment and Prepayment.       2.6(a)  Repayment of the Advances.  Principal of the Advances shall be payable in full on the Revolving Maturity Date. The Borrower may prepay the Advances, in whole or in part, at any time, without premium or penalty. Amounts prepaid on the Advances under this Section may be reborrowed upon the terms and subject to the conditions and limitations of this Agreement.     2.6(b)  Repayment of Term Loan A.  Principal of Term Loan A is payable as provided in the Note. The Borrower may prepay Term Loan A at any time without premium or penalty. Any such prepayment must be accompanied by accrued and unpaid interest on the amount prepaid. Amounts so prepaid cannot be reborrowed.     2.6(c)  Repayment of Term Loan B.  Principal of Term Loan B is payable as provided in the Note. The Borrower may prepay Term Loan B at any time without premium or penalty. Any such 5 -------------------------------------------------------------------------------- prepayment must be accompanied by accrued and unpaid interest on the amount prepaid. Amounts so prepaid cannot be reborrowed.     2.6(d)  Repayment of Term Loan C.  Principal of Term Loan C is payable as provided in the Note. The Borrower may prepay Term Loan C at any time without premium or penalty. Any such prepayment must be accompanied by accrued and unpaid interest on the amount prepaid. Amounts so prepaid cannot be reborrowed.     Section 2.7  Computation.  Revolving Commitment Fees and interest on the Note shall be computed on the basis of actual days elapsed and a year of 360 days.     Section 2.8  Capital Adequacy.  In the event that any Regulatory Change reduces or shall have the effect of reducing the rate of return on the Lender's capital or the capital of its parent corporation (by an amount the Lender deems material) as a consequence of the Commitments and/or the Advances to a level below that which the Lender or its parent corporation could have achieved but for such Regulatory Change (taking into account the Lender's policies and the policies of its parent corporation with respect to capital adequacy), then the Borrower shall, within five days after written notice and demand from the Lender, pay to the Lender additional amounts sufficient to compensate the Lender or its parent corporation for such reduction. Any determination by the Lender under this Section and any certificate as to the amount of such reduction given to the Borrower by the Lender shall be final, conclusive and binding for all purposes, absent error.     Section 2.9  Use of Proceeds.  The proceeds of the initial Revolving Advance shall be used to satisfy obligations to the Lender under the Existing Agreement. Any remaining balance of the initial Revolving Advance and the proceeds of any subsequent Revolving Advance shall be used for the Borrower's general business purposes in a manner not in conflict with any of the Borrower's covenants in this Agreement. The proceeds of the Term Loans shall be used to satisfy obligations to the Lender under the Existing Agreement.     Section 2.10  Extension of the Revolving Maturity Date.  The Borrower may, by written notice given to the Lender, at least 30 days but not more than 60 days prior to the Revolving Maturity Date requests in writing an extension of the Revolving Maturity Date for an additional period of one year. The Borrower may do a maximum of three times and if no Default or Event of Default then exists, the Revolving Maturity Date shall be extended for such year. In the case of any such extension, the "Revolving Maturity Date" shall be the last day of the period to which such extension has been granted. ARTICLE III CONDITIONS PRECEDENT     Section 3.1  Conditions of Initial Revolving Advance and Term Loans.  The obligation of the Lender to make the initial Advance on the Revolving Loan and the Term Loans hereunder shall be subject to the prior or simultaneous fulfillment of each of the following conditions:     3.1(a)  Documents.  The Lender shall have received the following:      (i) The Note executed by a duly authorized officer (or officers) of the Borrower and dated the Closing Date.     (ii) A copy of the corporate resolutions of the Borrower authorizing the execution, delivery and performance of this Agreement and the Note and containing an incumbency certificate showing the names and titles, and bearing the signatures of, the officers of the Borrower authorized to execute this Agreement and the Note, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Borrower and certifying that there has been no change to the Articles of Incorporation or Bylaws of the Borrower since true and correct copies were last delivered to the Lender. 6 --------------------------------------------------------------------------------     (iii) The opinion of counsel to the Borrower covering such matters as the Lender may request.     (iv) The Security Agreement.     (v) The Mortgage.     (vi) The initial Borrowing Base Certificate required under Section 2.5.    (vii) Evidence, satisfactory to the Lender of an infusion of equity into the Borrower in an amount not less than $800,000.    (viii) A copy of an executed stock purchase agreement between the Borrower and Richard McNamara, James R. Reissner, Michael Tate or Activar, Inc.     (ix) Evidence of a restructuring of accounts payable with Borrower's trade vendors, satisfactory to the Lender in its sole discretion.     3.1(b)  Other Matters.  All organizational and legal proceedings relating to the Borrower and all instruments and agreements in connection with the transactions contemplated by this Agreement shall be satisfactory in scope, form and substance to the Lender and its counsel, and the Lender shall have received all information and copies of all documents, including records of corporate proceedings, which it may reasonably have requested in connection therewith, such documents where appropriate to be certified by proper Borrower or governmental authorities.     3.1(c)  Fees and Expenses.  The Lender shall have received all fees and other amounts due and payable by the Borrower on or prior to the Closing Date, including the reasonable fees and expenses of counsel to the Lender payable pursuant to Section 8.2.     3.1(d)  Perfection.  The Security Agreement (or financing statements with respect thereto) shall have been appropriately filed to the satisfaction of the Lender and the priority and perfection of the Lien created thereby shall have been established to the satisfaction of the Lender. The Mortgage shall have been appropriately filed to the satisfaction of the Lender and the priority and perfection of the Lien created thereby shall have been established to the satisfaction of the Lender.     Section 3.2  Conditions Precedent to all Advances.  The Lender shall not have any obligation to make the Term Loans or any Advance on the Revolving Loan (including Advances after the initial Advance) hereunder unless all representations and warranties of the Borrower made in this Agreement remain true and correct and no Default or Event of Default exists. ARTICLE IV REPRESENTATIONS AND WARRANTIES     The Borrower represents and warrants to the Lender:     Section 4.1  Organization, Standing, Etc.  The Borrower is a corporation duly incorporated and validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted, to enter into this Agreement and to issue the Note and to perform its obligations hereunder and thereunder. This Agreement and the Note have been duly authorized by all necessary corporate action and when executed and delivered will be the legal and binding obligations of the Borrower. The execution and delivery of this Agreement and the Note will not violate the Borrower's Articles of Incorporation or bylaws or any law applicable to the Borrower. No governmental consent or exemption is required in connection with the Borrower's execution and delivery of this Agreement and the Note.     Section 4.2  Financial Statements and No Material Adverse Change.  The Borrower's unaudited financial statements as at December 31, 1999 (shall be substantially in agreement with its audited financial 7 -------------------------------------------------------------------------------- statement not yet released for the period ending December 31, 1999) and its unaudited financial statements as at July 31, 2000, as heretofore furnished to the Lender, have been prepared in accordance with GAAP. The Borrower has no material obligation or liability not disclosed in such financial statements, and there has been no material adverse change in the condition of the Borrower since the dates of such financial statements.     Section 4.3  Litigation.  There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower which, if determined adversely to the Borrower, would have, a material adverse effect on the condition of the Borrower. The Borrower is not in violation of any law or regulation (including environmental laws and regulations and laws relating to employee benefit plans) where such violation could reasonably be expected to impose a material liability on the Borrower.     Section 4.4  Taxes.  The Borrower has filed all federal, state and local tax returns required to be filed and has paid or made provision for the payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made against it or any of its property (other than taxes, fees or charges the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower).     Section 4.5  Subsidiaries.  The Borrower has no Subsidiaries except for EPR, Inc. and Reuter Recycling of Florida, Inc. ARTICLE V AFFIRMATIVE COVENANTS     Until the Revolving Commitment shall have expired or been terminated and the Note and all of the Borrower's other obligations to the Lender under this Agreement shall have been paid in full, unless the Lender shall otherwise consent in writing:     Section 5.1  Financial Statements and Reports.  The Borrower will furnish to the Lender:   5.1(a) As soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, financial statements of the Borrower consisting of at least statements of income, cash flow and changes in stockholders' equity, and a balance sheet as at the end of such year, setting forth in each case in comparative form corresponding figures from the previous annual audit, certified without qualification by independent certified public accountants of recognized national standing selected by the Borrower and acceptable to the Lender.   5.1(b) As soon as available and in any event within 30 days after the end of each month, unaudited financial statements for the Borrower for such month and for the period from the beginning of such fiscal year to the end of such month, substantially similar to the annual audited statements.   5.1(c) As soon as practicable and in any event within 30 days after the end of each month, a Compliance Certificate in the form of Exhibit 5.1(c) hereto and a statement signed by the chief financial officer of the Borrower stating that as at the end of such month there did not exist any Default or Event of Default or, if such Default or Event of Default existed, specifying the nature and period of existence thereof and what action the Borrower proposes to take with respect thereto.   5.1(d) Immediately upon any officer of the Borrower becoming aware of any Default or Event of Default, a notice describing the nature thereof and what action the Borrower proposes to take with respect thereto.   5.1(e) Concurrently with each request for an Advance, and in any event not less than weekly, a Borrowing Base Certificate. 8 --------------------------------------------------------------------------------   5.1(f) As soon as practicable and in any event within fifteen days of the end of each month, (i) a listing of all Accounts, together with an aging of all accounts and a reconciliation of such accounts against the listing submitted pursuant hereto for the immediately preceding month, and (ii) a listing of all accounts payable, together with an aging of all accounts payable all in form and substance satisfactory to the Lender.   5.1(g) As soon as practicable and in any event within thirty days of the end of each quarter, a customer listing including the contact person, addresses and phone numbers of each account debtor.   5.1(h) Within five days after the due date, proof of payment or deposit, when due, of all withholding and F.I.C.A. taxes owing by the Borrower from time to time, in form and substance satisfactory to the Lender by a payroll service satisfactory to the Lender and whose services the Borrower shall at all times retain.   5.1(i) From time to time, such other information regarding the business, operation and financial condition of the Borrower as the Lender may reasonably request.     Section 5.2  Corporate Existence.  The Borrower will maintain its corporate existence in good standing under the laws of its jurisdiction of incorporation and its qualification to transact business in each jurisdiction where failure so to qualify would permanently preclude the Borrower from enforcing its rights with respect to any material asset or would expose the Borrower to any material liability.     Section 5.3  Insurance.  The Borrower will maintain with financially sound and reputable insurance companies such insurance as may be required by law and such other insurance in such amounts and against such hazards as is customary in the case of reputable corporations engaged in the same or similar business and similarly situated.     Section 5.4  Payment of Taxes and Claims.  The Borrower will file all tax returns and reports which are required by law to be filed by it and will pay before they become delinquent, all taxes, assessments and governmental charges and levies imposed upon it or its property and all claims or demands of any kind (including those of suppliers, mechanics, carriers, warehousemen, landlords and other like Persons) which, if unpaid, might result in the creation of a Lien upon its property.     Section 5.5  Inspection.  The Borrower will permit any Person designated by the Lender to visit and inspect any of the properties, books and financial records of the Borrower, to examine and to make copies of the books of accounts and other financial records of the Borrower, and to discuss the affairs, finances and accounts of the Borrower with its officers at such reasonable times and intervals as the Lender may designate. The Borrower shall also allow the Lender and its agents to conduct periodic collateral audits of the Borrower's accounts and inventory at such intervals as the Lender may choose, and the Borrower shall pay the Lender's costs of such audits (provided that the Borrower shall not be require to pay for more than two collateral audits in any calendar year).     Section 5.6  Maintenance of Properties.  The Borrower will maintain its properties in good condition, repair and working order, and supplied with all necessary equipment, and make all necessary repairs, renewals, replacements, betterments and improvements thereto, all as may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times.     Section 5.7  Books and Records.  The Borrower will keep adequate and proper records and books of account in which full and correct entries will be made of its dealings, business and affairs.     Section 5.8  Compliance.  The Borrower will comply in all material respects with all laws, rules and regulations to which it may be subject.     Section 5.9  Notice of Litigation.  The Borrower will give prompt written notice to the Lender of the commencement of any action, suit or proceeding affecting the Borrower. 9 --------------------------------------------------------------------------------     Section 5.10  Plans.  The Borrower will maintain any employee benefit plans in compliance with all material requirements of applicable laws and regulations.     Section 5.11  Making of Payments; Application of Collections; Charging of Accounts.    5.11(a) All payments hereunder (including payments with respect to any Note) shall be made without set-off or counterclaim and shall be made to the Lender in immediately available funds (or as the Lender may otherwise consent) prior to 2:00 p.m., Minneapolis time, on the date due at its office at U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN 55402-4302, or at such other place as may be designated by Lender to the Borrower in writing from time to time. Unless Lender shall otherwise consent, all loan payments shall be made by the Borrower through the Collateral Account (as that term is defined in the Security Agreement). Amounts on deposit in the Collateral Account at the end of each Business Day will be applied to the Loans and the other Obligations by the Lender on the next succeeding Business Day in such order as the Lender, in its sole discretion, shall determine. Borrower acknowledges that deposits made and other items credited to the Collateral Account are subject to applicable laws and regulations governing availability of funds and to Lender's funds availability requirements, and may not be immediately available for application to the Loans or the other Obligations.  5.11(b) The Borrower authorizes the Lender to, and the Lender will, subject to the provisions of this Section 5.11(b), apply the whole or any part of any amounts received by the Lender (whether deposited in the Collateral Account or otherwise received by the Lender) from the collection of items of payment and proceeds of any Collateral against the principal and/or interest of any Loans made hereunder and/or any other Obligations, whether or not then due, in such order of application as the Lender may determine, unless such payments or proceeds are, in the Lender's sole and absolute discretion, released to the Borrower. No checks, drafts or other instruments received by the Lender shall constitute final payment to the Lender unless and until such item of payment has actually been collected. All items or amounts which are delivered to the Lender by or on behalf of any Borrower or any obligor or any account debtor on account of partial or full payment or otherwise as proceeds of any of the Collateral (including any items or amounts which may have been deposited to the Collateral Account) may from time to time, in the Lender's sole and absolute discretion, be released to the Borrower or may be applied by the Lender towards such of the Obligations, whether or not then due, in such order of application as the Lender may determine. Notwithstanding anything to the contrary herein, (i) solely for purposes of determining the occurrence of an Event of Default hereunder, all cash, checks, instruments and other items of payment shall be deemed received upon actual receipt by the Lender unless the same is subsequently dishonored for any reason whatsoever, (ii) solely for purposes of determining whether there is Revolving Credit Availability, all cash, checks, instruments and other items of payment shall be applied against the Obligations no later than the first Business Day following receipt thereof by the Lender in Minneapolis, Minnesota or the first Business Day following the initiation by the Lender of an ACH transaction from the Collateral Account, and (iii) solely for purposes of interest calculation hereunder, all cash, checks, instruments and other items of payment shall be deemed to have been applied against the Obligations no later than the second Business Day following receipt thereof by the Lender in Minneapolis, Minnesota or the second Business Day following the initiation by the Lender of an ACH transaction from the Collateral Account.  5.11(c) The Borrower hereby irrevocably authorize the Lender and the Lender may, in its sole and absolute discretion, at any time and from time to time, pay all or any portion of any Obligations including, without limitation, interest, attorneys' fees and other fees, costs and expenses of the Lender for which any Borrower is liable pursuant to the terms of the Loan Documents, by charging any bank account of any Borrower maintained with Lender or by advancing the amount thereof to the Borrower as an Advance and applying the proceeds of such Loan against such Obligations; provided, however, that the provisions of this Section 5.11(c) shall not affect the Borrowers' obligation to pay when due 10 -------------------------------------------------------------------------------- all amounts payable by any Borrower under any of the Loan Documents whether or not there are sufficient funds therefor in any such bank account of any Borrower with Lender, or sufficient Revolving Credit Availability.  5.11(d) Subject to the rights granted to the Lender in paragraph 5 of the Security Agreements, all ledger sheets or cards, invoices, shipping records, correspondence, and other writings relating to accounts shall, until delivered to the Lender or removed by the Lender from the Borrower's premises, be kept on the Borrower's premises without cost to the Lender in appropriate containers in safe places.  5.11(e) Upon the Lender's demand for payment, the Lender may remove from the Borrower's premises all books and records, correspondence, documents and files relating to accounts; and the Lender may without cost or expense to the Lender use such of the Borrower's personnel, supplies, space and equipment at the Borrower's place of business as the Lender may desire for the handling of collections. The Borrower will pay any and all out of pocket expenses and cost of collection (including reasonable attorney fees) incurred by the Lender in the Lender's handling of or effort to enforce collections.  5.11(f) The Borrower warrants that, except as may be disclosed in the lists of Accounts furnished to the Lender: each customer billing statement correctly states the subject matter and terms of sale; the merchandise conforms thereto and is in all respects acceptable to the customer; the date of the billing statement is not prior to the date of shipment; the Account is not subject to any dispute, defense, offset or counterclaim; the account debtor is not a subsidiary or affiliated company; and the Borrower has no reason to believe the Account will not be paid in the regular course of business. The Borrower will notify the Lender promptly of any event, circumstance or communication with respect to any Account that is inconsistent with the foregoing representation. ARTICLE VI NEGATIVE COVENANTS     Until the Revolving Commitment shall have expired or been terminated and the Note and all of the Borrower's other obligations to the Lender under this Agreement shall have been paid in full, unless the Lender shall otherwise consent in writing:     Section 6.1  Merger.  The Borrower will not merge or consolidate or enter into any analogous reorganization or transaction with any Person or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)     Section 6.2  Sale of Assets.  The Borrower will not sell, transfer, lease or otherwise convey all or any substantial part of its assets except for sales and leases of inventory in the ordinary course of business.     Section 6.3  Dividends.  The Borrower will not pay any dividends or otherwise make any distributions on, or redemptions of, any of its outstanding stock.     Section 6.4  Payments to Investors and Affiliates.  The Borrower will not compensate, Richard McNamara, James R. Reissner, Michael Tate or Activar, Inc., or any of their Affiliates(including without limitation, salary, bonus, management fees, consulting agreements and incentive compensation of any type) in an amount in excess of $100,000 (excluding salary paid to Michael Tate) in the aggregate in any of Borrower's fiscal years. The Borrower will not enter into a transaction with any Affiliate, officer of or investor in the Borrower (i) which requires the Borrower to pay more than $5,000 in the aggregate for management fees and (ii) except upon fair and reasonable terms no less favorable than the Borrower would obtain in a comparable arm's-length transaction with a person not an Affiliate, officer of or investor in Borrower. 11 --------------------------------------------------------------------------------     Section 6.5  Investments.  The Borrower will not make any loans, advances or extensions of credit to any other Person (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms) or purchase or acquire any stock or other debt or equity securities of or any interest in any other Person or any integral part of any business or the assets comprising such business or part thereof, except for:   6.5(a) Investments in readily marketable direct obligations issued or unconditionally guaranteed by the United States government or any agency thereof and supported by the full faith and credit of the United States.   6.5(b) Certificates of deposit or bankers' acceptances issued by any commercial Bank organized under the laws of the United States or any State thereof which has (i) combined capital and surplus of at least $100,000,000, and (ii) a credit rating with respect to its unsecured indebtedness from a nationally recognized rating service that is satisfactory to the Lender.   6.5(c) Commercial paper given the highest rating by a nationally recognized rating service.   6.5(d) Repurchase agreements relating to securities of the kind described in subsection (a) of this Section.   6.5(e) Other readily marketable investments in debt securities which are reasonably acceptable to the Lender.   6.5(f) Travel advances to officers and employees in the ordinary course of business. Any investments under clauses (a), (b), (c) or (d) above must mature within one year of the acquisition thereof by the Borrower.     Section 6.6  Indebtedness.  The Borrower will not borrow any money or issue any bonds, debentures or other debt securities or otherwise become obligated on any interest-bearing indebtedness except (i) for the Term Loan and Advances under this Agreement and (ii) leases that require aggregate monthly payments not to exceed $15,000.     Section 6.7  Liens.  The Borrower will not create, incur, assume or suffer to exist any Lien, or enter into any arrangement for the acquisition of any property through conditional sale, lease-purchase or other title retention agreements except:   6.7(a) Liens granted to the Lender.   6.7(b) Liens existing on the date of this Agreement and disclosed on Exhibit 6.7 hereto.   6.7(c) Deposits or pledges to secure payment of workers' compensation, unemployment insurance, old age pensions or other social security obligations arising in the ordinary course of business of the Borrower.   6.7(d) Liens for taxes, fees, assessments and governmental charges not delinquent.   6.7(e) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of business, for sums not due.   6.7(f) Liens incurred or deposits or pledges made or given in connection with, or to secure payment of, indemnity, performance or other similar bonds.   6.7(g) Encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property and landlord's Liens under leases on the premises rented, which do not materially detract from the value of such property or impair the use thereof in the business of the Borrower. 12 --------------------------------------------------------------------------------     Section 6.8  Contingent Obligations.  The Borrower will not guarantee or otherwise become liable on the indebtedness of any other Person.     Section 6.9  Change of Control.  The Borrower will not permit a Change of Control to occur.     Section 6.10  Net Income.  The Borrower will not permit its net income for the fiscal year ending December 31, 2002 to be less than $1.00. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES     Section 7.1  Events of Default.  The occurrence of any one or more of the following events shall constitute an Event of Default:   7.1(a) The Borrower shall fail to make when due, whether by acceleration or otherwise, any payment of principal of or interest on the Note or any other obligations of the Borrower to the Lender pursuant to this Agreement.   7.1(b) Any representation or warranty made by or on behalf of the Borrower in this Agreement or by or on behalf of the Borrower in any certificate, statement, report or document herewith or hereafter furnished to the Lender pursuant to this Agreement shall prove to have been false or misleading in any material respect on the date as of which the facts set forth are stated or certified.   7.1(c) The Borrower shall fail to comply with Sections 5.2 or 5.3 or any Section of Article VI.   7.1(d) The Borrower shall fail to comply with any other agreement, covenant, condition, provision or term contained in this Agreement (other than those hereinabove set forth in this Section 7.1) and such failure to comply shall continue for ten calendar days after whichever of the following dates is the earliest: (i) the date the Borrower gives notice of such failure to the Lender, (ii) the date the Borrower should have given notice of such failure to the Lender pursuant to Section 5.1, or (iii) the date the Lender gives notice of such failure to the Borrower.   7.1(e) The Borrower shall become insolvent or shall generally not pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the appointment of a custodian, trustee or receiver of the Borrower or for a substantial part of the property thereof or, in the absence of such application, consent or acquiescence, a custodian, trustee or receiver shall be appointed for the Borrower or for a substantial part of the property thereof, or the Borrower shall make an assignment for the benefit of creditors.   7.1(f) Any bankruptcy, reorganization, debt arrangement or other proceedings under any bankruptcy or insolvency law shall be instituted by or against the Borrower.   7.1(g) Any dissolution or liquidation proceeding shall be instituted by or against the Borrower.   7.1(h) A judgment or judgments for the payment of money in excess of the sum of $50,000 in the aggregate shall be rendered against the Borrower.   7.1(i) The maturity of any material indebtedness of the Borrower (other than indebtedness under this Agreement) shall be accelerated, or the Borrower shall fail to pay any such material indebtedness when due (after the lapse of any applicable grace period) or any event shall occur or condition shall exist and shall continue for more than the period of grace, if any, applicable thereto and shall have the effect of causing, or permitting the holder of any such indebtedness to cause, such material indebtedness to become due prior to its stated maturity or to realize upon any collateral given as security therefor. For purposes of this Section, indebtedness of the Borrower shall be deemed "material" if it exceeds $25,000 as to any item of indebtedness or in the aggregate for all items of indebtedness with respect to which any of the events described in this Section has occurred. 13 --------------------------------------------------------------------------------   7.1(j) Any execution or attachment shall be issued whereby any substantial part of the property of the Borrower shall be taken or attempted to be taken.   7.1(k) Any default shall occur under any other Loan Document.     Section 7.2  Remedies.  If (a) any Event of Default described in Sections 7.1 (e), (f) or (g) shall occur with respect to the Borrower, the Revolving Commitment shall automatically terminate and the Note and all other obligations of the Borrower to the Lender under this Agreement shall automatically become immediately due and payable, or (b) any other Event of Default shall occur and be continuing, then the Lender may (i) declare the Revolving Commitment terminated, whereupon the Commitment shall terminate, and (ii) declare the Note and all other obligations of the Borrower to the Lender under this Agreement to be forthwith due and payable, whereupon the same shall immediately become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything in this Agreement or in the Note to the contrary notwithstanding. Upon the occurrence of any of the events described in clauses (a) or (b) of the preceding sentence the Lender may exercise all rights and remedies under this Agreement, the Note and any related agreements and under any applicable law.     Section 7.3  Offset.  In addition to the remedies set forth in Section 7.2, upon the occurrence of any Event of Default and thereafter while the same be continuing, the Borrower hereby irrevocably authorizes the Lender to set off all sums owing by the Borrower to the Lender against all deposits and credits of the Borrower with, and any and all claims of the Borrower against, the Lender. ARTICLE VIII MISCELLANEOUS     Section 8.1  Modifications.  Notwithstanding any provisions to the contrary herein, any term of this Agreement may be amended with the written consent of the Borrower; provided that no amendment, modification or waiver of any provision of this Agreement or 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 Lender, and then such amendment, modifications, waiver or consent shall be effective only in the specific instance and for the purpose for which given.     Section 8.2  Costs and Expenses.  Whether or not the transactions contemplated hereby are consummated, the Borrower agrees to reimburse the Lender upon demand for all reasonable out-of-pocket expenses paid or incurred by the Lender (including filing and recording costs and fees and expenses of Dorsey & Whitney LLP, counsel to the Lender) in connection with the negotiation, preparation, approval, review, execution, delivery, amendment, modification, interpretation, collection and enforcement of this Agreement and the Note. The obligations of the Borrower under this Section shall survive any termination of this Agreement.     Section 8.3  Waivers, etc.  No failure on the part of the Lender or the holder of either Note to exercise and no delay in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The rights and remedies of the Lender hereunder are cumulative and not exclusive of any right or remedy the Lender otherwise has.     Section 8.4  Notices.  Except when telephonic notice is expressly authorized by this Agreement, any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex or facsimile transmission, from the first Business Day after the date of sending if 14 -------------------------------------------------------------------------------- sent by overnight courier, or from four days after the date of mailing if mailed; provided, however, that any notice to the Lender under Article II hereof shall be deemed to have been given only when received by the Lender.     Section 8.5  Successors and Assigns; Disposition of Loans.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign its rights or delegate its obligations hereunder without the prior written consent of the Lender. The Lender may at any time sell, assign, transfer, grant participations in, or otherwise dispose of any portion of the Revolving Commitment and the Term Loan and/or Advances to banks or other financial institutions. The Lender may disclose any information regarding the Borrower in the Lender's possession to any prospective buyer or participant.     Section 8.6  Governing Law and Construction.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE Note SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.     Section 8.7  Consent to Jurisdiction.  AT THE OPTION OF THE LENDER, THIS AGREEMENT AND THE Note MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.     Section 8.8  Waiver of Jury Trial.  EACH OF THE BORROWER AND THE LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.     Section 8.9  Captions.  The captions or headings herein and any table of contents hereto are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement.     Section 8.10  Entire Agreement.  This Agreement and the other Loan Documents embody the entire agreement and understanding between the Borrower and the Lender with respect to the subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof.     Section 8.11  Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. 15 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.     REUTER MANUFACTURING, INC.           By       /s/ Michael J. Tate --------------------------------------------------------------------------------     Print   Name   Michael J. Tate --------------------------------------------------------------------------------     Title   President -------------------------------------------------------------------------------- Borrower's Address: 410 11th Avenue South Hopkins, MN 55343                       U.S. BANK NATIONAL ASSOCIATION           By       /s/ William Sweeney --------------------------------------------------------------------------------     Print   Name   William Sweeney --------------------------------------------------------------------------------     Title   Vice President -------------------------------------------------------------------------------- Lender's Address: U.S. Bank National Association 601 Second Avenue South Minneapolis, MN 55402-4302 Fax (612) 973-2851             16 -------------------------------------------------------------------------------- EXHIBIT 2.3 TO CREDIT AGREEMENT AMENDED AND RESTATED NOTE $6,800,000   October 10, 2000 Minneapolis, Minnesota     FOR VALUE RECEIVED, REUTER MANUFACTURING, INC., a corporation organized under the laws of the State of Minnesota, hereby promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender") at its main office in Minneapolis, Minnesota, in lawful money of the United States of America in immediately available funds the principal amount of SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS AND NO CENTS ($6,800,000), and to pay interest (computed on the basis of actual days elapsed and a year of 360 days) in like funds on the unpaid principal amount hereof from time to time outstanding.     The principal hereof and interest hereon is payable as follows:     (A) interest on the Advances (as such term and each other capitalized term used herein are defined in the Credit Agreement hereinafter referred to) at the rates and times set forth in the Credit Agreement. The Advances are payable on the Revolving Maturity Date;     (B) on Term Loan A in consecutive installments of $27,020 each, beginning on November 1, 2000 and on the first day of each month thereafter through September 1, 2005 and one final payment on October 1, 2005 in the amount of the entire remaining balance. Each such installment shall be applied first to interest and the balance to principal.     (C) on Term Loan B (i) in payments of accrued interest only payable in arrears on November 1, 2000, December 1, 2000 and on January 1, 2001, and (ii) principal and interest payments in consecutive installments of $36,500 each, beginning on February 1, 2001 and on the first day of each month thereafter through December 1, 2003 and one final payment on January 1, 2004 in the amount of the entire remaining balance. Each such installment shall be applied first to interest and the balance to principal.     (D) Term Loan C is payable on September 30, 2003, provided however, that Term Loan C shall be forgiven in the event (i) the Advances, Term Loan A and Term Loan B are all paid in full on or before September 30, 2003, or (ii) on October 1, 2003 if the Borrower has fully complied with the terms of the Credit Agreement and no Default or Event of Default exists.     This note is the Amended and Restated Note referred to in the Amended and Restated Credit Agreement dated as of October 10, 2000 (as the same may be hereafter from time to time amended, restated or modified, the "Credit Agreement") between the undersigned and the Lender. This note is secured, it is subject to certain permissive and mandatory prepayments and its maturity is subject to acceleration, in each case upon the terms provided in said Credit Agreement. This note is issued in combination, substitute and replacement but not in payment of indebtedness owed to the Lender by the Borrower under that Financing Agreement dated as of December 3, 1997, a Term Note in the original principal amount of $2,400,000 dated as of December 3, 1997 (as amended from time to time) from the Borrower to the Lender a Term Note in the original principal amount of $270,000 dated as of December 3, 1997 (as amended from time to time) from the Borrower to the Lender.     In the event of default hereunder, the undersigned agrees to pay all costs and expenses of collection, including reasonable attorneys' fees. The undersigned waives demand, presentment, notice of nonpayment, protest, notice of protest and notice of dishonor.     THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING 17 -------------------------------------------------------------------------------- EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.         REUTER MANUFACTURING, INC.   By              --------------------------------------------------------------------------------           Title              --------------------------------------------------------------------------------                             18 -------------------------------------------------------------------------------- BORROWING BASE CERTIFICATE REUTER MANUFACTURING, INC.     Borrowing Base Certificate for the period ended            , 20     This Borrowing Base Certificate is delivered in accordance with the Credit Agreement dated as of October 10, 2000 between U.S. Bank National Association (the "Lender") and Reuter Manufacturing ("the Borrower"). Capitalized terms used herein which are defined in the Credit Agreement shall have the meanings set forth for such terms therein. All amounts are as of the date shown above except as otherwise stated herein.     I certify that the following amounts were correctly determined according to the Credit Agreement: Total Receivables         $   (A)           --------------------------------------------------------------------------------     Receivables 90 + Days   $               --------------------------------------------------------------------------------           Other Ineligibles   $               --------------------------------------------------------------------------------         Total Ineligible         $   (B)           --------------------------------------------------------------------------------   Eligible Receivables (A) - (B)         $   (C)           --------------------------------------------------------------------------------   Borrowing Base (80% of (C))         $   (D)           --------------------------------------------------------------------------------   Receivables Over Advances         $ 250,000.00 (E)           --------------------------------------------------------------------------------   Total Borrowing Base (D) + (E)         $   (F)           --------------------------------------------------------------------------------   Outstanding Advances         $   (G)           --------------------------------------------------------------------------------   Availability (F) - (G)         $   (H)           --------------------------------------------------------------------------------       I hereby certify that all payroll and unemployment taxes are current as of this date.     For the purpose of inducing the Lender to extend credit to the Borrower pursuant to the Credit Agreement, the Borrower hereby certifies that the foregoing information is true and correct in all respects. The Borrower further certifies that all amounts outstanding under the Note were properly authorized for the benefit of the Borrower and constitute obligations of the Borrower in accordance with the terms of the Credit Agreement. The Borrower further certifies that no circumstances or conditions exist at the date of the Borrowing Base Certificate which constitute an Event of Default.         REUTER MANUFACTURING, INC.                   By              -------------------------------------------------------------------------------- Title          --------------------------------------------------------------------------------           Dated       , 20   --------------------------------------------------------------------------------                 19 -------------------------------------------------------------------------------- EXHIBIT 5.1(c) TO CREDIT AGREEMENT [FORM OF COMPLIANCE CERTIFICATE] To: U.S. Bank National Association THE UNDERSIGNED HEREBY CERTIFIES THAT:     (1) I am the duly elected chief financial officer of REUTER MANUFACTURING, INC. (the "Borrower");     (2) I have reviewed the terms of the Amended and Restated Credit Agreement dated as of October 10, 2000 between REUTER MANUFACTURING, INC., a corporation organized under the laws of the State of Minnesota, (the "Borrower"), and U.S. BANK NATIONAL ASSOCIATION (the "Lender") (the "Credit Agreement") and I have made, or have caused to be made under my supervision, a detailed review of the transaction and conditions of the Borrower during the accounting period covered by the Attachment hereto; and     (3) The examination described in paragraph (2) did not disclose, and I have no knowledge, whether arising out of such examinations or otherwise, of the existence of any condition or event which constitutes a Default or an Event of Default (as such terms are defined in the Credit Agreement) during or at the end of the accounting period covered by Attachment hereto or as of the date of this Certificate, except as described below (or on a separate attachment to this Certificate). The following exceptions set forth, in detail, the nature of the condition or event, the period during which has existed and the action which the Borrower has taken, is taking or proposes to take with respect to each such condition or event. --------------------------------------------------------------------------------     The foregoing certification, together with the computations in the Attachment hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this      day of            ,      , pursuant to Section 5.1 (c) of the Credit Agreement.     REUTER MANUFACTURING, INC.           By:              --------------------------------------------------------------------------------           Name:              -------------------------------------------------------------------------------- 20 -------------------------------------------------------------------------------- ATTACHMENT TO COMPLIANCE CERTIFICATE AS OF            , WHICH PERTAINS TO THE PERIOD FROM             ,      TO            , FOR THE FISCAL YEAR ENDING             ,             In Compliance -------------------------------------------------------------------------------- Net Income (Minimum of $1 at fiscal year end December 31, 2002) (Section 6.10)   Actual   $             Yes       No     21 -------------------------------------------------------------------------------- CERTIFICATE OF SECRETARY OF REUTER MANUFACTURING, INC.     I,            , hereby certify to U.S. Bank National Association that I am the Secretary of Reuter Manufacturing, Inc., a corporation organized under the laws of the State of Minnesota (the "Company") and that the following resolutions have been duly adopted by the Board of Directors of the Company in a manner authorized by the laws of the State of Minnesota:     "WHEREAS, the Company wishes to borrow money from U.S. Bank National Association (the "Lender"), and for that purpose intends to enter into a Credit Agreement with the Lender.     RESOLVED, the Company shall enter into an Amended and Restated Credit Agreement with the Lender under which the Company may obtain loans up to $6,800,000; and the            or any            of the Company is hereby authorized at any time and from time to time to execute and deliver to the Lender such Amended and Restated Credit Agreement and any promissory notes, security agreements, mortgages, subordination agreements, pledge agreements, assignments of life insurance, reimbursement agreements, or amendments to any of the foregoing as may be contemplated or required pursuant to such Amended and Restated Credit Agreement or otherwise, all in such form as such officer may determine and approve (such determination and approval to be established conclusively by such officer's execution and delivery of such Amended and Restated Credit Agreement and any such related documents and instruments).     FURTHER RESOLVED, that the            or any            of the Company is hereby authorized at any time and from time to time to sell, assign, transfer, mortgage, create security interests in and pledge to the Lender the real property, goods, instruments, documents, securities, chattel paper, accounts, contract rights and other intangibles and any other property now owned or hereafter acquired by the Company, either absolutely for such consideration as such officer may determine to be appropriate or as security for the payment or performance of any or all debts, liabilities and obligations of every type and description now or at any time hereafter owed to the Lender by the Company, on such terms as such officer may approve, and to do such other acts or things in connection therewith or pursuant thereto as such officer may determine to be appropriate (such determination and approval to be established conclusively by the instrument executed or action taken by such officer).     FURTHER RESOLVED, it is hereby acknowledged that each and every note, guaranty, security agreement and other instrument made pursuant to the foregoing resolutions is and will be made and given for the corporate purposes of this Company.     FURTHER RESOLVED, the Secretary or Assistant Secretary shall certify to the Lender the names and signatures of the persons who presently are duly elected, qualified and acting as the officers authorized to act under the foregoing resolutions, and the Secretary or Assistant Secretary shall from time to time hereafter, upon a change in the facts so certified, immediately certify to the Lender the names and signatures of the persons then authorized to sign or to act; the Lender shall be fully protected in relying on such certificates and on the obligation of the Secretary or an Assistant Secretary immediately to certify to the Lender any change in any fact certified, and the Lender shall be indemnified and saved harmless by the Company from any and all claims, demands, expenses, costs and damages resulting from or growing out of honoring or relying on the signature or other authority (whether or not properly used) of any officer whose name and signature was so certified, or refusing to honor any signature or authority not so certified."     I further certify that the foregoing resolutions have not been amended or revoked and are in full force and effect on the date hereof. 22 --------------------------------------------------------------------------------     I further certify that the Articles of Incorporation and the Bylaws of the Company have not been amended since true and correct copies were last delivered to the Lender and are in full force and effect on the date hereof.     I further certify that the Board of Directors of the Company has, and at the time of adoption of the foregoing resolutions had, full power and lawful authority to adopt the foregoing resolutions and to confer the powers therein granted upon the officers designated, and that such officers have full power and authority to exercise the same.     I further certify that the officers whose names appear below have been duly elected to and now hold the offices in the Company set forth opposite their respective names and that the signature appearing opposite the name of each of such officer is authentic and official: Name   Title   Specimen Signature   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------            --------------------------------------------------------------------------------                                   I further certify that shareholder approval of the foregoing resolutions is not required and said resolutions are effective and binding on the Company without approval by its shareholders. Dated          --------------------------------------------------------------------------------                      --------------------------------------------------------------------------------                           Secretary          -------------------------------------------------------------------------------- Attest by a Director                             23 -------------------------------------------------------------------------------- QUICKLINKS AMENDED AND RESTATED CREDIT AGREEMENT ARTICLE I DEFINITIONS AND ACCOUNTING TERMS ARTICLE II TERMS OF LENDING ARTICLE III CONDITIONS PRECEDENT ARTICLE IV REPRESENTATIONS AND WARRANTIES ARTICLE V AFFIRMATIVE COVENANTS ARTICLE VI NEGATIVE COVENANTS ARTICLE VII EVENTS OF DEFAULT AND REMEDIES ARTICLE VIII MISCELLANEOUS AMENDED AND RESTATED NOTE REUTER MANUFACTURING, INC. [FORM OF COMPLIANCE CERTIFICATE] ATTACHMENT TO COMPLIANCE CERTIFICATE AS OF , WHICH PERTAINS TO THE PERIOD FROM , TO , FOR THE FISCAL YEAR ENDING , CERTIFICATE OF SECRETARY OF REUTER MANUFACTURING, INC.

EXHIBIT 10.76 AGREEMENT FOR PRICE ADJUSTMENT This agreement is entered into as of September 1st, 2000 by and between Oki Electric Industry Co., Ltd. (Oki) and Catalyst Semiconductor, Inc. (CSI). Oki will bill CSI for five million US dollars ($5,000,000) as the price adjustment for the wafers delivered to CSI during the period from May 1st, 2000 through September 30th, 2000. CSI agrees to pay the five million US dollars ($5,000,000) to Oki on September 27th, 2000. Definition: Wafers:  [*]. CATALYST SEMICONDUCTOR, INC.       OKI ELECTRIC INDUSTRY, CO. LTD. /s/  Hideyuki Tanigami       /s/  Hisao Baba --------------------------------------------------------------------------------      -------------------------------------------------------------------------------- Name:  Hideyuki Tanigami Title:    Chairman of the Board       Name:  Hisao Baba Title:    Vice President & General Manager Marketing & Sales Dev., SiSC        22 September 2000      September 22, 2000 --------------------------------------------------------------------------------      -------------------------------------------------------------------------------- Date      Date [*]   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 -- Click here to rapidly navigate through this document Exhibit 10.1 STOCK PURCHASE AGREEMENT Endocardial Solutions, Inc. 1350 Energy Lane, Suite 110 St. Paul, MN 55108     The undersigned (the "Investor"), hereby confirms its agreement with you as follows:     1.  This Stock Purchase Agreement (the "Agreement") is made as of the date set forth below between Endocardial Solutions, Inc., a Delaware corporation (the "Company"), and the Investor.     2.  The Company and the Investor agree that the Investor will purchase from the Company and the Company will issue and sell to the Investor            shares (the "Shares") of common stock of the Company, $.01 par value per share (the "Common Stock"), for a purchase price of $6.25 per share, or an aggregate purchase price of $            , pursuant to the Terms and Conditions for Purchase of Shares attached hereto as Annex I and incorporated herein by this reference as if fully set forth herein. Unless otherwise requested by the Investor, certificates representing the Shares purchased by the Investor will be registered in the Investor's name and address as set forth below.     3.  The Investor represents that, except as set forth below, (a) it has had no position, office or other material relationship within the past three years with the Company or its affiliates, (b) neither it, nor any group of which it is a member or to which it is related, beneficially owns (including the right to acquire or vote) any securities of the Company and (c) it has no direct or indirect affiliation or association with any NASD member. Exceptions: -------------------------------------------------------------------------------- (If no exceptions, write "none." If left blank, response will be deemed to be "none.")     Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose.     Dated as of:   , 2000       --------------------------------------------------------------------------------             --------------------------------------------------------------------------------     "INVESTOR"           By:               --------------------------------------------------------------------------------     Print Name:           --------------------------------------------------------------------------------     Title:           --------------------------------------------------------------------------------     Address:           --------------------------------------------------------------------------------   AGREED AND ACCEPTED: Endocardial Solutions, Inc.           By:                     --------------------------------------------------------------------------------     Title:             --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- ANNEX I TERMS AND CONDITIONS FOR PURCHASE OF SHARES      1.  Authorization and Sale of the Shares.  Subject to the terms and conditions of this Agreement, the Company has authorized the sale of the Shares.      2.  Agreement to Sell and Purchase the Shares; Subscription Date.           2.1    At the Closing (as defined in Section 3), the Company will sell to the Investor, and the Investor will purchase from the Company, upon the terms and conditions hereinafter set forth, the number of Shares set forth in the Stock Purchase Agreement at the purchase price set forth on such Stock Purchase Agreement.         2.2    The Company proposes to enter into this same form of Stock Purchase Agreement with certain other investors (the "Other Investors") and expects to complete sales of Shares to them. (The Investor and the Other Investors are hereinafter sometimes collectively referred to as the "Investors," and this Agreement and the Stock Purchase Agreements executed by the Other Investors are hereinafter sometimes collectively referred to as the "Agreements.") The Company will accept executed Agreements from Investors for the purchase of Shares commencing upon the date on which the Company provides the Investors with the proposed purchase price per Share and concluding upon the date (the "Subscription Date") on which the Company has (i) executed Agreements with Investors for the purchase of Shares in the amount of at least $12,000,000 and (ii) notified U.S. Bancorp Piper Jaffray Inc. (in its capacity as Placement Agent for the Shares, the "Placement Agent") in writing that it is no longer accepting Agreements from Investors for the purchase of Shares.         2.3    Investor acknowledges that the Company intends to pay the Placement Agent a fee of 6% of the gross proceeds in respect of the sale of Shares to the Investor.      3.  Delivery of the Shares at Closing.  The completion of the purchase and sale of the Shares (the "Closing") shall occur at a place and time (the "Closing Date") to be specified by the Company and the Placement Agent, and of which the Investors will be notified in advance by the Placement Agent. At the Closing, the Company shall deliver to the Investor one or more stock certificates representing the number of Shares set forth on the signature page hereto, each such certificate to be registered in the name of the Investor or, if so indicated on the Stock Certificate Questionnaire attached hereto as Exhibit A, in the name of a nominee designated by the Investor.     The Company's obligation to issue the Shares to the Investor shall be subject to the following conditions, any one or more of which may be waived by the Company: (a) receipt by the Company of the purchase price for the Shares being purchased hereunder as set forth on the Signature Page hereto; (b) completion of purchases and sales under the Agreements with the Other Investors; and (c) the accuracy of the representations and warranties made by the Investors and the fulfillment of those undertakings of the Investors to be fulfilled prior to the Closing.     The Investor's obligation to purchase the Shares shall be subject to the following conditions, any one or more of which may be waived by the Investor: (a) Investors shall have executed Agreements for the purchase of Shares in the amount of at least $12,000,000 (excluding shares sold to Medtronic, Inc.). Subject to clause (a) above, the Investor's obligations are expressly not conditioned on the purchase by any or all of the other Investors of the Shares that they have agreed to purchase from the Company.      4.  Representations, Warranties and Covenants of the Company.  Except as otherwise expressly described in the Company's current reports on Form 8-K and regular reports on Form 10-Q and 10-K as filed by the Company with the Securities and Exchange Commission in 2000 (the "SEC Documents") and in the Company's press releases since December 31, 1999, (including the documents incorporated by 1 -------------------------------------------------------------------------------- reference therein, the "Company Information"), which qualifies the following representations and warranties in their entirety, the Company hereby represents and warrants to, and covenants with, the Investor, as follows:         4.1  Organization.  The Company is duly incorporated and validly existing in good standing under the laws of the jurisdiction of its organization. The Company has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a material adverse effect upon the business, financial condition, properties or operations of the Company ("Material Adverse Effect"), and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.         4.2  Due Authorization.  The Company has all requisite power and authority to execute, deliver and perform its obligations under the Agreements, and the Agreements have been duly authorized and validly executed and delivered by the Company and constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).         4.3  Non-Contravention.  The execution and delivery of the Agreements, the issuance and sale of the Shares to be sold by the Company under the Agreements, the fulfillment of the terms of the Agreements and the consummation of the transactions contemplated thereby will not (A) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, or any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company is a party or by which it or its property is bound, where such conflict, violation or default is likely to result in a Material Adverse Effect, (ii) the charter, by-laws or other organizational documents of the Company, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority binding upon the Company or its property, where such conflict, violation or default is likely to result in a Material Adverse Effect, or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which it is bound or to which any of the property or assets of the Company is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States is required for the execution and delivery of the Agreements and the valid issuance and sale of the Shares to be sold pursuant to the Agreements, other than such as have been made or obtained, and except for any securities filings required to be made under federal or state securities laws.         4.4  Capitalization.  The capitalization of the Company is described in the Company's SEC Documents. The Company has not issued any capital stock since December 31, 1999 other than pursuant to employee benefit plans disclosed in the Company's SEC Documents. The Shares to be sold pursuant to the Agreements have been duly authorized, and when issued and paid for in accordance with the terms of the Agreements, will be duly and validly issued, fully paid and nonassessable. The outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth in or 2 -------------------------------------------------------------------------------- contemplated by the Company's SEC Documents, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party and relating to the issuance or sale of any capital stock of the Company, any such convertible or exchangeable securities or any such rights, warrants or options. Without limiting the foregoing, no preemptive right, co-sale right, registration right, right of first refusal or other similar right exists with respect to the issuance and sale of the Shares. Except as disclosed in the Company's SEC Documents, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party.         4.5  Legal Proceedings.  There is no legal or governmental proceeding pending to which the Company is a party or of which the business or property of the Company is subject required to be disclosed that is not so disclosed in the Company's SEC Documents.         4.6  No Violations.  The Company is not in violation of its charter, bylaws or other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company, which violation, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, or is in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in the performance of any material bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company is a party or by which the Company is bound or by which the property of the Company is bound, which would be reasonably likely to have a Material Adverse Effect.         4.7  Governmental Permits, Etc.  With the exception of the matters which are dealt with separately in Sections 4.1, the Company has all necessary franchises, licenses, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department or body that are currently necessary for the operation of the business of the Company as currently conducted except where the failure to currently possess could not reasonably be expected to have a Material Adverse Effect.         4.8  Intellectual Property.               (a)    The Company has ownership or license or legal right to use all patent, copyright, trade secret, trademark, customer lists, designs, manufacturing or other processes, computer software, systems, data compilation, research results or other proprietary rights used in the business of the Company and material to the Company (collectively, "Intellectual Property") other than Intellectual Property generally available on commercial terms from other sources. All of such patents, trademarks and registered copyrights have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices of other jurisdictions and have been maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and all such jurisdictions.             (b)    All material licenses or other material agreements under which (i) the Company is granted rights in Intellectual Property, other than Intellectual Property generally available on commercial terms from other sources, and (ii) the Company has granted rights to others in Intellectual Property owned or licensed by the Company, are in full force and effect and, to the knowledge of the Company, there is no material default by the Company thereto.             (c)    The Company believes it has taken all steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of all material copyright, trade secret and other proprietary rights with respect to its products and technology. 3 --------------------------------------------------------------------------------             (d)    To the knowledge of the Company, the present business, activities and products of the Company do not infringe any intellectual property of any other person, except where such infringement would not have a Material Adverse Effect on the Company. Except as described in the Company's SEC Documents, no proceeding charging the Company with infringement of any adversely held Intellectual Property has been filed. To the Company's knowledge, there exists no unexpired patent or patent application which includes claims that would be infringed by or otherwise have a Material Adverse Effect on the Company. The Company is not making unauthorized use of any confidential information or trade secrets of any person. Neither the Company nor, to the knowledge of the Company, any of its employees have any agreements or arrangements with any persons other than the Company related to confidential information or trade secrets of such persons or restricting any such employee's engagement in business activities of any nature. The activities of the Company or any of its employees on behalf of the Company do not violate any such agreements or arrangements known to the Company which any such employees have with other persons, if any.             (e)    No proceedings have been instituted or are pending which challenge in a material manner the rights of the Company in respect to the Company's right to the use of the Intellectual Property. The Company has the right to use, free and clear of material claims or rights of other persons, all of its customer lists, designs, computer software, systems, data compilations, and other information that are required for its products or its business as presently conducted.         4.9  Financial Statements.  The financial statements of the Company and the related notes contained in the Company's SEC Documents present fairly, in accordance with generally accepted accounting principles, the financial position of the Company as of the dates indicated, and the results of its operations and cash flows for the periods therein specified. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as disclosed in the Company's SEC Documents.         4.10  No Material Adverse Change.  Since December 31, 1999, there has not been (i) any event or occurrence which has had, or reasonably can be expected to have, a Material Adverse Effect affecting the Company, (ii) any obligation, direct or contingent, that is material to the Company considered as one enterprise, incurred by the Company, except obligations incurred in the ordinary course of business, or (iii) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company.         4.11  Nasdaq Compliance.  The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on the Nasdaq National Market (the "Nasdaq Stock Market"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq Stock Market.         4.12  Reporting Status.  The Company has filed in a timely manner all documents that the Company was required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the 12 months preceding the date of this Agreement. The following documents complied in all material respects with the SEC's requirements as of their respective filing dates, and the information contained therein as of the respective dates thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under where they were made not misleading:             (a)    The Company's Annual Report on Form 10-K for the year ended December 31, 1999 (the "10-K"); and             (b)    All other documents, if any, filed by the Company with the Securities and Exchange Commission since December 31, 1999 pursuant to the reporting requirements of the Exchange Act. 4 --------------------------------------------------------------------------------         4.13  Listing.  The Company shall comply with all requirements of the National Association of Securities Dealers, Inc. with respect to the issuance of the Shares and the listing thereof on the Nasdaq Stock Market.         4.14  Foreign Corrupt Practices.  Neither the Company nor, to the knowledge of the Company, any agent or other person acting on behalf of the Company, have (i) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or made by any person acting on its behalf and of which the Company is aware in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.         4.15  No Manipulation of Stock.  The Company has not taken and will not, in violation of applicable law, take, any action outside the ordinary course of business designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares.         4.16  Accountants.  Ernst & Young LLP, who expressed their opinion with respect to the financial statements to be incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999 into the Registration Statement (as defined below) and the Prospectus which forms a part thereof, are independent accountants as required by the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations").         4.17  Contracts.  The contracts described in the SEC Documents or incorporated by reference therein that are material to the Company are in full force and effect on the date hereof, and neither the Company nor, to the Company's knowledge, any other party to such contracts is in breach of or default under any of such contracts which would have a Material Adverse Effect.         4.18  Taxes.  The Company has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been or might be asserted or threatened against it which would have a Material Adverse Effect.         4.19  Transfer Taxes.  On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be sold to the Investor hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.         4.20  Investment Company.  The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for an investment company, within the meaning of the Investment Company Act of 1940, as amended.         4.21  Insurance.  The Company maintains and will continue to maintain insurance of the types and in the amounts that the Company reasonably believes is adequate for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect.         4.22  Legal Opinion.  The Company shall cause to be delivered to the Investors and the Placement Agent by counsel to the Company a legal opinion in form, scope and substance reasonably satisfactory to the Investors and the Placement Agent.         4.23  Offering Materials.  Other than the SEC Documents, the Company has not distributed and will not distribute prior to the Closing Date any offering material in connection with the offering and sale of the Shares. The Company has not in the past nor will it hereafter take any action independent of the 5 -------------------------------------------------------------------------------- Placement Agent to sell, offer for sale or solicit offers to buy any securities of the Company which would bring the offer, issuance or sale of the Shares, as contemplated by this Agreement, within the provisions of Section 5 of the Securities Act, unless such offer, issuance or sale was or shall be within the exemptions of Section 4 of the Securities Act.      5.  Representations, Warranties and Covenants of the Investor.           5.1    The Investor represents and warrants to, and covenants with, the Company that: (i) the Investor is an "accredited investor" as defined in Regulation D under the Securities Act and the Investor is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Shares, including investments in securities issued by the Company and investments in comparable companies, and has requested, received, reviewed and considered all information it deemed relevant in making an informed decision to purchase the Shares; (ii) the Investor is acquiring the number of Shares set forth on the Signature Page hereto in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares; (iii) the Investor will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; (iv) the Investor has answered all questions on the Signature Page hereto and the Investor Questionnaire attached hereto as Exhibit B for use in preparation of the Registration Statement and the answers thereto are true and correct as of the date hereof and will be true and correct as of the Closing Date; (v) the Investor will notify the Company immediately of any change in any of such information until such time as the Investor has sold all of its Shares or until the Company is no longer required to keep the Registration Statement effective; and (vi) the Investor has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, relied only upon the Company Information provided to the Investor by the Company in contemplation of this offering and the representations and warranties of the Company contained herein. Investor understands that its acquisition of the Shares has not been registered under the Securities Act, or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Investor's investment intent as expressed herein. Investor has completed or caused to be completed and delivered to the Company the Investor Questionnaire attached hereto Exhibit B, which questionnaire is true and correct in all material respects.         5.2    The Investor acknowledges that no action has been or will be taken in any jurisdiction outside the United States by the Company or the Placement Agent that would permit an offering of the Shares, or possession or distribution of offering materials in connection with the issue of the Shares, in any jurisdiction outside the United States where action for that purpose is required. Each Investor outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense. The Placement Agent is not authorized to make any representation or use any information in connection with the issue, placement, purchase and sale of the Shares.         5.3    The Investor hereby covenants with the Company not to make any sale of the Shares without complying with the provisions of this Agreement, including Section 7.2 hereof, and without effectively causing the prospectus delivery requirement under the Securities Act to be satisfied, and the Investor acknowledges that the certificates evidencing the Shares will be imprinted with a legend that prohibits their transfer except in accordance therewith. The Investor acknowledges that there may occasionally be times when the Company, based on the advice of its counsel, determines that it must suspend the use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the SEC or until the Company has amended or supplemented such Prospectus. 6 --------------------------------------------------------------------------------         5.4    The Investor further represents and warrants to, and covenants with, the Company that (i) the Investor has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) this Agreement constitutes a valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Investors herein may be legally unenforceable.         5.5    Investor will not, prior to the effectiveness of the Registration Statement, sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to (collectively, a "Disposition"), the Common Stock of the Company, nor will Investor engage in any hedging or other transaction which is designed to or could reasonably be expected to lead to or result in a Disposition of Common Stock of the Company by the Investor or any other person or entity. Such prohibited hedging or other transactions would include, without limitation, effecting any short sale or having in effect any short position (whether or not such sale or position is against the box and regardless of when such position was entered into) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to the Common Stock of the Company or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock of the Company.         5.6    The Investor understands that nothing in this Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Shares constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares.      6.  Survival of Representations, Warranties and Agreements.  Notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all covenants, agreements, representations and warranties made by the Company and the Investor herein shall survive the execution of this Agreement, the delivery to the Investor of the Shares being purchased and the payment therefor.      7.  Registration of the Shares; Compliance with the Securities Act.           7.1  Registration Procedures and Expenses.  The Company shall:             (a)    subject to receipt of necessary information from the Investors, prepare and file with the SEC, as soon as practicable, but in no event later than ten (10) days after the Closing Date, a registration statement on Form S-3 (the "Registration Statement") to enable the resale of the Shares by the Investors from time to time through the automated quotation system of the Nasdaq Stock Market or in privately-negotiated transactions;             (b)    use its best efforts to cause the Registration Statement to become effective as soon as practicable, but (i) if the staff of the Securities and Exchange Commission determines that it will not review such Registration Statement prior to declaring it effective, then in no event later than thirty (30) days after the Registration Statement is filed by the Company, or (ii) if such Registration Statement is reviewed by the staff of the Securities and Exchange Commission, then in no event later than ninety (90) days after the Registration Statement is filed by the Company.             (c)    use its best efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement current and effective for a period not exceeding, with respect to each Investor's Shares purchased hereunder, the earlier of (i) the second anniversary of the Closing Date, (ii) the date on which the Investor may sell all Shares then held by the Investor without restriction by the 7 -------------------------------------------------------------------------------- volume limitations of Rule 144(e) of the Securities Act or (iii) such time as all Shares purchased by such Investor in this Offering have been sold.             (d)    furnish to the Placement Agent and to the Investor with respect to the Shares registered under the Registration Statement such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the Investor, provided, however, that the obligation of the Company to deliver copies of Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses;             (e)    file documents required of the Company for blue sky clearance in states specified in writing by the Investor, provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;             (f)    bear all expenses in connection with the procedures in paragraph (a) through (e) of this Section 7.1 and the registration of the Shares pursuant to the Registration Statement;             (g)    advise the Investors, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and             (h)    With a view to making available to the Investor the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Investor to sell Shares to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) such date as all of the Investor's Shares may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such date as all of the Investor's Shares shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and under the Exchange Act; and (iii) furnish to the Investor upon request, as long as the Investor owns any Shares, (A) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (B) a copy of the Company's most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail the Investor of any rule or regulation of the SEC that permits the selling of any such Shares without registration.     The Investor shall furnish to the Company such information regarding itself, the Shares to be sold by Investor, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of the Shares.     The Company understands that the Investor disclaims being an underwriter, but the Investor being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder, provided, however, that if the Company receives notification from the SEC that the Investor is deemed an underwriter, then the period by which the Company is obligated to submit an acceleration request to the SEC shall be extended to the earlier of (i) the 90th day after such SEC notification, or (ii) 120 days after the initial filing of the Registration Statement with the SEC.         7.2  Transfer of Shares After Registration; Suspension.               (a)    The Investor agrees that it will not effect any Disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act except as 8 -------------------------------------------------------------------------------- contemplated in the Registration Statement referred to in Section 7.1 and as described below, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution.             (b)    Except in the event that paragraph (c) below applies, the Company shall: (i) if deemed necessary by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the Company has complied with its obligations in Section 7.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Investor to that effect, will use its reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become effective).             (c)    In the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state 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; then the Company shall promptly notify by telephone (and also deliver a certificate in writing) the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor will refrain from selling any Shares pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. The Company will use its best efforts to avoid the need for a Suspension. In the event of any Suspension, the Company will use its best efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable, but in any event not later than 20 business days after delivery of a Suspension Notice to the Investors, unless, in the good faith judgment of the Company's Board of Directors, upon advice of counsel, the sale of Shares under the Registration Statement would be reasonably likely to cause a violation of the Securities Act or the Exchange Act and result in potential liability to the Company. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 7.2(c).             (d)    Provided that a Suspension is not then in effect the Investor may sell Shares under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee 9 -------------------------------------------------------------------------------- of such Shares. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current Prospectuses to the Investor and to supply copies to any other parties requiring such Prospectuses.             (e)    In the event of a sale of Shares by the Investor, the Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit C, so that the shares may be properly transferred.         7.3  Indemnification.  For the purpose of this Section 7.3:             (a)    the term "Selling Stockholder" shall include the Investor and any affiliate of such Investor;             (b)    the term "Registration Statement" shall include any final Prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1; and             (c)    the term "untrue statement" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement 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.                 (i)    The Company agrees to indemnify and hold harmless each Selling Stockholder from and against any losses, claims, damages or liabilities to which such Selling Stockholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any untrue statement of a material fact contained in the Registration Statement, or (ii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder specifically for use in preparation of the Registration Statement or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor.                 (ii)    The Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon any untrue statement of a material fact contained in the Registration Statement if such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Selling Stockholder specifically for use in preparation of the Registration Statement, and the Investor will reimburse the Company (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, no Investor will be liable pursuant to this Section 7.3(c)(ii) for an amount that exceeds the net proceeds actually received by such Investor as a result of the sale of Shares pursuant to such Registration Statement.                 (iii)    Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party 10 -------------------------------------------------------------------------------- will not relieve it from any liability which it may have to any indemnified party under this Section 7.3 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 7.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the reasonable opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person 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 indemnification 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.                 (iv)    If the indemnification provided for in this Section 7.3 is unavailable to or insufficient to hold harmless an indemnified party under subsection (c) (i) or (ii) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investors on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or an Investor on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Investors were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Investor shall be required to contribute any amount in excess of the amount by which the gross amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investors' obligations in this subsection to contribute are several in proportion to their sales of Shares to which such loss relates and not joint. 11 --------------------------------------------------------------------------------         7.4  Termination of Conditions and Obligations.  The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Shares or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act.         7.5  Information Available.  So long as the Registration Statement is effective covering the resale of Shares owned by the Investor, the Company will furnish to the Investor:             (a)    as soon as practicable after it is available, one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with generally accepted accounting principles by a national firm of certified public accountants) and (ii) if not included in the Annual Report to Stockholders, its Annual Report on Form 10-K (the foregoing, in each case, excluding exhibits);             (b)    upon the reasonable request of the Investor all other information that is made available to stockholders; and             (c)    upon the reasonable request of the Investor, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Company, upon the reasonable request of the Investor, will meet with the Investor or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Shares and will otherwise cooperate with any Investor conducting an investigation for the purpose of reducing or eliminating such Investor's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with any Investor until and unless the Investor shall have entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company with the Company with respect thereto.         7.6    Except as required by law or regulation, the Company will not issue any public statement, press release or any other public disclosure listing Investor as one of the purchasers of the Shares without Investor's prior written consent.      8.  Notices.  All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one (1) business day after so mailed, (iii) if delivered by International Federal Express, two (2) business days after so mailed, (iv) if delivered by facsimile, upon electric confirmation of receipt and shall be delivered as addressed as follows:         (a)    if to the Company, to: Endocardial Solutions, Inc. 1350 Energy Lane, Suite 110 St. Paul, MN 55108 Attn: James Bullock President and Chief Executive Officer Phone: 651-644-5381 Telecopy: 651-644-7897 12 --------------------------------------------------------------------------------         (b)    with a copy mailed to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, MN 55402 Attn: Ken Cutler Phone: 612-340-2740 Telecopy: 612-340-8738         (c)    if to the Investor, at its address on the Signature Page hereto, or at such other address or addresses as may have been furnished to the Company in writing.      9.  Changes.  This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Investor.     10.  Headings.  The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.     11.  Severability.  In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.     12.  Governing Law.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Minnesota, without giving effect to the principles of conflicts of law.     13.  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.     14.  Confidential Disclosure Agreement.  Notwithstanding any provision of this Agreement to the contrary, any confidential disclosure agreement previously executed by the Company and the Investor in connection with the transactions contemplated by this Agreement shall remain in full force and effect in accordance with its terms following the execution of this Agreement and the consummation of the transactions contemplated hereby. 13 -------------------------------------------------------------------------------- EXHIBIT A ENDOCARDIAL SOLUTIONS, INC. STOCK CERTIFICATE QUESTIONNAIRE      Pursuant to Section 5 of the Agreement, please provide us with the following information: 1.   The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate:   --------------------------------------------------------------------------------   2.       The relationship between the Investor and the registered holder listed in response to item 1 above:       --------------------------------------------------------------------------------   3.       The mailing address of the registered holder listed in response to item 1 above:       --------------------------------------------------------------------------------   4.       The Social Security Number or Tax Identification Number of the registered holder listed in the response to item 1 above:       --------------------------------------------------------------------------------                     A-1 -------------------------------------------------------------------------------- Exhibit B ENDOCARDIAL SOLUTIONS, INC. INVESTOR QUESTIONNAIRE (all information will be treated confidentially) To: Endocardial Solutions, Inc.     This Investor Questionnaire ("Questionnaire") must be completed by each potential investor in connection with the offer and sale of the shares of the common stock, par value $0.01 per share, of Endocardial Solutions, Inc. (the "Securities"). The Securities are being offered and sold by Endocardial Solutions, Inc. (the "Corporation") without registration under the Securities Act of 1933, as amended (the "Act"), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Corporation must determine that a potential investor meets certain suitability requirements before offering or selling Securities to such investor. The purpose of this Questionnaire is to assure the Corporation that each investor will meet the applicable suitability requirements. The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemption from registration is based in part on the information herein supplied.     This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. Your answers will be kept strictly confidential. However, by signing this Questionnaire you will be authorizing the Corporation to provide a completed copy of this Questionnaire to such parties as the Corporation deems appropriate in order to ensure that the offer and sale of the Securities will not result in a violation of the Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Securities. All potential investors must answer all applicable questions and complete, date and sign this Questionnaire. Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item. A.BACKGROUND INFORMATION   Name:       --------------------------------------------------------------------------------   Business Address:       -------------------------------------------------------------------------------- (Number and Street)   -------------------------------------------------------------------------------- (City)            (State)            (Zip Code)   Telephone Number: (   )       --------------------------------------------------------------------------------   Residence Address:       -------------------------------------------------------------------------------- (Number and Street)   -------------------------------------------------------------------------------- (City)            (State)            (Zip Code)   Telephone Number: (   )       -------------------------------------------------------------------------------- If an individual: Age:   --------------------------------------------------------------------------------   Citizenship:   --------------------------------------------------------------------------------   Where registered to vote:   -------------------------------------------------------------------------------- If a corporation, partnership, limited liability company, trust or other entity: Type of entity:   --------------------------------------------------------------------------------   State of formation:       --------------------------------------------------------------------------------       Date of formation:       --------------------------------------------------------------------------------   Social Security or Taxpayer Identification No.       --------------------------------------------------------------------------------   Send all correspondence to (check one):       --------------------------------------------------------------------------------       Residence Address       --------------------------------------------------------------------------------       Business Address B-1 -------------------------------------------------------------------------------- B.STATUS AS ACCREDITED INVESTOR The undersigned is an "accredited investor" as such term is defined in Regulation D under the Act, as at the time of the sale of the Securities the undersigned falls within one or more of the following categories (Please initial one or more, as applicable):          (1)   a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Corporation Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a Small Business Investment Corporation licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with the investment decisions made solely by persons that are accredited investors;1          (2)   a private business development company as defined in Section 202(a)(22) of the Investment Adviser Act of 1940;          (3)   an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of $5,000,000;          (4)   a natural person whose individual net worth, or joint net worth with that person's spouse, at the time of such person's purchase of the Securities exceeds $1,000,000;          (5)   a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;          (6)   a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and          (7)   an entity in which all of the equity owners are accredited investors (as defined above). -------------------------------------------------------------------------------- 1As used in this Questionnaire, the term "net worth" means the excess of total assets over total liabilities. In computing net worth for the purpose of subsection (4), the principal residence of the investor must be valued at cost, including cost of improvements, or at recently appraised value by an institutional lender making a secured loan, net of encumbrances. In determining income, the investor should add to the investor's adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depiction, contributions to an IRA or KEOGH retirement plan, alimony payments, and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income. B-2 -------------------------------------------------------------------------------- C.REPRESENTATIONS The undersigned hereby represents and warrants to the Corporation as follows:     1.  Any purchase of the Securities would be solely for the account of the undersigned and not for the account of any other person or with a view to any resale, fractionalization, division, or distribution thereof.     2.  The information contained herein is complete and accurate and may be relied upon by the Corporation, and the undersigned will notify the Corporation immediately of any material change in any of such information occurring prior to the closing, if any, with respect to the purchase of Securities by the undersigned or any co-purchaser.     3.  There are no suits, pending litigation, or claims against the undersigned that could materially affect the net worth of the undersigned as reported in this Questionnaire.     4.  The undersigned acknowledges that there may occasionally be times when the Corporation, based on the advice of its counsel, determines that it must suspend the use of the Prospectus forming a part of the Registration Statement (as such terms are defined in the Stock Purchase Agreement to which this Questionnaire is attached) until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the Securities and Exchange Commission or until the Corporation has amended or supplemented such Prospectus. The undersigned is aware that, in such event, the Securities will not be subject to ready liquidation, and that any Securities purchased by the undersigned would have to be held during such suspension. The overall commitment of the undersigned to investments which are not readily marketable is not excessive in view of the undersigned's net worth and financial circumstances, and any purchase of the Securities will not cause such commitment to become excessive. The undersigned is able to bear the economic risk of an investment in the Securities.     5.  The undersigned has carefully considered the potential risks relating to the Corporation and a purchase of the Securities, and fully understands that the Securities are speculative investments which involve a high degree of risk of loss of the undersigned's entire investment. Among others, the undersigned has carefully considered each of the risks described in the cautionary statements included as Exhibit 99 incorporated into the Corporation's most recent quarterly report on Form 10-Q. IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this    day of         , 2000, and declares under oath that it is truthful and correct.     Print Name           By:       --------------------------------------------------------------------------------     Signature           Title:       -------------------------------------------------------------------------------- (required for any purchaser that is a corporation, partnership, trust or other entity) B-3 -------------------------------------------------------------------------------- EXHIBIT C ENDOCARDIAL SOLUTIONS, INC. CERTIFICATE OF SUBSEQUENT SALE Norwest Bank Minnesota, N.A.     RE:  Sale of Shares of Common Stock of Endocardial Solutions, Inc. (the "Company") pursuant to the Company's Prospectus dated         , 2000 (the "Prospectus") Dear Sir/Madam:     The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Shareholders in the Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all applicable securities laws, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Shareholder (the beneficial owner):         -------------------------------------------------------------------------------- Record Holder (e.g., if held in name of nominee):         -------------------------------------------------------------------------------- Restricted Stock Certificate No.(s):         -------------------------------------------------------------------------------- Number of Shares Sold:         -------------------------------------------------------------------------------- Date of Sale:         --------------------------------------------------------------------------------     In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate.     Very truly yours,           By:           --------------------------------------------------------------------------------     Print Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------   Dated:                 --------------------------------------------------------------------------------   C-1 -------------------------------------------------------------------------------- QUICKLINKS STOCK PURCHASE AGREEMENT ANNEX I TERMS AND CONDITIONS FOR PURCHASE OF SHARES EXHIBIT A ENDOCARDIAL SOLUTIONS, INC. STOCK CERTIFICATE QUESTIONNAIRE EXHIBIT C ENDOCARDIAL SOLUTIONS, INC. CERTIFICATE OF SUBSEQUENT SALE

AMENDMENT TO THE TELLABS, INC. 1994 STOCK OPTION PLAN   WHEREAS, Tellabs, Inc. (the "Corporation") has heretofore established the Tellabs, Inc. 1994 Stock Option Plan (the "Plan") for the benefit of participating officers and other key employees of the Corporation and its subsidiaries; WHEREAS, the Corporation deems it desirable to make certain amendments to the Plan relating to the vesting of options and/or the post-employment exercise period in the event of the death, disability, or retirement of an option holder, or a change in control of the Corporation; WHEREAS, the Compensation Committee of the Corporation has considered the recommendations and recommended that the Board of Directors of the Corporation approve this Amendment to the Plan; and WHEREAS, the Board of Directors of the Corporation has approved this Amendment to the Plan. NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended, effective June 30, 2000, as follows : I. Under Article 2 of the Plan, the following definition of "Change in Control" shall be added: q. "Change in Control" means the first to occur of: (i) 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, the Corporation or any subsidiary of the Corporation, or any employee benefit plan of the Corporation or any subsidiary of the Corporation, or any person or entity organized, appointed or established by the Corporation for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation'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 Corporation; and provided further that no Change in Control will be deemed to have occurred if a person inadvertently acquires an ownership interest of 20% or more but then promptly reduces that ownership interest below 20%; (ii) During any two consecutive years (not including any period beginning prior to June 30, 2000), individuals who at the beginning of such two-year period constitute the Board of Directors of the Corporation and any new director (except for a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new director, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Corporation 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 Corporation or all or substantially all of the Corporation'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 Corporation; (B) no person (excluding any company resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such company resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then combined voting power of the then outstanding voting securities of such company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. II. Under Article 2 of the Plan, the following definition of "Disability" shall be added: t. "Disability" shall have the meaning ascribed to such term in Section 22(e)(3) of the Code. III. Article 13 shall be amended in its entirety to read as follows: 13. Termination of Employment Except as set forth in Article 13A with respect to the effect of a Change in Control or except as the Committee may otherwise expressly provide in the Option Agreement, the following rules shall apply upon termination of the Participant's employment with the Company and all subsidiaries: a. Except as set forth in subsections b, c, and d below, in the event a Grantee ceases to be an employee of the Corporation and its subsidiaries for any reason, any Option or unexercised portion thereof granted under this Plan may be exercised, to the extent such Option would have been exercisable by the Grantee hereunder on the date on which the Grantee ceased to be an employee, within three months of such date (seven months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of the expiration of the term of the Option. b. In the event of termination of employment due to the death the Grantee, each Option held by the Grantee shall become exercisable in full and may be exercised at any time prior to the expiration date of the Option or within one year after the date of the Grantee's death, whichever period is shorter. c. In the event of termination of employment due to the Disability of the Grantee, each Option held by the Grantee may, to the extent exercisable at the time of termination, be exercised at any time prior to the expiration date of the Option or within three years after the date of the Grantee's termination of employment, whichever period is shorter. d. In the event of termination of employment due to the retirement of the Grantee on or after attaining age 55, all or a portion of each Option held by the Grantee, to the extent not then exercisable, shall become exercisable in accordance with the schedule set forth below based upon one point for the Grantee's attained age and one point for each year of continuous service with the Corporation or its subsidiaries as of the date of retirement (including for this purpose, continuous service with an entity prior to the date such entity was acquired by the Corporation or an affiliate of the Corporation, but excluding any service prior to January 1, 1975), At least 70 but less than 80 points          50% of each unvested option shall vest At least 80 but less than 90 points          75% of each unvested option shall vest At least 90 points                                  100% of each unvested option shall vest and all Options held by the Grantee to the extent then exercisable may be exercised at any time prior to the expiration date of the Option or within three years after the date of the Grantee's retirement, whichever period is shorter. e. Notwithstanding anything in this Plan to the contrary, any Incentive Stock Option which is exercised after the expiration of three months following the cessation of employment for any reason other than Disability or death or one year after the date of termination of employment due to Disability or death shall be treated as a Non-Qualified Stock Option. IV. The Plan shall be hereby amended by adding thereto a new Article 13A to read: 13A. Change in Control a. Effect of Change in Control. Upon the occurrence of a Change in Control, any and all Options granted hereunder shall become immediately exercisable and remain exercisable until such Options expire or terminate under the provisions of this Plan. b. Change in Control Not Approved by Incumbent Board. Upon the occurrence of a Change in Control not approved by the Incumbent Board, any and all Options granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term without regard to termination of employment subsequent to such Change in Control. V. Article 14 of the Plan shall be amended in its entirety to read as follows: 14. Effect of Change in Stock Subject to Plan Except as provided below, the Committee shall make equitable adjustments in the number and class of shares subject to the Plan and to the Option rights granted hereunder and the exercise prices of such Option rights, in the event of a stock dividend, stock split, reverse stock split, recapitalization, reorganization, merger, consolidation, acquisition, separation or other change in the capital structure of the Corporation. In making any adjustments pursuant to this Article 14, fractional shares may be ignored. IN WITNESS WHEREOF, the foregoing amendments to the Tellabs, Inc. 1994 Stock Option Plan are hereby adopted as of the 30th day of June, 2000, by the undersigned officer duly authorized by resolutions adopted by the written consent of the Board of Directors dated June 30, 2000.   TELLABS, INC.   By: /s Michael J. Birck Name: Michael J. Birck Its: President and Chief Executive Officer

  EXHIBIT 10.14   REPLACEMENT PROMISSORY NOTE   $4,500,000.00 August 28, 2000             FOR VALUE RECEIVED, the undersigned, Michael S. Jeffries, promises to pay to the order of Abercrombie & Fitch Co., a Delaware corporation, the principal sum of Four Million Five Hundred Thousand Dollars ($4,500,000.00), with interest thereon at the rate of six and one-half percent (6.5%) per annum, said principal and all accrued interest thereon being payable in full on May 18, 2001.             The undersigned reserves the privilege of prepaying all or a portion of the principal balance hereof at any time without penalty.             All persons now or hereafter liable for the principal amount due on this Note or any part hereof do expressly waive presentment for payment, notice of dishonor, protest and notice of protest and agree that the time for the payment of this Note may be extended without releasing or otherwise affecting their liability on this Note, or any other security agreements or guarantees, if any, securing this Note.             This Note was signed at Reynoldsburg, Ohio and shall be construed in accordance with and governed by the provisions of the laws of the State of Ohio. Any failure of Abercrombie & Fitch Co. or the legal holder hereof to exercise any option herein provided upon default shall not constitute a waiver of the right to exercise such option in the event of any continuing or subsequent default. The undersigned hereby agrees that the maturity of all or any part of the indebtedness evidenced hereby may be postponed or extended without prejudice to his liability on this Promissory Note.             If any provision of this Note is illegal, or hereafter rendered illegal, or is for any other reason void, voidable or otherwise unenforceable or invalid, or hereafter rendered void, voidable or otherwise unenforceable or invalid, the remainder of this Note shall not be affected by, but shall be construed as if it does not contain such provision.             This Replacement Note constitutes a replacement of, and substitute for, both the Promissory Note, dated as of March 1, 2000, executed by the undersigned and payable to the order of Abercrombie & Fitch Co. in the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) and the Replacement Promissory Note, dated as of May 19, 2000, executed by the undersigned and payable to the order of Abercrombie & Fitch Co. in the original principal amount of Three Million Dollars ($3,000,000.00) (collectively the “Original Notes”). Upon the undersigned's execution of this Replacement Note, Abercrombie & Fitch Co. shall mark the Original Notes "cancelled". /s/ Michael S. Jeffries Michael S. Jeffries      

C. R. BARD, INC. AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT WITH WILLIAM H. LONGFIELD THIS AMENDED AND RESTATED AGREEMENT, dated as of October 11, 2000, is between C. R. BARD, INC., a New Jersey corporation with offices at 730 Central Avenue, Murray Hill, New Jersey 07974 (hereinafter referred to as the "Company"), and WILLIAM H. LONGFIELD, residing at 4 Kimball Circle, Westfield, New Jersey 07090 (hereinafter referred to as the "Executive"). WHEREAS, the Company has the strongest interest in retaining the Executive because of his outstanding performance and competence; and WHEREAS, the Company desires to provide an additional incentive for the Executive to devote his best efforts to the service of the Company, and, to this end, the Company entered into an agreement with the Executive providing a basis for incentive compensation entitled "C. R. Bard, Inc. Supplemental Executive Retirement Agreement with William H. Longfield, effective as of January 12, 1994, as amended by a First Amendment thereto effective as of December 13, 1995 and as further amended by a Second Amendment thereto effective as of July 31, 1998 (said agreement as amended being hereinafter referred to as the "1994 Agreement") and WHEREAS, the parties wish to amend and restate in its entirety the 1994 Agreement, NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: I. DEFINITIONS. The terms herein contained shall have the following meanings: "Agreement" shall mean this Amended and Restated C. R. Bard, Inc. Supplemental Executive Retirement Agreement with William H. Longfield. 1.2. "Average Compensation" shall have the meaning set forth in Section 1.7. 1.3. "Beneficiary" shall mean the person or persons, estates or trusts (including without limitation Spouse, as such term is defined in Section 1.13) designated under the pertinent Other Retirement Benefit Plan (as such term is defined in Section 1.12). 1.4. "Benefit Eligibility Date" shall have the meaning set forth in Section 2.1. 1.5. "Board of Directors" or "Board" shall mean the Board of Directors of the Company. 1.6. "Change in Control" shall have the meaning set forth in Section 4.1. 1.7. "Compensation" shall mean the salary and bonus compensation paid or payable under the Executive Bonus Plan of C. R. Bard, Inc. to the Executive in each calendar year. Any bonuses deferred to a subsequent calendar year shall be counted in the calendar year to which the bonus relates. "Average Compensation" shall mean the Compensation of the Executive averaged over the five completed calendar years which provide the highest average of all of the completed calendar years ending before the Benefit Eligibility Date. 1.8. "Disability" shall mean the total and permanent disability of the Executive as defined under the C. R. Bard, Inc. Long Term Disability Income Plan. 1.9. "Discharge(d) For Cause" shall mean the termination of the Executive's employment by the Company by reason of chronic insubordination, fraud, embezzlement, dishonesty or defalcation in connection with his employment or any one or more transactions with the Company. 1.10 "Monthly Supplemental Retirement Benefit" shall have the meaning set forth in Section 3.1. 1.11. "Normal Retirement Date" shall mean the date on which the Executive attains age sixty-two (62). 1.12. "Other Retirement Benefits" shall mean the C. R. Bard, Inc. benefits actually received by the Executive under the C. R. Bard, Inc. Supplemental Insurance/Retirement Plan, the C. R. Bard, Inc. Employees' Retirement Plan, the C. R. Bard, Inc. Excess Benefit Plan, and the C. R. Bard, Inc. Supplemental Executive Retirement Plan (collectively, the "Other Retirement Benefit Plans"). 1.13 "Spouse" shall mean Executive's wife, Nancy S. Longfield. 1.14. "Supplemental Retirement Benefit" shall mean the aggregate of the Monthly Supplemental Retirement Benefit payments payable hereunder pursuant to Article III.   ELIGIBILITY FOR SUPPLEMENTAL RETIREMENT BENEFIT . 2.1 The Executive and/or Spouse, as the case may be, shall become entitled to a Supplemental Retirement Benefit upon the first to occur of the following events (the date on which such event occurs hereinafter referred to as the "Benefit Eligibility Date"): (a) Termination of the Executive's employment by the Company (other than by reason of a Discharge For Cause). (b) Voluntary termination of employment by the Executive for any reason; provided that the Board shall have approved any such retirement that is prior to his Normal Retirement Date. (c) Voluntary termination of employment by the Executive prior to reaching his Normal Retirement Date, but within the two-year period following a Change in Control, as defined in Article IV. Executive's Disability. Executive's death, provided that Spouse is then living. 2.2. As of June 6, 1998, the Executive was fully vested in his Supplemental Retirement Benefit hereunder and such Benefit became nonforfeitable; provided, however, that the Executive's participation hereunder shall cease immediately and he shall forfeit all rights hereunder to a Supplemental Retirement Benefit if prior to reaching his Normal Retirement Date, the Executive is Discharged For Cause, or voluntarily terminates his employment other than pursuant to Section 2.1(b) or (c) hereof. SUPPLEMENTAL RETIREMENT BENEFIT 3.1. Amount. The Monthly Supplemental Retirement Benefit shall equal the Gross Monthly Amount (as such term is hereafter defined) reduced by the sum of any Other Retirement Benefits to which the Executive or his Beneficiary is entitled as of the Benefit Eligibility Date. (The term "Gross Annual Amount" as used herein means 60% of the Executive's Average Compensation as of the Benefit Eligibility Date. The term "Gross Monthly Amount" as used herein means one-twelfth of the Gross Annual Amount.) The calculation of the reduction for Other Retirement Benefits shall be made by (a) actuarially determining the number of months, as of the Benefit Eligibility Date, that payments would have to be made under a 100% joint and survivor benefit to Executive and/or Spouse (such number of months being the "Actuarial Term"), and (b) converting all of the Other Retirement Benefits into the actuarially equivalent amount of an installment payment of benefits over a number of months equal to the Actuarial Term (regardless of the form of benefit which the Executive or his Beneficiary is actually receiving or entitled to receive under the Other Retirement Plans) and subtracting the aggregate monthly payments of the Other Retirement Benefits from the Gross Monthly Amount. All actuarial calculations hereunder shall be done using the actuarial assumptions and methods provided for under the pertinent Other Retirement Benefit Plan (or if none is provided, those assumptions and methods used under the C. R. Bard, Inc. Retirement Plan). 3.2 Form of Benefit. The Monthly Supplemental Retirement Benefit shall be paid each month, commencing on the first day of the month next following the Benefit Eligibility Date, to Executive and/or Spouse, as the case may be, on a 100% joint and survivor basis, until the later to occur of the death of Executive or Spouse. 3.3 Board's Option to Prepay. Notwithstanding anything herein to the contrary, the Board, at its option, may accelerate payment of the Supplemental Retirement Benefit, in whole or in part, to an actuarial equivalent form or amount.   CHANGE IN CONTROL OF THE COMPANY 4.1. Change in Control. (a) For the purposes of this Agreement, a "change in control of the Company" (a "Change in Control") shall mean the occurrence of an event of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided, however, that a Change in Control shall, in any event, conclusively be deemed to have occurred upon the first to occur of either of the following events: (i) the beneficial ownership at any time hereafter by any person, as defined herein, of capital stock of the Company, constitutes 20 percent or more of the general voting power of all of the Company's outstanding capital stock; or (ii) individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Board" generally and as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director subsequent to the date hereof whose election, or nomination for election, by the Company's shareholders, was approved by a vote of at least three-quarters of the Directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. (b) Notwithstanding anything in the foregoing Section 4.1(a) to the contrary, no Change in Control shall be deemed to have occurred for the purposes of this Agreement by virtue of a sale to underwriters or private placement of its capital stock by the Company, nor any acquisition by the Company, through merger, purchase of assets or otherwise, effective in whole or in part by issuance or reissuance of shares of its capital stock. (c) For the purposes of this Article IV, the following definitions shall apply: (i) The term "person" shall mean any individual, corporation or other entity and any group as such term is used in Section 13(d)(3) or 14(d)(2) of the Exchange Act; (ii) Any person shall be deemed to be the beneficial owner of any shares of capital stock of the Company; (A) which that person owns directly, whether or not of record, or (B) which that person has the right to acquire pursuant to any agreement or understanding or upon exercise of conversion rights, warrants, or options, or otherwise, or (C) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (B) above), by an "affiliate" or "associate" (as defined in the rules of the Securities and Exchange Commission under the Securities Act of 1933, as amended) of that person, or (D) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (B) above), by any other person with which that person or his "affiliate" or "associate" (defined as aforesaid) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of capital stock of the Company; (iii) The outstanding shares of capital stock of the Company shall include shares deemed owned through application of clauses (ii) (B), (C) and (D) above, but shall not include any other shares which may be issuable pursuant to any agreement or upon exercise of conversion rights, warrants or options, or otherwise, but which are not actually outstanding; and (iv) Shares of capital stock, if any, held by The Chase Manhattan Bank N.A. under the Indenture and the Escrow Agreement dated as of November 1, 1971 between International Paper Company and said bank shall not be deemed owned by International Paper Company or by said bank for purposes of this definition, so long as they are held by said bank under said Escrow Agreement, but said shares shall be deemed outstanding for the purpose of determining the aggregate number of outstanding shares of capital stock of the Company. 4.2. The Executive and the Company understand that payments hereunder pursuant to Section 2.1(c) may constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. V. GENERAL PROVISIONS 5.1. Unsecured General Creditor. Neither the Executive nor Spouse shall have any legal or equitable rights, interest, or other claims in any property or assets of the Company, nor shall they be beneficiaries of, or have any rights, claims or interest in, any life insurance policies, annuity contracts, or other policies therefrom owned or which may be acquired by the Company to help fund the Company's obligation hereunder ("policies"). Such policies or other assets of the Company shall not be held under any trust for the benefit of the Executive or Spouse or their respective heirs, successors or assigns, or held in any way as collateral security for the fulfilling of the obligations of the Company under this Agreement; provided, however, that assets to provide benefits set forth herein may be held in a trust, the assets of which are subject to the claims of the Company's creditors in the event of bankruptcy or insolvency. Otherwise, any and all of the Company's assets and policies shall be and remain general, unpledged, unrestricted assets of the Company. The Company's obligations under the Agreement shall be that of an unfunded and unsecured promise of the Company to the Executive to pay money in the future. 5.2. Non-Assignability. Neither the Executive nor any other person, shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or any other person, nor be transferable by operation of law in the event of the bankruptcy or insolvency of Executive or any other person. 5.3. Construction. All references made and all names and pronouns used herein shall be construed in the singular or plural and in such gender as the sense and circumstances require. 5.4. Tax Consequences. (a) The Executive acknowledges that any payment of the Supplemental Retirement Benefit made to him pursuant to the terms of the Agreement represents additional compensation to him for his services to the Company; that the amount of such payments has been fixed between the Company and the Executive in reliance upon the fact that it will be taxed as ordinary income to the Executive; and the Executive does hereby covenant and agree that any and all such Supplemental Retirement Benefit payments shall be treated as additional compensation by him for Federal and State income tax purposes, recognizing that the Company will be deducting all such Supplemental Retirement Benefit payments in the computation of its Federal and State income tax liabilities. (b) The Company shall have the right to deduct from all payments of the Supplemental Retirement Benefit any Federal, State or local taxes required by law to be withheld with respect to such payments. 5.5. Merger of Documents. This Agreement supercedes in its entirety the 1994 Agreement. All understandings and agreements heretofore between the parties regarding the subject matter hereof are merged into this Agreement which alone fully and completely expresses the understanding of the parties with respect to the subject matter hereof. 5.6. Employment Not Guaranteed. Nothing contained in this Agreement nor any action taken hereunder shall be construed as a contract of employment or as giving the Executive any right to be retained in the employ of Company. 5.7. Compensation Not Guaranteed. Nothing contained in this Agreement nor any action taken hereunder shall be construed as a contract or agreement that compensation shall be awarded or paid to the Executive. 5.8. Amendment. This Agreement may not be amended, modified, altered or changed in any respect whatsoever except by a further agreement, in writing, jointly entered into by the parties hereto. 5.9. Notice. Any notice required or permitted to be given to the Company shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the Chief Executive Officer of the Company, and any notice required or permitted to be given to the Executive shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the Executive at his residence address. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.   5.10. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New Jersey, without regard to the conflict of laws principles thereof. 5.11. Validity. The invalidity of one or more of the phrases, sentences, clauses, sections or paragraphs contained in this Agreement shall not affect the remaining portions so long as the material purposes of this Agreement can be determined and effectuated. 5.12. No Guarantee of Benefits. Nothing contained in this Agreement shall constitute a guarantee by the Company or any other entity or person that the assets of the Company or any other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. 5.13. Captions. The captions of this Agreement are for convenience and reference only and in no way define, describe, extend or limit the scope or intent of any provision hereof. 5.14. Limitations on Liability. Notwithstanding any of the preceding provisions of this Agreement, no individual acting as an employee or agent of the Company shall be liable to the Executive or any other person, for any claim, loss, liability or expense incurred in connection with this Agreement. 5.15 Binding on Assigns. Except as herein provided, this Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors (including but not limited to successors resulting from any corporate merger or acquisition) or assigns.   IN WITNESS WHEREOF, the parties have executed this Agreement effective as the date first above written.     ATTEST: C. R. BARD, INC.   Nadia Adler /s/ By: Hope Greenfield /s/ Secretary Vice President - Human Resources WITNESS:   Barbara Vincelli /s/ William H. Longfield /s/ William H. Longfield

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.1 FIRST AMENDMENT TO CREDIT AGREEMENT     This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made and entered into as of June 28, 2000, is by and between Best Buy Co., Inc., a Minnesota corporation (the "Company"), the banks which are signatories hereto (individually, each a "Bank" and collectively, the "Banks") and U.S. Bank National Association, a national banking association, as agent for the Banks (in such capacity, the "Agent"). RECITALS     1.  The Banks, Company, and the Agent entered into a Credit Agreement dated as of August 9, 1999 (the "Credit Agreement"); and     2.  The Company desires to amend certain provisions of the Credit Agreement, and the Banks and the Agent have agreed to make such amendments, subject to the terms and conditions set forth in this Amendment. AGREEMENT     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:     Section 1.  Capitalized Terms.  Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context shall otherwise require.     Section 2.  Amendments.  The Credit Agreement is hereby amended as follows:     2.1  General Capital Expenditures.  Section 5.17 is hereby amended to read in its entirety as follows:     Section 5.17  [INTENTIONALLY DELETED].       2.2  Minimum Consolidated Net Worth.  Section 5.21 of the Credit Agreement is hereby amended to read in its entirety as follows:     Section 5.21  Minimum Consolidated Net Worth.  Not permit Consolidated Net Worth to be less than $1,000,000,000 at the end of any fiscal quarter.     2.3  Owned Land and Buildings.  Section 5.24 of the Credit Agreement is hereby amended to read in its entirety as follows:     Section 5.24  [INTENTIONALLY DELETED.]       Section 3.  Effectiveness of Amendments.  The amendments contained in this Amendment shall become effective upon delivery by the Company of, and compliance by the Company with, the following:     3.1 This Amendment duly executed by the Company, the Agent, and the Majority Banks.     3.2 A consent of each Guarantor in the form of Exhibit A attached to this Amendment, duly executed by each Guarantor.     3.3 A copy of the resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of this Amendment certified as true and accurate by its Secretary or Assistant Secretary, along with a certification by such Secretary or Assistant Secretary (i) certifying that there has been no amendment to the Articles of Incorporation or Bylaws of the Company since true and accurate copies of the same were delivered to the Agent with a certificate of the Secretary of the Company dated August 9, 1999, and (ii) identifying each officer of the Company authorized to -------------------------------------------------------------------------------- execute this Amendment and any other instrument or agreement executed by the Company in connection with this Amendment, and certifying as to specimens of such officer's signature and such officer's incumbency in such offices as such officer holds.     3.4 A good standing certificate for the Company from the State of Minnesota issued not more than 10 days prior to the date of this Amendment.     3.5 The Company shall have satisfied such other conditions as specified by the Banks, including payment of all unpaid legal fees and expenses incurred by the Agent through the date of this Amendment in connection with the Credit Agreement and this Amendment.     Section 4.  Representations, Warranties, Authority, No Adverse Claim.       4.1  Reassertion of Representations and Warranties, No Default.  The Company hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement, and (b) there will exist no Default or Event of Default under the Credit Agreement as amended by this Amendment on such date which has not been waived by the Banks.     4.2  Authority, Validity, No Conflict, No Consent Required.  The Company represents and warrants that the Company has the power and legal right and authority to enter into this Amendment and has duly authorized as appropriate the execution and delivery of this Amendment and other agreements and documents executed and delivered by the Company in connection herewith or therewith by proper corporate authority, and neither this Amendment nor the agreements contained herein contravenes or constitutes a default under any agreement, instrument or indenture to which the Company is a party or a signatory or a provision of the Company's Articles of Incorporation, Bylaws or any other agreement or requirement of law, or result in the imposition of any Lien on any of its property under any agreement binding on or applicable to the Company or any of its property except, if any, in favor of the Banks. The Company represents and warrants that this Amendment constitutes the legal, valid, and binding obligations of the Company, enforceable against the Company in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, moratorium, and other similar laws affecting Creditors' rights generally and general principles of equity. The Company represents and warrants that no consent, approval or authorization of or registration or declaration with any person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Company of this Amendment or other agreements and documents executed and delivered by the Company in connection therewith or the performance of obligations of the Company therein described, except for those which the Company has obtained or provided and as to which the Company has delivered certified copies of documents evidencing each such action to the Agent.     4.3  No Adverse Claim.  The Company warrants, acknowledges and agrees that no events have been taken place and no circumstances exist at the date hereof which would give the Company a basis to assert a defense, offset or counterclaim to any claim of the Banks with respect to the Obligations.     Section 5.  Affirmation of Credit Agreement, Further References.  The Banks and the Company each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Company confirms to the Banks that all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Company under any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Company. --------------------------------------------------------------------------------     Section 6.  Merger and Integration, Superseding Effect.  This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment, shall control with respect to the specific subjects hereof and thereof.     Section 7.  Severability.  Whenever possible, each provision of this Amendment 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, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.     Section 8.  Successors.  This Amendment shall be binding upon the Company and the Banks and their respective successors and assigns, and shall inure to the benefit of the Company and the Banks and the successors and assigns of the Banks.     Section 9.  Legal Expenses.  As provided in Section 8.03 of the Credit Agreement, the Company agrees to reimburse the Agent, upon execution of this Amendment, for all reasonable out-of-pocket expenses (including attorney' fees and legal expenses of Dorsey & Whitney LLP, counsel for the Agent) incurred in connection with the Credit Agreement, including in connection with the negotiation, preparation and execution of this Amendment and all other documents negotiated, prepared and executed in connection with this Amendment and in enforcing the obligations of the Company under this Amendment and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Company shall survive any termination of the Credit Agreement.     Section 10.  Headings.  The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.     Section 11.  Counterparts.  This Amendment may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document.     Section 12.  Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES. --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.   Company: BEST BUY CO., INC.   By: /s/ Robert C. Fox --------------------------------------------------------------------------------   Title: Senior Vice President Finance --------------------------------------------------------------------------------   Agent: U.S. BANK NATIONAL ASSOCIATION, as Agent   By: /s/ Matt A. Ross --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------     Banks: U.S. BANK NATIONAL ASSOCIATION, as a Bank   By: /s/ Matt A. Ross --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------     FIRST UNION NATIONAL BANK   By: /s/ Randall R. Meck --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------     BANK ONE, NA (formerly THE FIRST NATIONAL BANK   OF CHICAGO)   By: /s/ John D. Runger --------------------------------------------------------------------------------   Title: Senior Vice President --------------------------------------------------------------------------------     WELLS FARGO BANK, NATIONAL ASSOCIATION   By: /s/ Allison S. Gelfman --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------     By: /s/ Christopher Cudak --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     THE BANK OF TOKYO-MITSUBISHI, LTD.,   CHICAGO BRANCH   By: /s/ Gus C. Browne II --------------------------------------------------------------------------------   Title: Senior Vice President & Manager -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- QUICKLINKS FIRST AMENDMENT TO CREDIT AGREEMENT RECITALS AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10 (b) PACCAR Inc Supplemental Retirement Plan SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN     The PACCAR Inc Supplemental Retirement Plan (the "Supplemental Plan"), as established effective January 1, 1975, by PACCAR Inc, a Delaware corporation (the "Company"), is hereby amended and restated effective January 1, 2000. The sole purpose of the Supplemental Plan is to supplement the benefits of certain employees under the PACCAR Inc Retirement Plan as amended (the "Retirement Plan") SECTION 2. ELIGIBILITY AND PARTICIPATION     Participation in this Supplemental Plan shall be limited to the following classes of members: (a)All members of the Retirement Plan who, with the Company's approval, have elected to defer all or any portion of their base salary compensation from the Company; (b)All members of the Retirement Plan who have elected to participate in the Company's nonqualified deferred compensation arrangement for payment of incentive compensation; (c)All members of the Retirement Plan whose monthly pension, determined in accordance with the Retirement Plan, would, but for the limitations of Section 415 of the Internal Revenue Code and the maximum benefit limitations of the Retirement Plan, exceed the amount of the monthly pension actually payable to such member under the Retirement Plan after the application of such limitations; and (d)All members of the Retirement Plan whose monthly pension, determined in accordance with the Retirement Plan, would, but for the limitations of Section 401(a) (17), exceed the amount of the monthly pension actually payable to such member under the Retirement Plan after the application of such limitations.     The term "Participant" includes an employee eligible to participate in this Supplemental Plan by reason of paragraphs (a), (b), (c) and/or (d) above. Employees who are participants solely due to (c) shall be defined as "Excess Plan Participants", and the Plan as it applies to these participants shall be an excess benefit plan as defined in Section 3(36) of ERISA. SECTION 3. PLAN BENEFITS (a)Supplemental Commencement Date—The Supplemental Commencement Date is the date the Participant elects to commence benefits from this Supplemental Plan. Eligibility for receiving benefits under this Supplemental Plan are the same as under Article 4 of the Retirement Plan. (b)Supplemental Form of Payment—The Participant shall elect a Supplemental Form of Payment. This election shall be made from the options described in Article 6.1 of the Retirement Plan and in accordance with the election provisions contained in Section 6.2 of the Retirement Plan. If the Participant elects to receive Supplemental Plan benefits as defined in Section 3(e), the Supplemental Form of Payment must be the same as the form of payment elected under the Retirement Plan. (c)Total Plan Benefit—The Total Plan Benefit shall equal the monthly pension payment which would be payable to such Participant under Article 5 of the Retirement Plan if the maximum benefit limitations of Section 415 of the Internal Revenue Code and of the Retirement Plan did not apply, 1 -------------------------------------------------------------------------------- if the includable compensation limitations of Section 401(a) (17) of the Internal Revenue Code did not apply, and if the definition of "salary" in the Retirement Plan included deferred base salary and incentive compensation. Deferred base salary and incentive compensation shall be deemed to be included in salary for the year earned. The Total Plan Benefit shall be calculated assuming commencement on the Supplemental Commencement Date, and adjusted as under Section 6.1 of the Retirement Plan to reflect the Supplemental Form of Payment. (d)Supplemental Plan Benefits—In general, to the extent that the Total Plan Benefit exceeds a Participant's actual monthly pension payment under the Retirement Plan (the Retirement Plan Benefit), the difference shall be payable from the Supplemental Retirement Plan. At the Supplemental Commencement Date, the participant must request one of three payment options, described in Sections 3(e), 3(f) and 3(g). (e)The member may request to commence benefits under the Retirement Plan and receive a pension payment from the Supplemental Retirement Plan. The Retirement Plan Benefit is adjusted to reflect the Supplemental Commencement Date and the Supplemental Form of Payment. The difference between the Total Plan Benefit and the adjusted Retirement Plan Benefit is payable from the Supplemental Retirement Plan, commencing on the Supplemental Commencement Date and payable in the Supplemental Form of Payment. (f)The member may request to commence benefits under the Retirement Plan and receive a lump sum from the Supplemental Retirement Plan, subject to Section 5(b).     The member receives a lump sum which is equal to the actuarial equivalent present value of the Supplemental Retirement Plan Benefit as defined in Section 3(e). (g)The member may request to defer commencement of benefits from the Retirement Plan. The member will receive the Total Plan Benefit from the Supplemental Retirement Plan. Payment of this amount will cease at the earlier of the following: (1)The month preceding the date the member elects to commence benefits under the Retirement Plan; (2)The month preceding the date that the member could elect to commence benefits under the Retirement Plan and receive a Retirement Plan Benefit, payable in the same form of payment as under the Supplemental Retirement Plan, at least as large as the Total Plan Benefit; or (3)The month during which the member turns age 70.     The determination of (2) shall be made annually by PACCAR Inc as soon as the Internal Revenue Service publishes the applicable dollar limitation under Section 415(b) (1) (A) for that year.     If the benefit payment ceases due to (1), a new Supplemental Retirement Benefit shall be calculated. This benefit equals the difference between the Supplemental Plan Benefit previously in payment and the benefit payable under the Retirement Plan commencing on the date the member elected to commence benefits from the Retirement Plan and payable in the Supplemental Form of Payment. This benefit will be payable in the Supplemental Form of Payment.     If the Supplemental Retirement Benefit ceases due to (2), no further Supplemental Retirement Benefit shall be paid.     If the benefit ceases due to (3), a new Supplemental Retirement Benefit shall be calculated equal to the difference between the Supplemental Plan Benefit previously in payment and the benefit payable from the Retirement Plan assuming benefit commencement on the first day of the month following the month in which the member turned age 70 and based on the Supplemental Form of Payment. This 2 -------------------------------------------------------------------------------- benefit shall be payable in the Supplemental Form of Payment or, at the request of the member, may be payable as a lump sum equal to the actuarial equivalent present value of the remaining Supplemental Plan Benefits, subject to Section 5(b). SECTION 4. SURVIVORS PENSIONS     (a) Death before benefit commencement.     If the member dies before making an election under Section 3(d), the surviving spouse is eligible to receive a Survivor Pension. The spouse's benefit and options under the Supplemental Retirement Plan shall be determined consistently with Section 3. With respect to the spouse, the Total Plan Benefit shall equal the monthly pension payment which would be payable under Article 7 of the Retirement Plan if the maximum benefit limitations of Section 415 of the Internal Revenue Code and of the Retirement Plan did not apply, the Iincludable compensation limitations of 401(a) (17) of the Internal Revenue Code did not apply, and the definition of salary in the Retirement Plan included deferred base salary and incentive compensation. The spouse's Retirement Plan Benefit shall be the actual monthly pension payable under Article 7 of the Retirement Plan.     (b) Death after benefit commencement.     If the member dies after commencing benefits under Section 3(e), the Survivor Pension shall be determined based on the Supplemental Form of Payment.     If the member dies after receiving a lump sum under Section 3(f), no Survivor Pension shall be paid.     If the member dies after commencing benefits under Section 3(g) and before benefits have commenced from the Retirement Plan, the following Survivor Pension shall be paid: (1)If the Supplemental Form of Payment is a single life pension, no Survivor Pension shall be paid. (2)If the Supplemental Form of Payment is a 50% joint and survivor pension, the spouse shall receive the excess, if any, of 50% of the Total Plan Benefit over the monthly pension payable to the spouse under the Retirement Plan. Such payment shall be payable to the spouse for life. (3)If the Supplemental Form of Payment is a 100% joint and survivor pension, the spouse shall receive the excess, if any, of the Total Plan Benefit over the monthly pension payable under the Retirement Plan. Such payment shall be payable to the spouse for life.     If the member dies after commencing benefits under Section 3(g) and after benefits have commenced from the Retirement Plan, for purposes of the calculations defined in (2) and (3) above, the monthly pension payable to the spouse under the Retirement Plan shall be deemed to be the benefit the spouse would have been eligible for had the member elected to receive the Retirement Plan Benefit in the Supplemental Form of Payment, irrespective of the actual form of payment chosen for the Retirement Plan.     Under (2) and (3) above, instead of receiving a lifetime Supplemental Retirement Plan Benefit, the spouse may elect to defer receipt of the Retirement Plan Benefit until the available Retirement Plan Benefit exceeds the Total Plan Survivor Benefit. Determination of the amount and cessation date of the Supplemental Retirement Plan Benefit shall be consistent with the procedures described in Section 3 (g). 3 --------------------------------------------------------------------------------     (c) Eligibility for Survivor Pension.     Eligibility for a Survivor Pension shall be based on the requirements in Article 7.1 of the Retirement Plan. SECTION 5. LUMP SUM PAYMENT (a)Involuntary. If a member terminates his employment and the present value of his non-forfeitable accrued benefit in the Supplemental Retirement Plan is $3,500 or less, or if a member dies and the present value of his surviving spouse benefit in the Supplemental Retirement Plan is $3,500 or less, the member (or surviving spouse) will receive the actuarial equivalent present value of the entire non-forfeitable benefit. Such distribution may be made with or without the recipient's consent; provided, no distribution may be made under this paragraph after the member's benefits payments have commenced under this plan. For the purpose of determining present values under this section, the Plan shall use the actuarial assumptions stated in Section 5(c). If a member terminates employment prior to becoming eligible for early retirement under the Retirement Plan, the Supplemental Retirement Plan accrued benefit for this section shall be defined as the difference between the Total Plan Benefit and the member's accrued benefit in the Retirement Plan, both based on an assumed retirement age of 65 and a straight life form of payment. If the member terminates his employment after becoming eligible for early retirement under the Retirement Plan, the accrued benefit under the Supplemental Plan for purposes of this section shall equal the difference between the Total Plan Benefit and the member's accrued benefit in the Retirement Plan, both based on an immediate retirement assumption and straight life form of payment. (b)Under Section 3(f) and 3(g), the member may request to receive a lump sum payment in lieu of monthly benefits under this Plan. Acceptance of such request shall be at the sole discretion of the Company. Such request must be in writing and made before any payments under the Plan commence. (c)For purposes of calculating lump sums under this Plan, the interest rate used shall be 7% per annum, compounded annually, or the Pension Benefit Guaranty Corporation immediate and deferred interest rates in effect for the month of distribution, whichever produces the greater lump sum. For purposes of calculating lump sums under this Plan in the event of a Change of Control, the interest rate used shall be 0% (zero percent). The assumed mortality table for participants shall be the UP-1984 mortality table. The assumed mortality table for spouses shall be the UP-1984 Mortality Table with ages set back three years. SECTION 6. FUNDING     The Supplemental Plan shall be unfunded, and Supplemental Plan Benefits shall be paid only from the general assets of the Company. SECTION 7. ADMINISTRATION     The Supplemental Plan shall be administered by the Company. The Company shall make such rules, interpretations and computations as it may deem appropriate; and any decision with respect to the Supplemental Plan, including (without limitation) any determination of eligibility to participate in the Supplemental Plan and any calculation of Supplemental Plan Benefits shall be within the discretion of the Company. The Company's decision shall be upheld by a court of law unless it is arbitrary and 4 -------------------------------------------------------------------------------- capricious. To the extent not preempted by the Employee Retirement Income Security Act of 1974 (except Parts 2, 3 and 4 of Title I), this Supplemental Plan shall be construed according to the laws of the State of Washington. SECTION 8. CLAIMS PROCEDURE     The Company will make all determinations as to the rights of any Employee, Participant, Beneficiary or other person under the terms of this Plan. Any Employee, Participant or Beneficiary, or person claiming under them, may make claim for benefit under this Plan by filing written notice with the Company setting forth the substance of the claim. If a claim is wholly or partially denied, the claimant will have the opportunity to appeal the denial by filing with the Company a written request for review within 60 days after receipt of notice of denial. In making an appeal, the claimant may examine pertinent Plan documents and may submit issues and comments in writing.     Denial of a claim or a decision on review will be made in writing by the Company and delivered to the claimant within 60 days after receipt of the claim or request for review, unless special circumstances require an extension of time for processing the claim or review, in which event the Company's decision must be made as soon as possible thereafter, but not beyond an additional 60 days. If no action on an initial claim is taken within 120 days, the claims will be deemed denied for purposes of permitting the claimant to proceed to the review stage.     The denial of a claim or the decision on review will specify the reasons for the denial or decision and will make reference to the pertinent Plan provisions upon which the denial or decision is based. The denial of a claim will also include a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the claim review procedure herein described. Valid service of any legal process upon the Company shall constitute service of process upon the Plan. SECTION 9. AMENDMENT AND TERMINATION     The Company expects to continue the Supplemental Plan indefinitely. Future conditions, however, cannot be foreseen, and the Company shall have the authority to amend or to terminate the Supplemental Plan at any time. In the event of an amendment or termination of the Supplemental Plan, a Participant's Supplemental Plan Benefits shall not be less than the Supplemental Plan Benefits to which the Participant would be entitled if the Participant's employment had terminated immediately prior to such amendment or termination of the Supplemental Plan. 5 -------------------------------------------------------------------------------- SECTION 10. CHANGE OF CONTROL (a)"Change of Control" shall mean the happening of any of the following events:     (i)  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 15% or more of either (i) the then outstanding COMMON STOCK (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the COMPANY entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a CHANGE OF CONTROL: (a) any acquisition directly from the COMPANY, (b) any acquisition by the COMPANY, (c) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the COMPANY or any corporation controlled by the Company, (d) any acquisition by the natural children and grandchildren of Paul Pigott and Theiline McCone Pigott (the "Immediate Pigott Family"), any trust or foundation to which any of the foregoing has transferred or may transfer securities of the COMPANY, the trusts at Bank America Corporation or its successor, holding outstanding COMMON STOCK for descendants of Paul Pigott and Theiline McCone Pigott, any trust established for the primary benefit of any member of the Immediate Pigott Family or any of their respective heirs or legatees, any trust of which any member of the Immediate Pigott Family serves as a trustee (or any affiliate or associate (within the meaning of Rule 12b-2 promulgated under the Exchange Act) of any of the foregoing) (the "Exempted Interests"), or (e) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of subsection (iii) below;     (ii) Individuals who, as of the date hereof, constitute the BOARD (the "Incumbent Board") cease for any reason to constitute at least a majority of the BOARD; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the COMPANY'S stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the BOARD;     (iii) Approval by the stockholders of the COMPANY of a reorganization, merger, share exchange, or consolidation (a "Business Combination"), in each case unless, following such Business Combination, (A) 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 Business Combination beneficially own, directly or indirectly, more than 85% of, respectively, the then outstanding COMMON STOCK and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the COMPANY through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding COMPANY common stock and outstanding company voting securities, as the case may be, (B) no Person (excluding (1) any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination or (2) the Exempted Interests) beneficially owns, directly or indirectly, 15% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the 6 -------------------------------------------------------------------------------- members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the BOARD, providing for such Business Combination; or     (iv) Approval by the COMPANY'S stockholders of the (A)a complete liquidation or dissolution of the COMPANY or (B) the sale or other disposition of all or substantially all of the COMPANY'S assets, other than to a corporation with respect to which, following such sale or other disposition, (1) more than 85% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all 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 sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding COMPANY COMMON STOCK and Outstanding COMPANY Voting Securities, as the case may be, (2) less than 15% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by any Person (excluding (I) any employee benefit plan (or related trust) of the COMPANY or such corporation or (II) the Exempted Interests), except to the extent that such Person owned 15% or more of the Outstanding COMPANY COMMON STOCK or Outstanding COMPANY Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the BOARD, providing for such sale or other disposition of assets of the COMPANY or were elected, appointed or nominated by the BOARD. (b)Notwithstanding any other provision of the Supplemental Plan to the contrary, in the event of a Change of Control of the Company, each Participant shall immediately be fully vested in the benefits set forth in Section 3 which have accrued through the date of the Change of Control and, upon the Change of Control, each Participant (or his Beneficiary) shall be entitled to a lump sum payment in cash in an amount which is the actuarial equivalent of such accrued benefits (as specified in Section 5(c)), which amount shall be paid within 30 days of the Change of Control. (c)Section 10 is effective December 21, 1989. SECTION 11. EMPLOYMENT RIGHTS     Nothing in the Supplemental Plan shall be deemed to give any person any right to remain in the employ of the Company or affect any right of the Company to terminate a person's employment with or without cause. SECTION 12. FORFEITURE OF PARTICIPANT BENEFITS     Benefits payable under the Plan to a Participant will be forfeited if service with the Company is terminated for cause, which is defined to include any of the following conduct: (1) an act of embezzlement, fraud or theft; (2) deliberate disregard of the rules of the Company or a Subsidiary, (3) unauthorized disclosure of any of the secrets or confidential information of the Company; (4) any conduct which constitutes unfair competition with the Company; or (5) inducing any customers of the Company to breach any contracts with the Company. Benefits shall also be forfeited if, after retirement or after termination of services for reasons other than discharge for cause, a Participant fails or refuses to provide advice and counsel to the Company when reasonably requested to do so. The good faith 7 -------------------------------------------------------------------------------- determination of the Board of Directors of PACCAR Inc of the existence of facts justifying forfeiture is considered conclusive under this Supplemental Plan. SECTION 13. NO ALIENATION     Benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse, former spouse or any other relative, prior to actually being received by the person entitled to the Benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to a Benefit payable hereunder shall be void with the exception of payroll taxes paid on the participant's behalf. The Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to a Benefit hereunder. SECTION 14. EXECUTION     PACCAR Inc, by its Chairman and Chief Executive Officer, has executed this Plan on December 22, 1999. Amendments executed on October 10, 2000 and November 7, 2000 have been incorporated into this document 8 -------------------------------------------------------------------------------- QUICKLINKS PACCAR Inc Supplemental Retirement Plan SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN SECTION 2. ELIGIBILITY AND PARTICIPATION SECTION 3. PLAN BENEFITS SECTION 4. SURVIVORS PENSIONS SECTION 5. LUMP SUM PAYMENT SECTION 6. FUNDING SECTION 7. ADMINISTRATION SECTION 8. CLAIMS PROCEDURE SECTION 9. AMENDMENT AND TERMINATION SECTION 10. CHANGE OF CONTROL SECTION 11. EMPLOYMENT RIGHTS SECTION 12. FORFEITURE OF PARTICIPANT BENEFITS SECTION 13. NO ALIENATION SECTION 14. EXECUTION

Exhibit 10(h) Contract No. 113416   NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural) TRANSPORTATION RATE SCHEDULE DSS AMENDMENT NO. 1 DATED April 17, 2000 TO AGREEMENT DATED January 15, 1998 (Agreement)   1. [ ] Exhibit A dated April 17, 2000. Changes Primary Receipt Point(s)/Secondary Receipt Point(s) and Point MDQ's. This Exhibit A replaces any previously dated Exhibit A. 2. [X] Exhibit B dated April 17, 2000. Changes Primary Delivery Point(s)/Secondary Delivery Point(s) and Point MDQ's. This Exhibit B replaces any previously dated Exhibit B. 3. [ ] Exhibits A and B dated April 17, 2000. Changes Primary Receipt and Delivery Points/Secondary Receipt and Delivery Points. These Exhibits A and B replace any previously dated Exhibits A and B. 4. [ ] Exhibit C dated April 17, 2000. Changes the Agreement's Path. This Exhibit C replaces any previously dated Exhibit C. 5. [ ] Revise Agreement MDQ: [ ] Increase [ ] Decrease In Section 2. of Agreement substitute MMBTU for MMBTU. [ ] Revise Agreement MAC: [ ] Increase [ ] Decrease In Section 2. of Agreement substitute MMBtu for MMBtu. 6. [ ] Revise Service Options Service option selected (check any or all): [ ] LN [ ] SW [ ] NB 7. [ ] The term of this Agreement is extended through _______________________. 8. [ ] Other:____________________________ This Amendment No. 1 becomes effective April 15, 2000. Except as hereinabove amended, the Agreement shall remain in full force and effect as written. Agreed to by: AGREED TO BY: NATURAL GAS PIPELINE COMPANY OF AMERICA   THE PEOPLES GAS LIGHT AND COKE COMPANY "Natural"   "Shipper"       By: /s/ David J. Devine   By: /s/ William E. Morrow       Name: David J. Devine   Name: William E. Morrow       Title: Vice President, Business Planning   Title: Vice President     EXHIBIT B DATED: April 17, 2000 EFFECTIVE DATE: April 15, 2000   COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY CONTRACT: 113416   DELIVERY POINT/S   County/Parish   PIN   MDQ Name / Location Area State No. Zone (MMBtu/d)             PRIMARY DELIVERY POINT/S                       1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL 900001 09 53,637 INTERCONNECT WITH NORTH           SHORE GAS COMPANY LOCATED IN           SEC. 12-T44N-R10E, LAKE COUNTY,           ILLINOIS.                       2 . PGLC/NGPL OAKTON STREET COOK COOK IL 904174 09 110,363 INTERCONNECT WITH THE           PEOPLES GAS LIGHT AND COKE           COMPANY ON TRANSPORTER'S           HOWARD STREET LINE IN SEC. 26-           T41N-R13E, COOK COUNTY,           ILLINOIS.                       3. PGLC/NGPL CRAWFORD COOK COOK IL 904360 09 84,000 INTERCONNECT WITH THE           PEOPLES GAS LIGHT AND COKE           COMPANY AT TRANSPORTER'S           CRAWFORD METER STATION IN           SEC. 34-T39N-R13E, COOK COUNTY           ILLINOIS.             SECONDARY DELIVERY POINT/S All secondary delivery points, and the related priorities and volumes, as provided under the Tariff provisions governing this Agreement. DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE Natural gas to be delivered by Natural to Shipper, or for Shipper's account, at the Delivery Point/s shall be at the pressure available in Natural's pipeline facilities from time to time. The measuring party shall use or cause to be used an assumed atmospheric pressure corresponding to the elevation at such Delivery Point/s.

June 2, 2000 Hoffmann-La Roche Inc. 340 Kingsland Street Nutley, New Jersey 07110 Attn: Mr. Georges Gemayel Vice President, Specialty Business Operations Re: Amendment of Amended and Restated Agreement Dear Mr. Gemayel: The purpose of this letter is to amend certain provisions of the Amended and Restated Agreement (the "Agreement") dated October 20, 1999 among Hoffmann-La Roche Inc., F. Hoffmann-La Roche Ltd and Protein Design Labs, Inc. Capitalized terms used in this letter have the meanings given to them in the Agreement. This letter amendment pertains to the manufacture and supply of Daclizumab for clinical and formulation development under Section 3C.1 of the Agreement. A. Right to Manufacture. Roche and PDL agree that PDL shall have the right to manufacture Daclizumab to provide clinical and development supplies in addition to the supply to be provided by Roche under Section 3C.1. Accordingly: 1. The second paragraph of Section 1.14 is amended to read as follows: "Roche Know-How shall also include all Daclizumab Know-How which is rightfully held by Roche or its Affiliates as of the Signing Date, or which is developed or acquired by Roche or its Affiliates with the right to license or sublicense during the term of this Amended and Restated Agreement, and which Daclizumab Know-How is reasonably required or useful for manufacturing Daclizumab." 2. Section 2.3 is amended to add a new sentence following the first sentence, which shall read as follows: "In addition, Roche grants to PDL and to PDL's Affiliates nonexclusive rights to the Roche Know-How, Roche Patents, PDL Know-How, and PDL Patents to the extent reasonably required or useful to make and have made Daclizumab in the Territory for the sole purpose of conducting development and seeking registration of Daclizumab in Autoimmune Indications as contemplated by this Amended and Restated Agreement." 3. The first sentence of Section 3C.1(a) is amended to delete the word "exclusively". 4. Roche will deliver to PDL within thirty (30) days after the date of this letter amendment (or, with respect to item 2 on Exhibit A1, as soon as available) the items listed in Exhibit A1 to this letter Right to Roll-Over Supplies. [CONFIDENTIAL TREATMENT REQUESTED] If the foregoing amendments are acceptable to Roche, please have the enclosed copies of this letter amendment signed and have one fully signed copy returned to me. Thank you. Sincerely, PROTEIN DESIGN LABS, INC. By: _________________________ Douglas O. Ebersole Senior Vice President, Legal and Licensing The foregoing amendment of the Agreement is hereby accepted and agreed to, effective as of the above date of this letter amendment. HOFFMANN-LA ROCHE INC. F. HOFFMANN-LA ROCHE LTD. By: By: Title: Title: Exhibit A1 [CONFIDENTIAL TREATMENT REQUESTED] Note: PDL is not initially requesting documents included in the Roche Know-How for the purposes of PDL conducting process development and manufacturing of Daclizumab. If such information later becomes necessary, PDL will notify Roche. Roche shall have no liability to PDL if despite Roche's commercially reasonable efforts, it is unable to locate any such Roche Know-How. Mr. Georges Gemayel CONFIDENTIAL June 2, 2000 TREATMENT - EDITED COPIES Page 3 CONFIDENTIAL TREATMENT - EDITED COPIES

AMENDMENT TO THE TELLABS, INC. 1987 STOCK OPTION PLAN FOR NON-EMPLOYEE CORPORATE DIRECTORS (As Amended and Restated Effective June 26, 1992)   WHEREAS, Tellabs, Inc. (the "Corporation") has heretofore established the Tellabs, Inc. 1987 Stock Option Plan for Non-Employee Corporate Directors (the "Plan") for the benefit of non-employee corporate directors of the Corporation; WHEREAS, the Corporation deems it desirable to make certain amendments to the Plan relating to the vesting of options and/or the post-directorship exercise period in the event of the death, disability, or retirement of an option holder, or a change in control of the Corporation; and WHEREAS, the Board of Directors of the Corporation has considered the recommendations and has approved this Amendment to the Plan. NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended, effective June 30, 2000, as follows : I. Under Article 2 of the Plan, the following definition of "Change in Control" shall be added: (o) "Change in Control" means the first to occur of: (i) 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, the Corporation or any subsidiary of the Corporation, or any employee benefit plan of the Corporation or any subsidiary of the Corporation, or any person or entity organized, appointed or established by the Corporation for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation'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 Corporation; and provided further that no Change in Control will be deemed to have occurred if a person inadvertently acquires an ownership interest of 20% or more but then promptly reduces that ownership interest below 20%; (ii) During any two consecutive years (not including any period beginning prior to June 30, 2000), individuals who at the beginning of such two-year period constitute the Board of Directors of the Corporation and any new director (except for a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new director, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Corporation 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 corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation'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 Corporation; (B) no person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. II. Under Article 2 of the Plan, the following definition of "Disability" shall be added: (r) "Disability" shall have the meaning ascribed to such term in Section 22(e)(3) of the Code. III. Article 11 shall be amended in its entirety to read as follows: 11. Termination of Directorship. Except as set forth in Article 11A with respect to the effect of a Change in Control or except as the Board may otherwise expressly provide in the Option Agreement, the following rules shall apply upon termination of the Grantee's directorship with the Corporation: (a) Except as set forth in subsections (b), (c) and (d) below, in the event a Grantee ceases to be a director of the Corporation for any reason, any Option or unexercised portion thereof granted under this Plan may be exercised, to the extent such Option would have been exercisable by the Grantee hereunder on the date on which the Grantee ceased to be a director, within three months of such date (seven months in the event such termination occurs after the occurrence of a Change in Control), but in no event later than the date of expiration of the term of the Option. (b) In the event of termination of directorship due to the death the Grantee, each Option held by the Grantee shall become exercisable in full and may be exercised at any time prior to the expiration date of the Option or within one year after the date of the Grantee's death, whichever period is shorter. (c) In the event of termination of directorship due to the Disability of the Grantee, each Option held by the Grantee may, to the extent exercisable at the time of termination of directorship, be exercised at any time prior to the expiration date of the Option or within three years after the date of the Grantee's termination of directorship, whichever period is shorter. (d) In the event of the Grantee's death or Disability during the first three months of the period described in subsection (a) above, then each unexercised Option held by the Grantee may, to the extent exercisable at the time of Grantee's death or Disability, be exercised at any time prior to the expiration date of the Option or within one year of the date the Grantee ceased to be a director, whichever period is shorter. IV. The Plan shall hereby be amended by adding a new Article 11A to read: 11A. Change in Control. Upon the occurrence of a Change in Control, all Options granted hereunder shall become immediately exercisable and remain exercisable until such Options expire or terminate under the provisions of this Plan. V. Article 12 of the Plan shall be amended in its entirety to read as follows: 12. Effect of Change in Stock Subject to Plan. Except as provided below, the Board shall make equitable adjustments in the number and class of shares of stock subject to the Plan, and to the Option rights granted hereunder and the exercise prices of such Option rights, in the event of a stock dividend, stock split, reverse stock split, recapitalization, reorganization, merger, consolidation, acquisition, separation or other change in the capital structure of the Corporation. IN WITNESS WHEREOF, the foregoing amendments to the Tellabs, Inc. 1987 Stock Option Plan for Non-Employee Corporate Directors are hereby adopted as of the 30th day of June, 2000, by the undersigned officer duly authorized by resolutions adopted by the written consent of the Board of Directors dated June 30, 2000.   TELLABS, INC.   By: /s Michael J. Birck Name: Michael J. Birck Its: President and Chief Executive Officer

EXECUTIVE EMPLOYMENT AGREEMENT         THIS AGREEMENT executed as of the 17th day of July, 2000, by and between Frontier Oil Corporation, a Wyoming corporation (the “Company”), and W. Reed Williams (the “Executive”). W I T N E S S E T H:         WHEREAS the Executive is a principal officer of the Company and an integral part of its management;         WHEREAS, the Company wishes to assure both itself and the Executive of continuity of management in the event of any actual or threatened change in control of the Company;         WHEREAS, this Agreement is not intended to alter materially the compensation and benefits that the Executive could reasonably expect in the absence of a change in control of the Company and, accordingly, this Agreement will be operative only upon a change in control of the Company, or if the Executive’s employment is terminated in anticipation of a change in control as that term is hereafter defined.         NOW THEREFORE, in consideration of the premises and covenants herein contained and other good, valuable and binding consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the parties as follows:          1.      Operation of Agreement.              1.01    This Agreement shall be binding immediately upon its execution by the parties hereto, but, anything in this Agreement to the contrary notwithstanding, neither the Agreement nor any provision thereof shall be operative unless and until there has been a Change in Control of the Company, or if the Executive's employment is terminated in anticipation of a change in control as defined in paragraph 1.02 below. Upon the date of such a Change in Control of the Company (the "Effective Date"), this Agreement and all provisions thereof shall become operative immediately, without the necessity of any further action on the part of either party hereto.              1.02    For the purpose of this Agreement, the term "Change in Control of the Company" shall mean a change in control of a nature that would be required to be disclosed in a proxy statement, governed by the rules of the Securities and Exchange Commission as in effect on the date of this Agreement; provided that without limitation, such a change in control shall be deemed to have occurred upon the occurrence of any one of the following:                   (a)    the consummation of any transaction (including without limitation, any merger, consolidation, tender offer, or exchange offer) the result of which is that any individual or “person” (as such term is used in Sections 13(d)(3) and 14(d)(2), of the Securities Exchange Act of 1934 - the “Exchange Act”) is or becomes the “beneficial owner” (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities,                   (b)    the first day during any period of 24 consecutive months, commencing before or after the date of this Agreement that the individuals, who at the beginning of such 24 month period were directors of the Company for whom the Executive shall have voted, cease for any reason to constitute at least a majority of the Board of Directors of the Company,                   (c)    the sale, lease, transfer, conveyance or other disposition (including by merger or consolidation) in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole,                   (d)    the adoption of a plan relating to the liquidation or dissolution of the Company, or                   (e)    the date the Company files a report or proxy statement with the SEC stating that a change in control has or may occur pursuant to any then existing contract or termination.              1.03    This Agreement shall terminate forthwith, and without more, in the event that Executive ceases to be an executive officer of the Company at any time prior to the Effective Date whether by reason of his death, Disability, discharge, resignation or otherwise; except that either party wishing to terminate the employment relationship, other than by reason of death, Disability or discharge for Cause, hereby agrees to give the other party at least 60 days prior written notice. Notwithstanding the foregoing, following the commencement of any discussions of any third party that ultimately result in the occurrence of a Change of Control, the Company shall not at the instance or upon the suggestion of such third party terminate the employment or reduce the compensation of Executive.              1.04    This Agreement shall terminate three years from the date hereof; provided, however, that this Agreement shall be continued in full force and effect for an additional period of three years following such term, unless the Company elects to terminate this Agreement at the end of such term and provides at least 30 days' prior written notice to Executive; and provided, further, that following the commencement of any discussions with any third party that ultimately result in the occurrence of a Change of Control, the Company shall not make such election to terminate this Agreement at the instance or upon the suggestion of such third party.              1.05    Except as provided in paragraphs 1.03 and 1.04 above, nothing expressed or implied herein shall create any right or duty (on the part of the Company or Executive) to have Executive remain in the employment of the Company at any time prior to the Effective Date, each reserving all rights to terminate the employment relationship at any time (subject to the notice requirement contained in paragraphs 1.03 and 1.04 above) prior to the Effective Date, with or without Cause.          2.      Employment; Period of Employment.              2.01    The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, or subject to the terms of this Agreement, such other corporate profit center as shall then be the principal successor to the business, assets and the properties of the Company, for the period set forth in paragraph 2.02 below (the "Period of Employment") in the position and with the duties and responsibilities set forth in Section 3 below, and upon the other terms and conditions hereinafter stated.              2.02    The Period of Employment, subject only to the provisions of Section 6 below relating to death or Disability, shall continue for a period of three years from the Effective Date.          3.      Position, Duties, Responsibilities.              3.01    It is contemplated that at all times during the Period of Employment the Executive shall continue to serve as a principal officer of the Company with the office and title of Senior Vice President- Refining Operations of the Company and continue to have duties and responsibilities commensurate with those duties and responsibilities imposed on the Executive immediately prior to the Effective Date.              3.02    During the Period of Employment the Executive shall also serve and continue to serve, if and when elected and reelected, as an officer or director, or both, of any subsidiary, division or affiliate of the Company.              3.03    Throughout the Period of Employment the Executive shall devote his full time and undivided attention during normal business hours to the business and affairs of the Company, except for reasonable vacations and except for illness or incapacity, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods required for serving as a director or member of a committee of any organization involving no conflict of interest with the interests of the Company, from engaging in charitable and community activities, and from managing his personal investments, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.              3.04    The office of the Executive shall be located at the executive offices of the Company at 5340 S. Quebec, Suite 200N, Englewood, Colorado 80111-1911. The Executive shall not be required to change the current situs of his employment or residence. The Executive also shall not be required to be absent therefrom on travel status or otherwise more than a total of 60 working days in any calendar year nor more than 20 consecutive days at any one time.          4.      Compensation, Compensation Plans, Perquisites.              4.01 (a)    For all services rendered by the Executive in any capacity during the Period of Employment, including, without limitation, services as an executive, officer, director or member of any committee of the Company or of any subsidiary, division or affiliate thereof, the Executive shall be paid as compensation:       (i) A base salary at no less than the rate in effect immediately prior to the Effective Date, with increases (if any) as shall be made from time to time in accordance with the Employer’s regular salary administration practices;       (ii) An annual performance bonus in an amount no less than the amount of 50% of the base salary determined pursuant to subparagraph 4.01 (a)(i).                      (b)    Any increase in salary pursuant to clause (i) of subparagraph 4.01 (a) or in bonus or other compensation shall in no way diminish any other obligation of the Company under this Agreement.              4.02    During the Period of Employment the Executive shall be and continue to be a full participant in the Company's applicable stock option plans and any other compensation plans in which the Executive participates immediately prior to the Effective Date, or equivalent successor plans that may be adopted by the Company, with at least the same reward opportunities to Executive that have heretofore been provided. Nothing in this Agreement shall preclude improvement of reward opportunities in such plans or other plans in accordance with the present practice of the Company.              4.03    During the Period of Employment, the Executive shall be entitled to perquisites, including, without limitation, an office, secretarial and clerical staff, and to fringe benefits, including, without limitation, the payment or reimbursement of club dues, in each case at least equal to those attached to his office immediately prior to the Effective Date, as well as to reimbursement, upon proper accounting, of reasonable expenses and disbursements incurred by him in the course of his duties.          5.      Employee Benefit Plans.              5.01    The compensation, together with other matters provided for in Section 4 above, is in addition to the benefits provided for in this Section 5.              5.02    The Executive, his dependents and beneficiaries shall be entitled to all payments and benefits and service credit, for benefits during the Period of Employment to which officers of the Company, their dependents and beneficiaries are entitled as a result of the employment of such officers under the terms of employee plans and practices of the Company in effect immediately prior to the Effective Date, including, without limitation, the Company's retirement program (consisting of the Frontier Retirement Savings Plan, and the Frontier Deferred Compensation Plan), the Company's stock purchase and savings, thrift and investment plans, if any, the Frontier Oil Corporation Executive Life Insurance Plan, its group life insurance plans, its accidental death and dismemberment insurance, its business travel insurance, its long term disability, medical, dental and health and welfare plans and other present or successor plans and practices of the Company, its subsidiaries and divisions, for which officers, their dependents and beneficiaries are eligible, and to all payments or other benefits under any such plan or practice after the Period of Employment as a result of participation in such plan or practice durinq the Period of Employment.              5.03    Nothing in this Agreement shall preclude the Company from amending or terminating any employee benefit plan or practice but, it being the intent of the parties that the Executive shall continue to be entitled during the Period of Employment to perquisites as set forth in paragraph 4.03 above and to benefits and service credit for benefits under paragraph 5.02 above at least equal to those attached to his position immediately prior to the Effective Date, and nothing in this Agreement shall operate as, or be construed to reduce or authorize reduction without the Executive's written consent in the level of such perquisites, benefits or service credit for benefits. In the event of any such reduction by amendment or termination of any plan or practice or otherwise, the Executive, his dependents and beneficiaries shall continue to be entitled to perquisites, benefits and service credit for benefits under such plans or practices that he or his dependents and beneficiaries would have received if such reduction had not taken place.          6.      Effect of Death or Disability.              6.01    In the event of the death of the Executive during the Period of Employment, the legal representative of the Executive shall be entitled to the compensation provided for in paragraph 4.01 during the balance of the Period of Employment. The Period of Employment shall be deemed to have ended as of the close of business on the last day of the twelfth month following the month in which death shall have occurred but without prejudice to any other payments due in respect of the Executive's death hereunder or pursuant to any other agreements or arrangements with the Company.              6.02    The term "Disability," as used in this Agreement, shall mean an illness or accident which prevents the Executive from performing his duties under this Agreement for a period of six consecutive months. In the event of the Disability of the Executive during the Period of Employment, the Executive shall be entitled to the full compensation provided for in this Agreement for the period of such Disability (i.e., commencing on the date on which the Disability occurred) but not in excess of six months. The Period of Employment shall be deemed to have ended as of the close of business on the last day of such six months' period but without prejudice to any payments due to the Executive in respect of disability or any short term illness or accident which prevents the Executive from performing his duties for a period of less than six months.          7.      Termination.              7.01    In the event of a Termination, as defined in paragraph 7.03 below, during the Period of Employment, the provisions of this Section 7 shall apply.              7.02    In the event of a Termination the Company shall, as liquidated damages or severance pay, or both, pay to the Executive and provide him, his dependents, beneficiaries and estate, with the following:                   (a)    The Company shall continue to pay the Executive the base salary compensation provided in paragraph 4.01 (a)(i) above at the rate in effect at the time of Termination (which in accordance with the terms of this Agreement shall be no less than the rate of base salary in effect immediately prior to the Effective Date). Such base salary shall be paid no less than monthly beginning at the end of the month in which Termination occurred and continuing during the remainder of the Period of Employment.                   (b)    The Company shall also continue to pay the Executive the annual performance bonus provided in paragraph 4.01(a)(ii) above. Such annual performance bonus compensation shall be paid on an annual basis, so that a payment will be made in each of the three years of the Employment Period.                   (c)    With regard to the employee benefits and perquisites described in paragraphs 5.02 and 4.03, the Company shall pay the Executive an amount no less than 30% of the total amount for the balance of the Period of Employment of the unpaid base salary payable pursuant to subparagraph (a) above.                   (d)    In the event that the Executive shall at the time of Termination hold an outstanding and unexercised (whether or not exercisable at the time) option or options theretofore granted by the Company, the Company shall, in addition to the amounts provided for above, pay to the Executive in a lump sum an amount equal to the excess above the option price under each such option of the Fair Market Value at the time of Termination of the shares subject to each such option. Solely for the purpose of this subparagraph (d), Fair Market Value at the time of Termination shall be deemed to mean the higher of (i) the average of the reported closing prices of the Common Shares of the Company, as reported on the New York Stock Exchange - Composite Transactions, on the last trading day prior to the Termination and on the last trading day of each of the two preceding thirty-day periods, and (ii) in the event that a Change in Control, as defined in paragraph 1.02 above, prior to Termination shall have taken place as the result of a tender offer and such Change in Control was consummated within twelve months of Termination, the price paid for a majority of the Common Shares of the Company in the course of such tender offer.                   (e)    At the Company's option, the Company may pay Executive the total of all amounts payable to Executive for the balance of the Term of Employment pursuant to subparagraphs (a) and (b) of this Section 7.02 in a lump sum payment. Executive may also elect, at any time during the remaining Term of Employment, to receive all amounts payable to him for the balance of the Term of Employment pursuant to subparagraphs (a) and (b) of this Section 7.02 in a lump sum payment by providing written notice of such election to the Company. The Company agrees to make a lump sum payment of the total of such amounts within 30 days of Executive’s notice of election to receive lump sum payment. It is acknowledged and agreed that no lump sum payment will shorten the Term of Employment of Executive, or modify or obviate any obligations of the Company other than the payments otherwise due during the Term of Employment pursuant to subparagraphs (a) and (b) above.              7.03    The word "Termination," for the purpose of this Section 7 and any other provisions of this Agreement, shall mean:                   (a)    Termination by the Company of the employment of the Executive by the Company and its subsidiaries for any reason other than for Cause as defined in paragraph 7.04 below or for Disability as defined in subparagraph 6.02 above; or                   (b)    Termination by the Executive of his employment by the Company and its subsidiaries upon the occurrence of any of the following events:                        (i)    Failure to elect or reelect the Executive to, or removal of the Executive from, the office set forth in paragraph 3.01 above.                        (ii)    A significant change in the nature or scope of the authorities, powers, functions or duties of Executive as contemplated by paragraph 3.01 above, or a reduction in compensation, and such change and/or reduction is not remedied within 30 days after receipt by the Company of written notice from the Executive.                        (iii)    A determination by the Executive made in good faith that as a result of a Change in Control of the Company, as defined in paragraph 1.02 above, and a change in circumstances thereafter that significantly affects his position, he is unable to carry out the authorities, powers, functions or duties attached to his position as contemplated by Section 3 of this Agreement, and such determination is not remedied within 30 days after receipt by the Company of written notice from the Executive.                        (iv)    A breach by the Company of any provision of this Agreement not embraced within the foregoing clauses (i), (ii) and (iii) of this subparagraph 7.03(b) that is not remedied within 30 days after receipt by the Company of written notice from the Executive.                        (v)    The liquidation, dissolution, consolidation or merger of the Company or transfer of all or substantially all of the assets of the Company and its Subsidiaries unless a successor or successors (by merger, consolidation or otherwise) to which all or a significant portion of the assets have been transferred shall have assumed all duties and obligations of the Company under this Agreement.         An election by the Executive to terminate his employment given under the provisions of this paragraph 7.03 shall not be deemed a voluntary termination of employment by the Executive for the purpose of this Agreement or any plan or practice of the Company.              7.04    For the purpose of any provision of this Agreement, the termination of the Executive's employment shall be deemed to have been for "Cause" only if:                   (a)    termination of his employment shall have been the result of an act or acts of dishonesty on the part of the Executive constituting a felony and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company; or                   (b)    there has been a breach by the Executive during the Period of Employment of the provisions of paragraph 3.03 above, relating to the time to be devoted to the affairs of the Company, or of Section 8.01, relating to confidential information, and such breach results in demonstrably material injury to the Company and with respect to any alleged breach of paragraph 3.03 or of section 8.01 hereof, the Executive after notice and an opportunity to be heard either shall have failed to remedy such alleged breach or shall have failed to take all reasonable steps to that end within thirty days from his receipt of written notice by the Company pursuant to resolution duly adopted by the Board of Directors of the Company; and provided that thereafter                   (c)    there shall have been delivered to the Executive a certified copy of a resolution of the Board of Directors of the Company adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board of Directors called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in subparagraphs (a) or (b) above, specifying the particulars thereof in detail.         Anything in this paragraph 7.04 or elsewhere in this Agreement to the contrary notwithstanding, the employment of the Executive shall in no event be considered to have been terminated by the Company for Cause if termination of his employment took place (a) as the result of bad judgment or negligence on the part of the Executive, or (b) as the result of an act or omission without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled, or (c) because of an act or omission believed by the Executive in good faith to have been in or not opposed to the interest of the Company, or (d) for any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Policies of the Company or the laws of the State of Wyoming or the directors’ and officers’ liability insurance of the Company, in each case as in effect at the time of such act or omission, or (e) as the result of an act or omission which occurred more than twelve calendar months prior to the Executive’s having been given notice of the termination of his employment for such act or omission unless the commission of such act or such omission could not at the time of such commission or omission have been known to a member of the Board of Directors of the Company (other than the executive, if he is then a member of the Board of Directors), in which case more than twelve calendar months from the date that the commission of such act or such omission was or could reasonably have been so known, or (f) as the result of a continuing course of action which commenced and was or could reasonably have been known to a member of the Board of Directors of the Company (other than the Executive) more than twelve calendar months prior to notice having been given to the Executive of the termination of his employment.              7.05    In the event that the Executive's employment shall be terminated by the Company during the Period of Employment and such termination is alleged to be for Cause, or the Executive's right to terminate his employment under paragraph 7.03(b) above shall be questioned by the Company or for any other reason, the Executive shall have the right, in addition to all other rights and remedies provided by law, at his election either to seek arbitration in Harris County, Texas under the rules of the American Arbitration Association by serving a notice to arbitrate upon the Company or to institute a judicial proceeding, in either case within ninety days after having received notice of termination of his employment under paragraph 7.03(b) is subject to question or that the Company is withholding or proposes to withhold payments or provision of benefits or within such longer period as may reasonably be necessary for the Executive to take action in the event that his illness or incapacity should preclude his taking such action within such ninety-day period.          8.      Confidential Information              8.01    The Executive agrees not to disclose, either while in the Company's employ or at any time thereafter, to any person not employed by the Company, or not engaged to render services to the Company, any confidential information obtained by him while in the employ of the Company, including, without limitation, any of the Company's inventions, processes, methods of distribution or customers or trade secrets; provided, however, that this provision shall not preclude the Executive from use or disclosure of information known generally to the public or of information not considered confidential by persons engaged in the business conducted by the Company or from disclosure required by law or Court order.              8.02    The Executive also agrees that upon leaving the Company's employ he will not take with him, without the prior written consent of an officer authorized to act in the matter by the Board of Directors of the Company, any drawing, blueprint, specification or other document of the Company, its subsidiaries, affiliates and divisions, which is of a confidential nature relating to the Company, its subsidiaries, affiliates and divisions, or without limitation, relating to its or their methods of distribution, or any description of any formulae or secret processes.          9.      Notices            All notices, requests, demands and other communications provided for by this Agreement shall be deemed to have been duly given if and when mailed in the continental United States by registered or certified mail, return receipt requested, postage prepaid, or personally delivered or sent by telex or other telegraphic means to the party entitled thereto at the address stated below or to such changed address as the addressee may have given by a similar notice: To the Company: Frontier Oil Corporation   10000 Memorial Drive   Suite 600   Houston, Texas 77024   To the Executive: W. Reed Williams   5340 S. Quebec Street, Suite 200N   Englewood, Colorado 80111-1911          10.      General Provisions              10.01    There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation, against any payments to the Executive, his dependents, beneficiaries or estate provided for in this Agreement.              10.02    The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of such agreements.              10.03    No right or interest or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries" as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive's estate.              10.04    No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect.              10.05    In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to his beneficiary or beneficiaries.              10.06    The titles to sections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section.              10.07    No provision of this Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Board of Directors of the Company or any authorized committee of the Board of Directors and shall be agreed to in writing, signed by the Executive and by an officer of the Company thereunto duly authorized.              10.08    Except as otherwise specifically provided in this Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or a waiver of a similar or dissimilar provision or condition at the same or at any prior or subsequent time.              10.09    In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.              10.10    Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed "the Company" for the purpose of this Agreement), but shall not otherwise be assignable by the Company.              10.11    This Agreement shall be governed by and construed in accordance with the laws of the State of Texas (other than the choice of law principles thereof).              10.12    To the extent that any payment made to Executive pursuant to the terms of this Agreement is subject to federal income, excise, or other tax at a rate above the rate ordinarily applicable to wages and salaries paid in the ordinary course of business ("Penalty Tax"), whether as a result of the provisions of Sections 280G (b)(1 ) and 4999 (a) of the Internal Revenue Code of 1954, as amended (the "Code"), any similar or analogous provisions of any statute adopted subsequent to the date hereof, or otherwise, then the amount due hereunder shall be increased by an amount ("the "Additional Amount") such that the net amount received by Executive, after paying any applicable Penalty Tax and any federal or state income tax on such Additional Amount, shall be equal to the amount that Employee would have received if such Penalty Tax were not applicable.              10.13    The Company shall pay all legal fees and expenses which the Executive may incur as a result of the Company's (and its successors and assigns) contesting the validity or enforceability of this Agreement. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and amounts received from other employment or otherwise by the Executive shall not be recoupable by the Company against the amounts paid to the Executive pursuant to the terms of this Agreement.          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.   FRONTIER OIL CORPORATION     By: /s/ Julie H. Edwards ___________________________________ ATTEST: /s/ Currie Bechtol ________________________________ VP - General Counsel     /s/ W. Reed Williams ___________________________________ W. Reed Williams

EXHIBIT 10.6 THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. RECOTON CORPORATION Facility Fee Common Stock Purchase Warrant No. PR-___ New York, New York PPN: _________ October 31, 2000                      RECOTON CORPORATION (the "Company"), a New York corporation, for value received, hereby certifies that __________ or its registered assigns is entitled to purchase from the Company __________[AN AGGREGATE OF 5,000 SHARES] duly authorized, validly issued, fully paid and nonassessable common shares of the Company, par value $0.20 per share (the "Original Common Stock"), at an initial exercise price per share equal to $13.280 (the "Initial Exercise Price") at any time or from time to time after the date hereof and prior to 5:00 p.m. (United States Eastern Time), on the fifth anniversary date of the date hereof (the "Expiration Date"), all subject to the terms, conditions and adjustments set forth below in this Warrant; provided, however, that if on the fifth anniversary date of the date hereof, the Company is then required, pursuant to an effective request therefor under the Registration Rights Agreement (as defined herein), or is in the process of effecting a registration under the Securities Act for a public offering in which Warrant Shares (as defined herein) are entitled to be included as provided in the Registration Rights Agreement, or if the Company is in default of any of such obligations to register the sale of such shares, the right to exercise this Warrant shall continue until 5:00 p.m. (United States Eastern Time) on the 30th day following the date on which such registration shall have become effective or on the 30th day following the date all such defaults shall have been cured, whichever is the later date.                      This Warrant is one of the Facility Fee Warrants issued to the Term Loan C Lenders under the Senior Loan Agreement (each such term, and all other capitalized terms used herein without being otherwise defined, having the meaning referred to in Section 13 below) upon closing of the Senior Loan Agreement (the "Warrants", such term to include all Warrants issued in substitution therefor or upon transfer thereof). The Warrants so issued evidence rights to purchase an aggregate maximum number of 5,000 shares of Original Common Stock, subject to adjustment as provided herein.                      Section 1. Exercise of Warrant.                      A. Manner of Exercise. This Warrant may be exercised by the holder hereof, in whole or in part during normal business hours on any Business Day during the Exercise Period, by surrender of this Warrant, with the form of subscription at the end hereof (or a reasonable facsimile thereof) duly executed by such holder, to the Company at the principal office of the Company located at 2950 Lake Emma Road, Lake Mary, FL 32746, or such other location in the United States which shall at the time be the principal office of the Company and of which the Company shall have notified the holder hereof in writing (or, if such exercise shall be in connection with an underwritten public offering of shares of Common Stock (or Other Securities) subject to this Warrant, at the location at which the underwriters shall have agreed to accept delivery thereof), accompanied by payment of an amount obtained by multiplying (a) the number of shares of Original Common Stock (without giving effect to any adjustment therein) designated in such form of subscription by (b) the Initial Exercise Price (the "Exercise Payment"). The Exercise Payment shall be payable (i) in cash or its equivalent, (ii) in shares of Common Stock newly acquired upon exercise of this Warrant (valued at the Market Price), (iii) by surrendering to the Company the right to purchase a number of shares of Common Stock issuable upon exercise of this Warrant (valued at the Market Price) equal to the product obtained by multiplying the number of shares of Common Stock to be purchased (including the shares relating to the surrendered rights) by a fraction, the numerator of which is the Exercise Payment per share and the denominator of which is the Market Price per share, or (iv) any combination of (i), (ii) and (iii).                      B. Adjustment to Number of Shares of Common Stock. The number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock which the holder of this Warrant shall be entitled to receive upon each exercise hereof shall be determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of Section 2) be issuable upon such exercise, as designated by the holder hereof pursuant to this Section 1B, by a fraction of which (x) the numerator is the Initial Exercise Price and (y) the denominator is the Exercise Price in effect on the date of such exercise. The "Exercise Price" shall initially be an amount equal to the Initial Exercise Price per share, shall be adjusted and readjusted from time to time as provided in Section 2 and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by Section 2.                      C. When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected and the Exercise Price shall be determined immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 1A, and at such time the person or persons in whose name or names any certificate or certificates for shares of Original Common Stock (or Other Securities) shall be issuable upon such exercise as provided in Section 1D shall be deemed to have become the holder or holders of record thereof.                      D. Delivery of Stock Certificates, etc. Promptly after the exercise of this Warrant, in whole or in part, and in any event within three Business Days thereafter (unless such exercise shall be in connection with an underwritten public offering of shares of Common Stock (or Other Securities) subject to this Warrant, in which event concurrently with such exercise), the Company at its expense will cause to be issued in the name of and delivered to the holder hereof or, subject to Section 8, as such holder may direct,                        (1) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled upon such exercise, and                        (2) in case such exercise is in part only, a new Warrant or Warrants of like tenor, specifying the aggregate on the face or faces thereof the number of shares of Common Stock equal to the number of such shares specified on the face of this Warrant minus the number of such shares designated by the holder upon such exercise as provided in Section 1A.                      E. Company to Reaffirm Obligations. The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the holder hereof or of any shares of Common Stock (or Other Securities) issued upon such exercise, acknowledge in writing its continuing obligation to afford to such holder all rights to which such holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder.                      F. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant and no payment or adjustment shall be made upon any exercise on account of any cash dividends (except as provided in Section 2B) on the Common Stock or Other Securities issued upon such conversion. If any fractional interest in a share of Common Stock would, except for the provisions of the first sentence of this Section 1F, be deliverable upon the exercise of this Warrant, the Company shall, in lieu of delivering the fractional share therefor, pay to the holder exercising this Warrant an amount in cash equal to the Market Price of such fractional interest.                      Section 2. Protection Against Dilution or Other Impairment of Rights; Adjustments of Exercise Price.                      A. Issuance of Additional Shares of Common Stock. In case the Company, at any time or from time to time after October 30, 2000 (the "Initial Date"), shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 2D or 2E) without consideration or for a consideration per share (determined pursuant to Section 2F) less than 95% of the Market Price in effect, in each case, on the date of and immediately prior to such issue or sale (or, in the case of issuances where the price has been fixed or finally determined by contract prior to the date of such issuance or sale, as of the date that such price is fixed or finally determined), then, and in each such case, subject to Section 2I, the Exercise Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Exercise Price by a fraction,              a) the numerator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Market Price, and              b) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, provided that, for the purposes of this Section 2A, (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to Section 2D or 2E, such Additional Shares shall be deemed to be outstanding, and (y) treasury shares shall not be deemed to be outstanding.                      B. Extraordinary Dividends and Distributions; Pro Rata Repurchases. In case the Company at any time or from time to time after the date hereof shall declare, order, pay or make a dividend or other distribution to the holders of the Common Stock (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement and any redemption or acquisition of any such stock or Options on the Common Stock), other than (a) a dividend payable in additional Shares of Common Stock or in Options for Common Stock or (b) a regular periodic dividend payable in cash and not constituting an Extraordinary Cash Dividend, then, and in each such case, the Company shall pay over to the holder of this Warrant, on the date on which such dividend or other distribution is paid to the holders of Common Stock, the securities and property (including cash) which such holder would have received if such holder had exercised this Warrant immediately prior to the record date fixed in connection with such dividend or other distribution. In case the Company or any subsidiary thereof shall make a Pro Rata Repurchase, the Exercise Price shall be adjusted by dividing the Exercise Price in effect immediately prior to such action by a fraction (which in no event shall be less than one), the numerator of which shall be the product of (A) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase minus the number of shares of Common Stock repurchased in such Pro Rata Repurchase and (B) the Market Price as of the date immediately preceding the first public announcement by the Company of the intent to effect such Pro Rata Repurchase, and the denominator of which shall be (A) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price as of the date immediately preceding the first public announcement by the Company of the intent to effect such Pro Rata Repurchase minus (B) the aggregate purchase price of the Pro Rata Repurchase.                      C. Above Market Repurchases of Common Stock. In case the Company, at any time or from time to time after the date hereof shall repurchase, by self-tender offer or otherwise, any shares of Common Stock (or any Options or Convertible Securities) at a purchase price in excess of the Market Price thereof, on the Business Day immediately prior to the earliest of (i) the date of such repurchase, (ii) the commencement of an offer to repurchase, or (iii) the public announcement of either (such date being the "Determination Date"), the Exercise Price shall be determined by dividing the Exercise Price by a fraction, the numerator of which shall be the product of (A) the number of shares of Common Stock outstanding immediately prior to such Determination Date minus the number of shares of Common Stock repurchased and (B) the Market Price as of the Determination Date, and the denominator of which shall be (A) the product of (x) the number of shares of Common Stock outstanding immediately before such repurchase and (y) the Market Price as of the Determination Date, minus (B) the aggregate purchase price of such repurchase; provided, that in the case of a self-tender offer by the Company, any shares of Common Stock issued upon the exercise or partial exercise of this Warrant at an Exercise Price adjusted pursuant to this Section 2C due to such self-tender offer, shall not be eligible to be sold in such self-tender offer.                      D. Treatment of Options and Convertible Securities. In case the Company, at any time or from time to time after the date hereof, shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options thereof, issuable upon the conversion or exchange of such Convertible Securities (or the exercise of such Options for Convertible Securities and subsequent conversion or exchange of the Convertible Securities issued), shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, sale, grant or assumption of such Options or Convertible Securities or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2F) of such shares would be less than 95% of the Market Price in effect on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading, as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued,              a)  if an adjustment of the Exercise Price shall be made upon the fixing of a record date as referred to in the first sentence of this Section 2D, no further adjustment of the Exercise Price shall be made as a result of the subsequent issue or sale of any Options or Convertible Securities for the purpose of which such record date was set;              b)  no further adjustment of the Exercise Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities;              c)  if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company, or change in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time;              d)  upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if:              (i)  in the case of Options for Common Stock or in the case of Convertible Securities, the only Additional Shares of Common Stock issued or sold (or deemed issued or sold) were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was (x) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (B) the consideration actually received by the Company upon such exercise, minus (C) the consideration paid by the Company for any purchase of such Options which were not exercised, or (y) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Convertible Securities which were actually converted or exchanged, plus (B) the additional consideration, if any, actually received by the Company upon such conversion or exchange, minus (C) the excess, if any, of the consideration paid by the Company for any purchase of such Convertible Securities, the rights of conversion or exchange under which were not exercised, over an amount that would be equal to the Fair Value of the Convertible Securities so purchased if such Convertible Securities were not convertible into or exchangeable for Additional Shares of Common Stock, and              (ii)  in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (x) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (y) the consideration deemed to have been received by the Company (pursuant to Section 2F) upon the issue or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (z) the consideration paid by the Company for any purchase of such Options which were not exercised; and              e)  no recomputation pursuant to subsection (c) or (d) above shall have the effect of increasing the Exercise Price then in effect by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities.            Notwithstanding the foregoing provisions of this Section 2D, any rights, options or warrants (herein called "Special Options") distributed by the Company to all holders of Common Stock that entitle the holders thereof to purchase shares of the Company's capital stock (either initially or under certain circumstances), and that, until the occurrence of an event (the "Trigger Event") (i) are deemed to be transferred with the Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed to have been distributed for the purposes of this Section 2D (and no adjustment of the Exercise Price shall be required) until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of Special Options, or any Trigger Event with respect thereto, that shall have resulted in an adjustment of the Exercise Price under this Section 2D, (A) in the case of any Special Options that shall have been redeemed or repurchased without exercise by any holders thereof, the Exercise Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were an Extraordinary Cash Dividend, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such Special Options (assuming such holder had retained the same), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of any such Special Options all of which shall have expired or terminated without having been exercised, redeemed or repurchased, the Exercise Price shall be readjusted as if such distribution had not occurred.                      E. Treatment of Stock Dividends, Stock Splits, Etc. In case the Company, at any time or from time to time after the date hereof, shall declare or pay any dividend or other distribution on any class of securities of the Company payable in shares of Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend or other distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or other distribution, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective.                      F. Computation of Consideration. For the purposes of this Warrant:              a) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration,              (i) insofar as it consists of cash, shall be computed as the amount of cash received by the Company, and insofar as it consists of securities or other property, shall be computed as of the date immediately preceding such issue, sale, grant or assumption as the Fair Value of such consideration (or, if such consideration is received for the issue or sale of Additional Shares of Common Stock and the Market Price thereof is less than the Fair Value of such consideration, then such consideration shall be computed as the Market Price of such Additional Shares of Common Stock), in each case without deducting any expenses paid or incurred by the Company, any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and              (ii) in case Additional Shares of Common Stock are issued or sold or Options or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, shall be the proportion of such consideration so received, computed as provided in clause (i) above, allocable to such Additional Shares of Common Stock or Options or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company.              b) All Additional Shares of Common Stock, Options or Convertible Securities issued in payment of any dividend or other distribution on any class of stock of the Company and all Additional Shares of Common Stock issued to effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) shall be deemed to have been issued without consideration.              c) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to Section 2D, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing              (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchanges of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subsection (a),           by              (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.                      G. Adjustments for Combinations, Etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Exercise Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.                      H. Minimum Adjustment of Exercise Price. If the amount of any adjustment of the Exercise Price required hereunder would be less than one percent of the Exercise Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one percent of such Exercise Price; provided, that upon the exercise of this Warrant all adjustment carried forward and not therefore made up to and including the date of such exercise shall be made to the nearest .001 of a cent.                      I. Changes in Common Stock. At any time while this Warrant remains outstanding and unexpired, in case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of outstanding securities issuable upon the exercise of this Warrant) or in case of any consolidation or merger of the Company with or into another corporation (herein called a "Transaction") (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change, other than a change in par value, or from par value to no par value, or from no value to par value, or as a result of a subdivision or combination of outstanding securities issuable upon the exercise of this Warrant), the Company, or such successor corporation, as the case may be, shall, without payment of any additional consideration therefor, execute and deliver to the holder of this Warrant (upon surrender of this Warrant) a new Warrant providing that the holder of this Warrant shall have the right to exercise such new Warrant (upon terms not less favorable to the holder of this Warrant than those then applicable to this Warrant) and to receive upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money or property receivable upon such reclassification, change, consolidation or merger, by the holder of one Common Share issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, change, consolidation or merger. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustment provided for in this Section 2. Notwithstanding the foregoing, in the case of any Transaction which pursuant to this Section 2I would result in the execution and delivery by the Company or any successor of a new Warrant to the holder of this Warrant and in which the holders of shares of Common Stock are entitled only to receive money or other property exclusive of common equity securities, then in lieu of such new Warrant being exercisable as provided above, the holder of this Warrant shall have the right, at its sole option, to require the Company to purchase this Warrant (without prior exercise by the holder of this Warrant) at its fair value as of the day before such Transaction became publicly known, as determined by an unaffiliated internationally recognized accounting firm or investment bank selected by the holder of this Warrant and reasonably acceptable to the Company. The provisions of this Section 2I shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and transfers. Notwithstanding anything contained herein to the contrary, the Company shall not effect any Transaction unless prior to the consummation thereof each corporation or entity (other than the Company) which may be required to deliver any securities or other property upon the exercise of Warrants shall assume, by written instrument delivered to each holder of Warrants, the obligation to deliver to such holder such securities or other property as to which, in accordance with the foregoing provisions, such holder may be entitled, and such corporation or entity shall have similarly delivered to each holder of Warrants an opinion of counsel for such corporation or entity, satisfactory to each holder of Warrants, which opinion shall state that all the outstanding Warrants, shall thereafter continue in full force and effect and shall be enforceable against such corporation or entity in accordance with the terms hereof and thereof, together with such other matters as such holders may reasonably request.                      J. Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustments of the Exercise Price in the case of the issuance of the Warrants and the issuance of shares of Common Stock issuable upon exercise of the Warrants.                      K. Notice of Adjustment. Upon the occurrence of any event requiring an adjustment of the Exercise Price, then and in each such case the Company shall promptly deliver to the holder of this Warrant an Officer's Certificate stating the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock issuable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Within 90 days after each fiscal year in which any such adjustment shall have occurred, or within 30 days after any request therefor by the holder of this Warrant stating that such holder contemplates the exercise of such Warrant, the Company will obtain and deliver to the holder of this Warrant the opinion of its regular independent auditors or another firm of independent public accountants of recognized national standing selected by the Company's Board of Directors, which opinion shall confirm the statements in the most recent Officer's Certificate delivered under this Section 2K.                      L. Other Notices. In case at any time:              a)  the Company shall declare or pay any dividend upon Common Stock payable in stock or make any dividend or other distribution to the holders of Common Stock;              b)  the Company shall offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights;              c)  there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation or other entity (other than a merger or consolidation with a directly or indirectly wholly-owned subsidiary of the Company in which the Company is the survivor);              d)  there shall be voluntary or involuntary dissolution, liquidation or winding-up of the Company;              e)  there shall be made any tender offer for any shares of capital stock of the Company; or              f)  there shall be any other Transaction. then, in any one or more of such cases, the Company shall give to the holder of this Warrant (i) at least 15 days prior to the record date for any dividend or distribution referred to in subsection (a) above, at least 30 days prior to any event referred to in subsection (b), (c) or (d) above, and within five days after it has knowledge of any pending tender offer or other Transaction, written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or Transaction or the date by which shareholders must tender shares in any tender offer and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or tender offer or Transaction known to the Company, at least 30 days prior written notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, tender offer or Transaction, as the case may be. Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of security holders or any other approval requirement, if such is required.                      M. Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company, the other provisions of this Warrant are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of the holders of the Warrants in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make such adjustments, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the holders of the Warrants; provided, that no such adjustment shall have the effect of increasing the Exercise Price as otherwise determined pursuant to this Warrant. The Company may make such reductions in the Exercise Price as it deems advisable, including any reductions necessary to ensure that any event treated for Federal income tax purposes as a distribution of stock or stock rights not be taxable to recipients.                      N. Prohibition of Certain Actions. The Company will not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of all Warrants from time to time outstanding, and (c) will not take any action which results in any adjustment of the Exercise Price if the total number of shares of Common Stock or Other Securities issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock or Other Securities then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such conversion.                      Section 3. Stock to be Reserved. The Company will at all times reserve and keep available out of the authorized Common Stock, solely for the purpose of issue upon the exercise of the Warrants as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants and the Company will maintain at all times all other rights and privileges sufficient to enable it to fulfill all its obligations hereunder. The Company covenants that all shares of Common Stock which shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Company or any other Person, and free from all taxes, liens and charges with respect to the issue thereof (not including any income taxes payable by the holders of Warrants being exercised in respect of gains thereon), and the Exercise Price will be credited to the capital and surplus of the Company. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any applicable requirements of the National Association of Securities Dealers, Inc. and of any domestic securities exchange upon which the Common Stock may be listed.                      Section 4. Registration of Common Stock. If any shares of Common Stock required to be reserved for purposes of the exercise of Warrants require registration with or approval of any governmental authority under any Federal or State law (other than the Securities Act, registration under which is governed by the Registration Rights Agreement), before such shares may be issued upon the exercise thereof, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. Shares of Common Stock issuable upon exercise of the Warrants shall be registered by the Company under the Securities Act or similar statute then in force if required by the Registration Rights Agreement and subject to the conditions stated in such agreement. At any such time as the Common Stock is listed on any national securities exchange or quoted by the Nasdaq National Market or any successor thereto or comparable system, the Company will, at its expense, obtain promptly and maintain the approval for listing on each such exchange or quoting by the Nasdaq National Market on such successor thereto a comparable systems, upon official notice of issuance, the shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the listing or quoting of such shares after their issuance so long as the Common Stock is so listed or quoted; and the Company will also cause to be so listed or quoted, will register under the Exchange Act and will maintain such listing or quoting of, any Other Securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company.                      Section 5. Expenses. The Company will pay, and save each Person which is or has been the holder of a Warrant (a "Warrantholder") harmless against liability for the payment of, all out-of-pocket expenses arising in connection with the transactions contemplated by the Warrants, including (i) all document production and duplication charges and the reasonable fees and expenses of any counsel engaged by any Warrantholder in connection with the Warrants or the transactions contemplated thereby and any subsequent proposed modification, amendment or waiver of, or proposed consent under, the Warrants, whether or not such proposed modification, amendment or waiver shall be effected or proposed consent granted, and (ii) the costs and expenses, including reasonable attorneys' fees, incurred by any Warrantholder in enforcing or defending (or determining whether or how to enforce or defend) any rights under the Warrants or in responding to any subpoena or other legal process or informal investigative demand issued in connection with the Warrants or the transactions contemplated thereby or by reason of the Warrantholder's have acquired any Warrant or any securities issuable upon exercise thereof, including without limitation costs and expenses (including the costs and expenses of financial advisors) incurred in any bankruptcy case or in connection with any work-out or restructuring of the transactions contemplated by the Warrants. The Company will pay, and will save each Warrantholder harmless from all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those retained by any such holder). The issuance of certificates for shares of Common Stock upon exercise of the Warrants shall be made without charge to the Warrantholders for any issuance tax or other governmental charge in respect thereof, all of which shall be paid by the Company. The obligations of the Company under this Section 5 shall survive the transfer or exercise of any Warrant or any portion thereof or interest therein by the Warrantholder.                      Section 6. Closing of Books. The Company will at no time close its transfer books to the transfer of any Warrant or of any share of Common Stock issued or issuable upon the exercise of any Warrant in any manner which interferes with the timely exercise of such Warrant.                      Section 7. No Rights or Liabilities as Stockholders. This Warrant shall not entitle the holder thereof to any of the rights of a stockholder of the Company, except as expressly contemplated herein. No provision of this Warrant, in the absence of the actual exercise of such Warrant and receipt by the holder thereof of Common Stock issuable upon such conversion, shall give rise to any liability on the part of such holder as a stockholder of the Company, whether such liability shall be asserted by the Company or by creditors of the Company.                      Section 8. Restrictive Legends. Except as otherwise permitted by this Section 8, each Warrant originally issued and each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to this Section 8 shall be stamped or otherwise imprinted with a legend in substantially the following or a comparable form:   "This Warrant and any shares acquired upon the exercise of this Warrant have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act."   Except as otherwise permitted by this Section 8, (a) each certificate for shares of Common Stock (or Other Securities) issued upon the exercise of any Warrant, and (b) each certificate issued upon the direct or indirect transfer of any such Common Stock (or Other Securities) shall be stamped or otherwise imprinted with a legend in substantially the following or a comparable form:   "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exception therefrom under such Act."   The holder (or its transferee, as applicable) of any Restricted Securities shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing the applicable legend set forth above in this Section 8 when such securities shall have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering such Restricted Securities, (b) disposed of pursuant to the provisions of Rule 144 or any comparable rule under the Securities Act, or (c) when, in the written reasonable opinion of independent counsel for the holder thereof experienced in Securities Act matters, such restrictions are no longer required in order to insure compliance with the Securities Act (including when the provisions of Rule 144(k) or any comparable rule under the Securities Act have been satisfied). The Company will pay the reasonable fees and disbursements of counsel for any holder of Restricted Securities in connection with all opinions rendered pursuant to this Section 8.                      Section 9. Availability of Information. The Company will cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to each holder of any Warrants, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the Commission.                      Section 10. Information Required By Rule 144A. The Company will, upon the request of the holder of this Warrant, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Warrants, except at such times as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. For the purpose of this Section 10, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act.                      Section 11. Registration Rights Agreement. The holder of this Warrant and the holders of any securities issued or issuable upon the exercise hereof are each entitled to the benefits of the Registration Rights Agreement.                      Section 12. Ownership, Transfer and Substitution of Warrants.                      A. Ownership of Warrants. Except as otherwise required by law, the Company may treat the Person in whose name any Warrant is registered on the register kept at the principal office of the Company as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary except that, if and when any Warrant is properly assigned in blank, the Company, in its discretion, may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the Company to the contrary. Subject to Section 8, a Warrant, if properly assigned, may be exercised by a new holder without first having a new Warrant issued.                      B. Transfer and Exchange of Warrants. Upon the surrender of any Warrant, properly endorsed, for registration of transfer or for exchange at the principal office of the Company, the Company at its expense will (subject to compliance with Section 8, if applicable) execute and deliver to or upon the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Original Common Stock called for on the face or faces of the Warrant or Warrants so surrendered.                      C. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant held by a Person other than the original holder thereof, upon delivery of its unsecured indemnity reasonably satisfactory to the Company in form and amount or, in the case of any such mutilation, upon surrender of such Warrant for cancellation at the principal office of the Company, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.                      Section 13. Definitions. As used herein (A) capitalized terms that are not otherwise defined shall have the meanings assigned thereto in Appendix A to the Master Restructuring Agreement referred to below and (B) unless the context otherwise requires, the following terms have the following respective meanings:                      "Acquiring Company" shall have the meaning specified in Section 2J.                      "Acquirer's Common Stock" shall have the meaning specified in Section 2J.                      "Additional Shares of Common Stock" shall mean all shares (including treasury shares) of Common Stock issued or sold (or, pursuant to Section 2D or 2E deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than shares of Common Stock issued upon the exercise or partial exercise of the Warrants and shares issuable upon exercise of options, warrants or rights granted to employees or consultants or directors of the Company or its subsidiaries under shareholder approved plans and other options, warrants or rights in each case providing for an exercise price of at least 95% of Market Price at the date of grant.                      "Affiliate" shall have the meaning specified in the 1999 Securities Purchase Agreement.                      "Announcement Date" shall have the meaning specified in Section 2J.                      "Business Day" shall have the meaning specified in the Senior Loan Agreement.                      "Closing Date" shall mean the date upon which all conditions precedent to the making of the initial extensions of credit as set forth in the Senior Loan Agreement have been satisfied.                      "Commission" shall mean the Securities and Exchange Commission or any successor federal agency having similar powers.                      "Common Stock" shall mean the Original Common Stock, any stock into which such stock shall have been converted or changed or any stock resulting from any reclassification of such stock and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference.                      "Company" shall mean Recoton Corporation, a New York corporation, and its permitted successors hereunder.                      "Convertible Securities" shall mean any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock.                      "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended.                      "Exercise Period" shall mean the date of this Warrant to and including the Expiration Date.                      "Exercise Price" shall have the meaning specified in Section 1B.                      "Expiration Date" shall have the meaning specified in the opening paragraphs of this Warrant.                      "Extraordinary Cash Dividend" shall mean, with respect to any consecutive 12-month period, the amount, if any, by which the aggregate amount of all cash and non-cash dividends or distributions on any shares of Common Stock occurring in such 12-month period (or, if such Common Stock was not outstanding at the commencement of such 12-month period, occurring in such shorter period during which such Capital Stock was outstanding) exceeds on a per share basis 5% of the average of the daily Market Prices per share of such Common Stock over such 12-month period (or such shorter period during which such Common Stock was outstanding); provided that, for purposes of the foregoing definition, the amount of cash and non-cash dividends paid on a per share basis will be appropriately adjusted to reflect the occurrence during such period of any stock dividend or distribution of shares of capital stock of the Company or any subdivision, split, combination or reclassification of shares of such Common Stock.                      "Fair Value" shall mean with respect to any securities or other property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made as determined by the Board of Directors of the Company in good faith, unless such determination is to be made in connection with a transaction with an Affiliate in which case such fair value shall be (a) determined by agreement between the Company and the Required Holders, or (b) if the Company and the Required Holders fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Required Holders, either of which firms may be an independent investment banking firm regularly retained by the Company, or (c) if the Company or the Required Holders shall fail so to retain an independent investment banking firm within 10 Business Days of the retention of such a firm by the Required Holders or the Company, as the case may be, determined solely by the firm so retained, or (d) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company chosen by the first two such firms.                      "Initial Date" shall have the meaning specified in Section 2A.                      "Market Price" shall mean on any date specified herein, (a) with respect to Common Stock or to common stock (or equivalent equity interests) of an Acquiring Person or its Parent, the amount per share equal to (i) the last sale price of shares of Common Stock, regular way, or of shares of such common stock (or equivalent equity interests) on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (ii) if no shares of Common Stock or no shares of such common stock (or equivalent equity interests), as the case may be, are then listed or admitted to trading on any national securities exchange, the last sale price of shares of Common Stock, regular way, or of shares of such common stock (or equivalent equity interests) on such date, in each case or, if no such sale takes place on such date, the average of the reported closing bid and asked prices thereof on such date as quoted in the Nasdaq National Market or other over-the-counter market or, if no shares of Common Stock or no shares of such common stock (or equivalent equity interests), as the case may be, are then quoted in the Nasdaq National Market or other over-the-counter market, as published by the National Quotation Bureau, Incorporated or any similar successor organization, and in any such case as reported by any member firm of the New York Stock Exchange selected by the Company, or (iii) if no shares of Common Stock or no shares of such common stock (or equivalent equity interests), as the case may be, are then listed or admitted to trading on any national securities exchange or quoted or published in the over-the-counter market, the higher of (x) the book value thereof as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company, as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made or (y) the Fair Value thereof, and (b) with respect to any other securities, the Fair Value thereof.                      "Officer's Certificate" shall mean a certificate signed in the name of the Company by its President, one of its Vice Presidents or its Treasurer.                      "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities.                      "Original Common Stock" shall have the meaning specified in the opening paragraphs of this Warrant.                      "Other Securities" shall mean any stock (other than Common Stock) and any other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 2J or otherwise.                      "Parent" shall have the meaning specified in Section 2J.                      "Person" shall have the meaning specified in the Senior Loan Agreement                      "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Company or by any of its subsidiaries whether for cash, shares of Common Stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of capital stock, other securities or evidences of indebtedness of a subsidiary of the Company), or any combination thereof, which purchase is subject to Section 13(e) of the Securities Exchange Act of 1934, as amended, or is made pursuant to an offer made available to all holders of shares of Common Stock.                      "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of September 8, 1999, among the Company and the holders of "Registrable Securities" party thereto, as the same may be amended, supplemented or otherwise modified from time to time.                      "Required Holders" shall mean the holders of at least 66 2/3% of all the Warrants at the time outstanding, determined on the basis of the number of shares of Common Stock then purchased upon the exercise of all Warrants then outstanding.                      "Restricted Securities" shall mean (a) any Warrants bearing the applicable legend set forth in Section 8 and (b) any shares of Common Stock (or Other Securities) which have been issued upon the exercise of Warrants and which are evidenced by a certificate or certificates bearing the applicable legend set forth in such section, and (c) unless the context otherwise requires, any shares of Common Stock (or Other Securities) which are at the time issuable upon the exercise of Warrants and which, when so issued, will be evidenced by a certificate or certificates bearing the applicable legend set forth in such section.                      "Securities Act" shall mean the Securities Act of 1933, as amended.                      "Senior Loan Agreement" shall mean the Loan Agreement dated as of October 31, 2000, among the Borrowers (as defined therein), Heller Financial, Inc., General Electric Capital Corporation as agents and the financial institutions from time to time party thereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms and the terms of the Subordination Agreement.                      "Subordination Agreement" the Subordination and Intercreditor Agreement dated as of the date hereof among The Chase Manhattan Bank, the Term Loan C Lenders, Heller Financial, Inc., and General Electric Capital Corporation (as amended modified or supplemented from time to time).                      "Term Loan C Lenders" shall mean those financial institutions who are Term Loan C Lenders (as defined in the Senior Loan Agreement) who are also party to the Credit Agreement dated as of October 31, 2000, among the Borrowers (as defined therein), The Chase Manhattan Bank as administrative agent and the financial institution from time to time party thereto (as amended, modified, or supplemented from time to time).                      "Transaction" shall have the meaning specified in Section 2I.                      "Warrant" shall have the meaning specified in the opening paragraphs of this Warrant.                      Section 14. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.                      Section 15. Notices. All notices and other communications under this Warrant shall be in writing and shall be sent (a) by registered or certified mail, return receipt requested, or (b) by a recognized overnight delivery service, addressed (i) if to any holder or any Warrant or any holder of any Common Stock (or Other Securities), at the registered address of such holder as set forth in the applicable register kept at the principal office of the Company, or (ii) if to the Company, to the attention of its Secretary at its principal office, provided that the exercise of any Warrant shall be effected in the manner provided in Section 1.                      Section 16. Miscellaneous.              a) This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.              b) The agreements of the Company contained in this Warrant other than those applicable solely to the Warrants and the holders thereof shall inure to the benefit of and be enforceable by any holder or holders at the time of any Common Stock (or Other Securities) issued upon the exercise of Warrants, whether so expressed or not.              c) This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York.              d) The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.                      IN WITNESS WHEREOF, this Warrant has been executed and delivered on behalf of Recoton Corporation of its duly authorized officers at of the date first above written.   RECOTON CORPORATION   By:                                         Name:       Title: FORM OF SUBSCRIPTION (To be executed only upon exercise of Warrant) To RECOTON CORPORATION                      The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder,1 shares of Original Common Stock of RECOTON CORPORATION, [and herewith makes payment of $____________________ therefor]2 [in a "cashless exercise" pursuant to Section 1A of the within Warrant]3, and requests that the certificates for such shares be issued in the name of, and delivered to ______________ whose address is ______________. Dated:                                                                                                                         (Signature must conform in all respects to name of holder as specified on the face of this Warrant)                                                                                         (Street Address)                                                                                         (City)           (State)          (Zip Code) _______________           1 Insert here the number of shares called for on the face of this Warrant (or, in the case of a partial exercise, the portion thereof as to which this Warrant is being exercised), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of this Warrant, may be delivered upon exercise. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of this Warrant, to the holder surrendering the same.            2 Use in connection with an exercise involving a delivery of funds to the Company.            3 Use in connection with a cashless exercise. FORM OF ASSIGNMENT (To be executed only upon transfer of Warrant) For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto ______________ the right represented by such Warrant to purchase ______________4 shares of Original Common Stock of RECOTON CORPORATION, to which such Warrant relates, and appoints ______________ Attorney to make such transfer on the books of RECOTON CORPORATION, maintained for such purpose, with full power of substitution in the premises. Dated:                                                                                                                         (Signature must conform in all respects to name of holder as specified on the face of this Warrant)                                                                                         (Street Address)                                                                                         (City)           (State)          (Zip Code) _______________           4 Insert here the number of shares called for on the face of the within Warrant (or, in the case of a partial assignment, the portion thereof as to which this Warrant is being assigned), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the within Warrant, may be delivered upon exercise. In the case of a partial assignment, a new Warrant or Warrants will be issued and delivered, representing the portion of the within Warrant not being assigned, to the holder assigning the same. Signed in the presence of:

Exhibit 10.41 EMPLOYMENT AGREEMENT               This Agreement is made effective this 1st day of June, 2000 (the “Effective Date”), by and between E*TRADE Group, Inc., a Delaware corporation (“Company”), and Jerry Gramaglia (“Executive”). BACKGROUND               Executive is serving as President and Chief Operating Officer of the Company. The parties desire to enter into a formal employment agreement with respect to the continued employment of Executive by Company, which shall automatically become effective as of the Effective Date. TERMS AND CONDITIONS               In consideration of the premises and the mutual covenants and agreements set forth below, the parties agree as follows:               1.  Termination of Prior Agreements. Subject to the provision of Section 9 herein, any prior agreement shall terminate and be of no further force and effect as of the execution of this Agreement.               2.  Employment. Executive agrees to serve as President and Chief Operating Officer of Company for the term of this Agreement, subject to the terms set forth in this Agreement and the provisions of the Bylaws of Company. During his employment, Executive shall devote his effort and attention, on a full-time basis, to the performance of the duties required of him as an executive of Company.               3.  Compensation. As compensation for his services during the term of this Agreement, Executive shall receive the amounts and benefits set forth in this Section 3 all effective as of the Effective Date unless otherwise specified:                      (a)  An annual salary of $425,000 (“Base Salary”) prorated for any partial year of employment. As soon as reasonably practicable after the close of Company’s current fiscal year and the close of each fiscal year thereafter, the Base Salary shall be subject to review by the Compensation Committee of the Company’s Board of Directors for increases in light of the size and performance of Company. The Base Salary, as adjusted in accordance with this subsection (a), shall remain in effect unless and until it is increased in accordance with this subsection (a). Executive’s salary shall be payable semimonthly or in accordance with Company’s regular payroll practices in effect from time to time for officers of his level in Company.                      (b)  Participation in E*TRADE’s gr2 (Success Sharing) Bonus Plan. The Executive will be eligible to receive an incentive bonus of 80% of his base salary, which may be increased as determined by the Chairman/Chief Executive Officer and the Compensation Committee of the Company.                      (c)  Participation in the employee benefit plans maintained by Company and in other benefits provided by Company to senior executives, including retirement and 401(k) plans, deferred compensation, medical and dental, annual vacation, paid holidays, sick leave, and similar benefits, which are subject to change from time to time at the reasonable discretion of Company.                      (d)  Reimbursement for financial counseling not to exceed $10,000 per year and for annual physical examinations for the executive and his wife not to exceed $20,000 per year.                      (e)  It is acknowledged that Executive has received option grants in accordance with the terms of this contract. Company agrees that there will be no change made in any Stock Option during the term of Executive’s employment hereunder which adversely affects Executive’s rights as established by the foregoing documents, without the prior written consent of Executive.                      (f)  Lease of automobile for company use, of a mutually agreeable make and model of a value not to exceed $50,000, and reimbursement of reasonable operating expense.                      (g)  Reimbursement of all reasonable business-related expenses, including without limitation business- travel conducted pursuant to Company’s travel policy. --------------------------------------------------------------------------------                      (h)  Reimbursement of the reasonable maintenance costs of a comprehensive security and monitoring system installed in the Executive’s primary residence.                      (i)  Executive will be eligible for full relocation benefits as provided by our executive relocation policy.               4.  Term. The term of this Agreement and the termination rights are as follows:                      (a)  This Agreement and Executive’s employment under this Agreement shall be effective as of the Effective Date and shall continue for a term ending on May 31, 2004 (the “Initial Term”).                      (b)  This Agreement and Executive’s employment may be terminated by either party prior to the end of the Initial Term (or any renewal period) upon 30 days’ prior written notice to the other party, provided that, in the event of such termination, Company shall be obligated to make the payments and provide the benefits described in Section 6 below.               5.  Executive will be given the option of a fully secured first mortgage loan of up to $10,000,000 for the purchase of a house in the San Francisco area. The terms and conditions of this fully secured and full recourse loan will be set forth in a separate writing.               6.  Termination Payments. Upon termination of Executive’s employment, Company shall pay to Executive, within three business days after the end of the 30-day notice period provided in Section 4 above, a payment in cash equal to subsection (a) of this Section 6, and shall for the period or at the time specified provide the other benefits described in subsection (b) of this Section 6 if: (i) Executive’s employment is terminated by Company, other than for Cause, within three years after any “Change in Control” of Company as defined in subsection (d) of this Section 6, or at the request of or pursuant to an agreement with a third party who has taken steps reasonably calculated to effect a Change in Control, or otherwise in connection with or in anticipation of a Change in Control                      (a)  Eighteen (18) months of Executive’s current Base Salary.                      (b)  In addition to the amount payable to Executive under subsection (a) of this Section 6, upon termination of Executive for any reason the health care (including medical and dental) and life insurance benefits coverage benefits provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment had not terminated (subject to the customary changes in such coverages if Executive reaches age 65 or similar events), together with the benefits described in subsections (d) and (f) of Section 3 beginning on the date of such termination and ending on the later of: (a) the end of the term of this Agreement or (b) the date eighteen (18) months following the date of the Executive’s termination, followed by COBRA election rights. Any additional coverages Executive had at termination, including dependen t coverage, will also be continued for such period on the same terms. Any costs Executive was paying for such coverages at the time of termination shall continue to be paid by Executive. If the terms of any benefit plan referred to in this section do not permit continued participation by Executive, then Company will arrange for other coverage providing substantially similar benefits at the same contribution level of Executive.                      (c)  For purposes of this Agreement, the following definitions shall apply:                             (i)  The “Board” shall mean the Board of Directors of Company.                             (ii)  The “Incumbent Board” shall mean the members of the Board as of the date of this Agreement and any person becoming a member of the Board hereafter whose election, or nomination for election by Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Company).                             (iii)  “Change in Control” shall mean:                             (A)  The acquisition (other than from Company) by any person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding, for this purpose, any employee benefit plan of Company or its subsidiaries which acquires beneficial ownership of voting securities of Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% -------------------------------------------------------------------------------- or more of either the then outstanding shares of Common Stock or the combined voting power of Company’s then outstanding voting securities entitled to vote generally in the election of directors; or                             (B)  The failure for any reason of individuals who constitute the Incumbent Board to continue to constitute at least a majority of the Board; or                             (C)  Approval by the stockholders of Company of a reorganization, merger, consolidation, in each case, with respect to which the shares of Company voting stock outstanding immediately prior to such reorganization, merger or consolidation do not constitute or become exchanged for or converted into more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, or a liquidation or dissolution of Company or of the sale of all or substantially all of the assets of Company.                             (iv)   “Current Total Annual Compensation” shall be the greater of (i) Executive’s Base Salary for the calendar year in which his employment terminates or (ii) such salary for the calendar year prior to the year of such termination.                             (v)  “Disability” shall mean the total and permanent inability of Executive due to illness, accident or other physical or mental incapacity to perform the usual duties of his employment under this Agreement, as determined by a physician selected by Company and acceptable to Executive or Executive’s legal representative (which agreement as to acceptability shall not be unreasonably withheld).                             (vi)  The “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.                             (vii)  “Cause” shall be defined solely as (i) Executive’s defalcation or misappropriation of funds or property of the Company, or the commission of any other illegal act in the course of his employment with Company which, in the reasonable judgment of the Board of Directors, has a material adverse financial effect on the Company or on Executive’s ongoing abilities to carry out his duties under this Agreement; (ii) Executive’s conviction of a felony or of any crime involving moral turpitude, and affirmance of such conviction following the exhaustion of any appeals; (iii) refusal of Executive to substantially perform all of his duties and responsibilities, or Executive’s persistent neglect of duty or chronic unapproved absenteeism (other than for a temporary or permane nt Disability), which remains uncured following thirty days after written notice of such alleged Cause by the Board of Directors; or (iv) any material and substantial breach by Executive of other terms and conditions of this Agreement, which, in the reasonable judgment of the Board of Directors, has a material adverse financial effect on the Company or on Executive’s ongoing abilities to carry out his duties under this Agreement and which remains uncured following thirty days after written notice of such alleged Cause by either the Board of Directors, or Company’s chairman and Chief Executive Officer.               7.  Executive agrees that during his employment with E*TRADE Executive will not engage in any other employment, business, or business related activity unless Executive receives E*TRADE’s prior written approval to hold such outside employment or engage in such business or activity. Such written approval will not be unreasonably withheld if such outside employment, business or activity would not in any way be competitive with the business or proposed business of E*TRADE or otherwise conflict with or adversely affect in any way his performance of his employment obligations to E*TRADE.                      Subject to the approval of the Chief People Officer or his replacement, commencing on the date of termination of his employment with E*TRADE and continuing for a period not to exceed twelve (12) months, Executive will not, except as provided below, as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor, lender or guarantor of any corporation, partnership or other entity, or in any other capacity directly or indirectly:                             i.  engage in any activity, in any market where E*TRADE conducts business, in which Executive participate, manage or advise in the design, development, marketing, sale or servicing of any product related to global institutional and retail internet securities trading, clearing services or execution (hereafter referred to as “the Business”);                             ii.  induce, encourage or solicit any individual who was employed by E*TRADE within six (6) months of the date his employment with E*TRADE terminates to leave the Company for Page 2 -------------------------------------------------------------------------------- any reason or to accept employment with any other company, or to employ, interview or arrange to have business opportunities offered to any such individual; or                             iii.  permit his name to be used in connection with a business which is competitive or substantially similar to the Business.                      Notwithstanding the foregoing, Executive may own, directly or indirectly, solely as an investment, up to one percent (1%) of any class of “publicly traded securities” of any person or entity which owns a business that is competitive or substantially similar to the Business. The term “publicly traded securities” shall mean securities that are traded on a national securities exchange of listed on the National Association of Securities Dealers Automated Quotation System.                      If any restriction set forth in this non-competition section is found by a court to be unreasonable, then Executive agrees, and hereby submit, to the reduction and limitation of such prohibition to such area or period as shall be deemed reasonable. Executive acknowledges that the services that Executive will provide to E*TRADE under this Agreement are unique and that irreparable harm will be suffered by E*TRADE in the event of the breach by Executive of any of his obligations under this Agreement, and that E*TRADE will be entitled, in addition to its other rights, to enforce by an injunction or decree of specific performance the obligations set forth in this Agreement. Any claims asserted by Executive against E*TRADE shall not constitute a defense in any injunction action brought by E*TRADE to obtain specific enforcement of said paragraphs.                      Executives agree that if the Company establishes that Executive, or those acting in concert with Executive or on his behalf, materially violate the Non-Competition provision in any way, the Company shall be entitled to recover the reasonable attorneys’ fees and litigation expenses incurred, arising out of or relating to the Company’s efforts to prevent the breach, to establish that a breach has occurred, to enforce the Non-Competition provisions or to seek to redress a breach, including any appeals if necessary. If the Company fails to establish that Executive, or those acting in concert with Executive or on his behalf, have materially violated any of the Non-Competition provisions in any way, Executive shall be entitled to reimbursement of reasonable attorneys’ fees and litigation expenses incurred in his defense.               8.  Arbitration. We each agree that any and all disputes between us which arise out of his employment, the termination of his employment, or under the terms of this Agreement shall be resolved through final and binding arbitration. This shall include, without limitation, disputes relating to this Agreement, any disputes regarding his employment by E*TRADE or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, and any claims of discrimination or other claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of his employment with E*TRADE or its termination. The only claims not covered by this section are the following: (i) claims for benefits under the unemployment insurance or workers’ compensation laws; (ii) claims conce rning the validity, infringement or enforceability of any trade secret, patent right, copyright, trademark or any other intellectual property held or sought by E*TRADE, or which E*TRADE could otherwise seek; in each of these instances such disputes or claims shall not be subject to arbitration, but rather, will be resolved pursuant to applicable California law. Binding arbitration will be conducted in Santa Clara County in accordance with the rules and regulations of the American Arbitration Association. The parties will split the cost of the arbitration filing and hearing fees and the cost of the arbitrator; each side will bear its own attorneys’ fees, unless otherwise decided by the arbitrator. Executive understand and agree that arbitration shall be instead of any civil litigation, that each side waives its right to a jury trial, and that the arbitrator’s decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof.               9.  Miscellaneous Provisions. This Agreement, the stock options grant agreements and the previously executed Proprietary Information and Inventions Agreement will be the entire agreement between Executive and E *TRADE relating to his employment and the additional matters provided for herein. This Agreement supersedes and replaces (i) any prior verbal or written agreements between the parties except as provided for herein and (ii) any prior verbal or written agreements between the undersigned Executive and the Company relating to the subject matter hereof. This Agreement may be amended or altered only in a writing signed by Executive and the Company. This Agreement shall be construed and interpreted in accordance with the laws of the State of California. Each provision of this Agreement is severable from the others, and if any provision hereof shall be to any extent unenforceable it and the oth er provisions shall continue to be enforceable to the full extent allowable, as if such offending provision had not been a part of this Agreement. Page 3 --------------------------------------------------------------------------------               10.  Assignment; Successors. Any assignment of this Agreement shall be in accordance with the following:                      (a)  The rights and benefits of Executive under this Agreement, other than accrued and unpaid amounts due hereunder, are personal to him and shall not be assignable by Executive, except with the prior written consent of Company.                      (b)  Subject to the provisions of subsection (c) of this Section 6, this Agreement shall not be assignable by Company, provided that with the consent of Executive, Company may assign this Agreement to another corporation wholly owned by it either directly or through one or more other corporations, or to any corporate successor of Company or any such corporation.                      (c)  Any business entity succeeding to substantially all of the business of Company, by purchase, merger, consolidation, sale of assets or otherwise, shall be bound by and shall adopt and assume this Agreement, and Company shall require the assumption of this Agreement by such successor as a condition to such purchase, merger, consolidation, sale of assets or other similar transaction.               11.  Notices. Any notice or other communications under this Agreement shall be in writing, signed by the party making the same, and shall be delivered personally or sent by certified or registered mail, postage prepaid, addressed as follows:  If to Executive: Mr. Jerry Gramaglia c/o E*Trade Group, Inc. 4500 Bohannon Drive Menlo Park, CA 94025  If to Company: Chief Legal Affairs Officer c/o E*Trade Group, Inc. 4500 Bohannon Drive Menlo Park, CA 94025 or such other address or agent as may hereafter be designated by either party hereto. All such notices shall be deemed given on the date personally delivered or mailed.               12.  Full Settlement and Legal Expenses. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement. The prevailing party shall be entitled to recover all legal fees and expenses which such party may reasonably incur as a result of any legal proceeding relating to the validity, enforceability, or breach of, or liability under, any provision of this Agreement or any guarantee of performance (including as a result of any contest by Executive about the amount of any payment pursuant to Section 6 of this Agreement), plus in each case interest at the applicable Federal Rate provided for in Section 7872(f)(2) of the Code.               13.  Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California, except that any arbitration shall be governed by the Federal Arbitration Act.               14.  Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid, but if any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provisions in every other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Page 4 --------------------------------------------------------------------------------               IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written.      E*TRADE GROUP, INC.   By:   /s/ Christos M. Cotsakos      --------------------------------------------------------------------------------      Christos M. Cotsakos Chairman & Chief Executive Officer           EXECUTIVE      /s/ Jerry Gramaglia      --------------------------------------------------------------------------------      Jerry Gramaglia

Exhibit 10-35 EMPLOYMENT AGREEMENT          EMPLOYMENT AGREEMENT, dated as of May 19, 2000 (the "Agreement"), by and among Energy East Corporation, a New York corporation ("Energy East"), New York State Electric & Gas Corporation, a New York corporation (the "Company") and Michael I. German (the "Executive").          The Board of Directors of Energy East and the Board of Directors of the Company desire to provide for the employment of the Executive as a member of the management of Energy East and the Company, in the best interest of Energy East and its shareholders. The Executive is willing to commit himself to serve Energy East and the Company, on the terms and conditions herein provided.          In order to effect the foregoing, Energy East, the Company and the Executive wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:          1.    Defined Terms. The definitions of capitalized terms used in this Agreement, unless otherwise defined herein, are provided in the last Section hereof.          2.    Employment. Energy East and the Company hereby agree to employ the Executive, and the Executive hereby agrees to serve Energy East and the Company, on the terms and conditions set forth herein, during the term of this Agreement (the "Term").          3.    Term of Agreement. The Term will commence on May 19, 2000 and end on May 18, 2003, unless further extended as hereinafter provided. Commencing on May 19, 2001 and each May 19, thereafter, the Term of this Agreement shall automatically be extended for one (1) additional year unless, not later than the February 18, immediately preceding each such May 19, Energy East (upon authorization by the Board) or the Executive shall have given notice not to extend this Agreement.          4.    Position and Duties. The Executive shall serve as Senior Vice President of Energy East and as President and Chief Operating Officer of the Company and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to the Executive by the Board or by the NYSEG Board. The Executive shall devote substantially all his working time and efforts to the business and affairs of Energy East and the Company; provided, however, that the Executive may also serve on the boards of directors or trustees of other companies and organizations, as long as such service does not substantially interfere with the performance of his duties hereunder.          5.    Compensation and Related Matters.                   5.1     Base Salary. The Company shall pay the Executive a base salary ("Base Salary") during the period of the Executive's employment hereunder, which shall be at an initial rate of Four Hundred Twenty-Five Thousand Dollars ($425,000.00) per annum. The Base Salary shall be paid in substantially equal bi-weekly installments, in arrears. The Base Salary may be discretionarily increased by the Board from time to time as the Board deems appropriate in its reasonable business judgment. The Base Salary in effect from time to time shall not be decreased during the Term. During the period of the Executive's employment hereunder, the Board shall make an annual review of the Executive's compensation.                   Compensation of the Executive by Base Salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of Energy East or the Company. The Base Salary payments (including any increased Base Salary payments) hereunder shall not in any way limit or reduce any other obligation of Energy East or the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's Base Salary hereunder.                   5.2     Benefit and Incentive Plans. The Executive shall be entitled to participate in or receive compensation and/or benefits, as applicable, under all "employee benefit plans" (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA")), all incentive compensation plans, and all employee benefit arrangements made available by Energy East or the Company now or during the period of the Executive's employment hereunder to their executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements; provided, however, that there shall be no duplication of the compensation and benefits created by this Agreement. The Executive's participation in such plans and arrangements shall be on an appropriate level, as determined by the Board or the NYSEG Board, as appropriate.                   Notwithstanding any provision of the Company's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, if the Executive's service with the Company or Energy East from December 5, 1994 exceeds five full years, there shall be paid to the Executive under the Company's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by giving the Executive, for purposes of that plan, service credit for three years of service for each of the Executive's actual years of service. Notwithstanding the foregoing sentence of this Section 5.2, and any provision of the Company's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, if the Executive Retires from the Company or Energy East subsequent to July 13, 2010, there shall instead be paid to the Executive under the Company's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by (i) giving the Executive, for purposes of that plan, service credit for 40 years of service, (ii) deeming the Executive to be a "Key Person" as defined in, and for all purposes under, that plan and (iii) deeming the Executive's "highest three years of earnings within the last ten years of employment" for purposes of that plan to be equal to the Executive's Base Salary at the rate in effect at the time he Retires.                   5.3     Expenses. Upon presentation of reasonably adequate documentation to the Company, the Executive shall receive prompt reimbursement from the Company for all reasonable and customary business expenses incurred by the Executive in accordance with the Company policy in performing services hereunder. The Company agrees to reimburse the Executive for any expenses he incurs in moving himself and his family from Binghamton, New York to any state in the Northeast.                   5.4     Vacation. The Executive shall be entitled to five (5) weeks of vacation during each year of this Agreement, or such greater period as the Board shall approve, without reduction in salary or other benefits.          6.    Compensation Related to Disability. During the Term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with Energy East or the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's Base Salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by Energy East or the Company during such period, until the Executive's employment is terminated by Energy East for Disability; provided, however, that such Base Salary payments shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such Base Salary payment under disability benefit plans of Energy East or the Company or under the Social Security disability insurance program, which amounts were not previously applied to reduce any such Base Salary payment. Subject to Sections 8 and 9 hereof, after completing the expense reimbursements required by Section 5.3 hereof and making the payments and providing the benefits required by this Section 6, Energy East and the Company shall have no further obligations to the Executive under this Agreement.          7.    Compensation Related to Termination. If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's Base Salary (to the Executive or in accordance with Section 13.2 if the Executive's employment is terminated by his death) through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by Energy East or the Company during such period. Subject to Sections 6, 8 and 9 hereof, after completing the expense reimbursements required by Section 5.3 hereof and making the payments and providing the benefits required by this Section 7, Energy East and the Company shall have no further obligations to the Executive under this Agreement.          8.    Normal Post-Termination Payments Upon Termination of Employment. If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due. Subject to Section 9.1 hereof and the second paragraph of Section 5.2 hereof, such post-termination compensation and benefits shall be determined under, and paid in accordance with, Energy East's or the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements (other than this Agreement).          9.    Severance Payments.                   9.1     The Company shall pay the Executive the payments described in this Section 9.1 (the "Severance Payments") upon the termination of the Executive's employment prior to the end of the Term, in addition to the payments and benefits described in Sections 7 and 8 hereof, unless such termination is (i) by Energy East for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason.          (A)   In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the sum of: (i)    the Executive's annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based; and (ii)    the average of the three most recent incentive compensation awards earned by the Executive under the Company's Annual Executive Incentive Plan (the "AEIP"), or any successor annual executive incentive compensation plan, before the Date of Termination.          (B)   Notwithstanding any provision of the AEIP, or any successor annual executive incentive compensation plan, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year preceding the Date of Termination under the AEIP, or any successor annual executive incentive compensation plan, but has not yet been either (x) paid (pursuant to Section 7 hereof or otherwise) or (y) deferred pursuant to the Company's Deferred Compensation Plan for Salaried Employees, and (ii) a pro-rata portion to the Date of Termination of the aggregate value of any contingent incentive compensation award to the Executive for any uncompleted fiscal year under the AEIP or any successor annual executive incentive compensation plan, calculated by assuming that the Maximum Earnings Level (as defined in the AEIP) had been achieved and that the Executive's Level of Achievement (as defined in the AEIP) were one hundred percent (or in the case of any such successor plan, that maximum performance with respect to all applicable performance goals had been achieved), with such pro-rata amount being reduced (but not below zero) by any amounts paid to the Executive with respect to such uncompleted fiscal year pursuant to Article XI(A)(iii) of the AEIP, or any comparable provision of any such successor plan, as a result of a Change-in-Control that occurs during such uncompleted fiscal year.          (C)   The second paragraph of Section 5.2 hereof shall be inapplicable, and notwithstanding any provision of the Company's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, the Company shall pay to the Executive under the Company's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by (i) deeming the Executive (a) to have 40 years of service credit, for purposes of that plan, (b) to be at least 60 years of age and (c) to be a "Key Person" as defined in, and for all purposes under, that plan and (ii) deeming the Executive's "highest three years of earnings within the last ten years of employment" for purposes of that plan to be equal to the Executive's Base Salary as determined pursuant to Section 9.1(A)(i) hereof; and such benefits shall be determined without regard to any amendment to the Company's Supplemental Executive Retirement Plan (or any successor plan) made subsequent to a Change-in-Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder.          Notwithstanding any provision in the Company's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, the benefits otherwise payable to the Executive pursuant to this Section 9.1(C) shall be paid to the Executive in a lump sum payment that is equal in amount to the present value (calculated under generally accepted actuarial methods that are consistent with the actuarial methods used in producing the tables of Appendix A of the Company's Retirement Benefit Plan (or any successor plan)) of such benefits and such payment shall be in lieu of any payments to which the Executive otherwise would have been entitled under the Company's Supplemental Executive Retirement Plan (or any successor plan) and shall satisfy any obligations that the Company would otherwise have to the Executive under the Company's Supplemental Executive Retirement Plan (or any successor plan). Such lump sum payment shall be paid to the Executive no later than the due date of the first payment that is or would be due to the Executive under the Company's Supplemental Executive Retirement Plan (or any successor plan) assuming that the Executive were entitled to receive payments thereunder.          Notwithstanding the immediately preceding paragraph of this Section 9.1(C), the Executive may elect to have the benefits otherwise payable to the Executive pursuant to this Section 9.1(C) be paid to the Executive in the manner provided for under the Company's Supplemental Executive Retirement Plan (or any successor plan) and such method of payment shall be in lieu of a lump sum payment. The Executive shall make such election by sending a letter to the Company in which he states that he has decided to make such election. The election shall not be effective unless the letter is received by the Company (i) at least 90 days prior to the Date of Termination and (ii) prior to the first day of the calendar year in which the Date of Termination occurs. The Executive shall have the right to revoke any such election by sending a letter to the Company in which he states that he has decided to revoke such election. The revocation of such election shall not be effective unless the letter is received by the Company (i) at least 90 days prior to the Date of Termination and (ii) prior to the first day of the calendar year in which the Date of Termination occurs. If the Executive revokes an election, he can make a new election (in the manner, and subject to the timing requirements, set forth in this paragraph), and he can revoke any such new election (in the manner, and subject to the timing requirements, set forth in this paragraph).          (D)   For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits constituting a basis for a termination by the Executive of his employment for Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 9.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to Energy East by the Executive). If the benefits provided to the Executive under this Section 9.1(D) shall result in a Gross-Up Payment pursuant to Section 9.2, and these Section 9.1(D) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Gross-Up Payment shall be recalculated so as to reflect that reduction, and the Executive shall refund to the Company an amount equal to any calculated reduction in the Gross-Up Payment, but only if, and to the extent, the Executive receives a refund of any Excise Tax previously paid by the Executive pursuant to Section 9.2 hereof.                   9.2     (A)  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by Energy East or 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 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to or on behalf of the Executive an additional payment ("Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.                           (B)   Subject to the provisions of Section 9.2(C) hereof, all determinations required to be made under this Section 9.2, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by Energy East's principal outside accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Board and the Executive within fifteen (15) business days of the Date of Termination and/or such earlier date(s) as may be requested by Energy East or the Executive (each such date and the Date of Termination shall be referred to as a "Determination Date," for purposes of this Section 9.2(B) and Section 9.3 hereof). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9.2(B), shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm under this Section 9.2(B) shall be binding upon Energy East, the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that Energy East exhausts its remedies pursuant to Section 9.2(C) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.                           (C)  The Executive shall notify Energy East in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of an Underpayment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise Energy East of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to Energy East (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Energy East notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i)    give Energy East any information reasonably requested by Energy East relating to such claim, (ii)    take such action in connection with contesting such claim as Energy East 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 Energy East, (iii)    cooperate with Energy East in good faith in order effectively to contest such claim, and (iv)    permit Energy East to participate in any proceeding relating to such claim; provided, however, that the Company 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 Executive 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 9.2(C), Energy East 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 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 Energy East shall determine; provided, however, that if Energy East directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall 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 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 Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Energy East's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive 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.                            (D)   If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9.2(C) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to Energy East's and the Company's complying with the requirements of Section 9.2(C) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9.2(C) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and Energy East does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid.                   9.3     Except as otherwise specifically provided in Sections 9.1 and 9.2, the payments provided for in Sections 9.1 and 9.2 hereof shall be made not later than the fifth day following the relevant Determination Date, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined by the Executive, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the relevant Determination Date. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code).                   9.4     The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of an event which entitles the Executive to the Severance Payments or any Gross-Up Payments (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as Energy East reasonably may require.          10.     Termination Procedures.                   10.1     Notice of Termination. During the Term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice 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. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.                   10.2     Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment during the Term of this Agreement shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (iii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by Energy East, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).          11.     No Mitigation. Energy East and the Company agree that, if the Executive's employment hereunder is terminated during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for hereunder (other than pursuant to Section 9.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to Energy East or the Company, or otherwise.          12.     Confidentiality and Noncompetition.                   12.1     The Executive will not, during or after the Term, disclose to any entity or person any information which is treated as confidential by Energy East or any of its subsidiaries or affiliates and is not generally known or available in the market place, and to which the Executive gains access by reason of his position as an employee or director of Energy East or any of its subsidiaries or affiliates (each, an "EE Entity").                   12.2     If, at any time prior to the end of the Term, the Executive terminates his own employment without Good Reason (and not in connection with his Disability, Retirement or death) or Energy East terminates his employment with Cause, then for a twelve-month period immediately following his Date of Termination, the Executive shall not, except as permitted by Energy East upon its prior written consent, enter, directly or indirectly, into the employ of or render or engage in, directly or indirectly, any services to any person, firm or corporation within the "Restricted Territory," which is a major competitor of any EE Entity with respect to products which any EE Entity is then producing or services any EE Entity is then providing (a "Competitor"). However, it shall not be a violation of the immediately preceding sentence for the Executive to be employed by, or render services to, a Competitor, if the Executive renders those services only in lines of business of the Competitor which are not directly competitive with the primary lines of business of any EE Entity or are outside of the Restricted Territory. For purposes of this Section 12.2, the "Restricted Territory" shall be the states of Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.                   If, at any time in connection with or following a Change-in-Control, and prior to the end of the Term, the Executive terminates his own employment with Good Reason (and not in connection with his Disability or Retirement) or Energy East terminates his employment without Cause, then for a twelve month period immediately following his Date of Termination, the Executive shall not enter into the employ of any person, firm or corporation or any affiliate thereof (as such term is defined in Rule 12b-2 of the Exchange Act) that caused the Change-in-Control.          13.     Successors; Binding Agreement.                   13.1     In addition to any obligations imposed by law upon any successor to Energy East or the Company, Energy East and 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 Energy East or the Company, as the case may be, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Energy East and the Company would be required to perform it if no such succession had taken place. Failure of Energy East or the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate 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.                   13.2     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 shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) 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 executors, personal representatives or administrators of the Executive's estate.          14.     Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To Energy East: Energy East Corporation Post Office Box 1196 Stamford, Connecticut 06904-1196 Attention: Corporate Secretary To the Company: New York State Electric & Gas Corporation Post Office Box 3607 Binghamton, NY 13902-3607 Attention: Corporate Secretary To the Executive: Michael I. German 8 Meadowood Lane Binghamton, NY 13901          15.     Miscellaneous.                   15.1     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 Executive and such officers as may be specifically designated by the Board and the NYSEG Board, respectively. No waiver by any party hereto at any time of any breach by any 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 any party which are not expressly set forth in this Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein including without limitation the Employment Agreement among Energy East, the Company and the Executive dated as of April 23, 1999, is hereby terminated and cancelled. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. There shall be withheld from any payments provided for hereunder any amounts required to be withheld under federal, state or local law and any additional withholding amounts to which the Executive has agreed. The obligations under this Agreement of Energy East, the Company or the Executive which by their nature and terms require satisfaction after the end of the Term shall survive such event and shall remain binding upon such party.                   15.2     References in this Agreement to employee benefit plans, compensation plans, incentive plans, pension plans, disability policies or similar plans, programs or arrangements of the Company include such plans, programs or arrangements of Energy East if maintained for the benefit of employees of the Company.          16.     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.          17.     Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.          18.     Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York 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.          19.    Definitions. For purposes of this Agreement, the following terms shall have the meaning indicated below:                   (A)   "AEIP" shall have the meaning stated in Section 9.1(A)(ii) hereof.                   (B)   "Base Salary" shall have the meaning stated in Section 5.1 hereof.                   (C)   "Beneficial Owner" shall have the meaning defined in Rule 13-d-3 under the Exchange Act.                   (D)   "Board" shall mean the Board of Directors of Energy East.                   (E)   "Cause" for termination by Energy East of the Executive's employment, for purposes of this Agreement, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with Energy East and the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 10.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to Energy East or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of Energy East.                   (F)   A "Change-in-Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied during the Term: (I)   any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Energy East (not including in the securities beneficially owned by such Person any securities acquired directly from Energy East or its affiliates) representing 25% or more of the combined voting power of Energy East's then outstanding securities; or (II)   during any period of two consecutive years (not including any period prior to the date of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with Energy East to effect a transaction described in paragraph (I), (III) or (IV) of this Change-in-Control definition or a director whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitations of proxies or consents by or on behalf of a Person other than the Board) whose election by the Board or nomination for election by Energy East's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (III)   the shareholders of Energy East approve a merger or consolidation of Energy East with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of Energy East outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Energy East or any of its subsidiaries, at least 75% of the combined voting power of the voting securities of Energy East or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of Energy East (or similar transaction) in which no Person acquires more than 50% of the combined voting power of Energy East's then outstanding securities; or (IV)   the shareholders of Energy East approve a plan of complete liquidation of Energy East or an agreement for the sale or disposition by Energy East of all or substantially all Energy East's assets.                   (G)   "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.                   (H)   "Company" shall mean New York State Electric & Gas Corporation and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.                   (I)   "Date of Termination" shall have the meaning stated in Section 10.2 hereof.                   (J)   "Determination Date" shall have the meaning stated in Section 9.2(B) hereof.                   (K)   "Disability" shall be deemed the reason for the termination by Energy East of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with Energy East and the Company for the maximum number of months applicable to the Executive under the Company's Disability Policy for Salaried Employees (or any successor policy) (but in no event for less than six (6) consecutive months), Energy East shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.                   (L)   "Energy East" shall mean Energy East Corporation and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 19(F) hereof, whether or not any Change-in-Control of Energy East has occurred in connection with such succession).                   (M)   "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.                   (N)   "Excise Tax" shall have the meaning stated in Section 9.2(A) hereof.                   (O)   "Executive" shall mean the individual named in the first paragraph of this Agreement.                   (P)   "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following: (I)    the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of Energy East or the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect on the date hereof (including, without limitation, any such alteration after a Change-in-Control attributable to the fact that Energy East or the Company may no longer be a public company); (II)    a reduction by Energy East or the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III)    the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on Energy East's or the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (IV)    the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of Energy East or the Company, within seven (7) days of the date such compensation is due; (V)    any other material breach of this Agreement by Energy East or the Company; (VI)    after a Change-in-Control, the failure by Energy East or the Company to continue the Executive's participation in any compensation plan in which the Executive participates on the date of the Change-in-Control which is material to the Executive's total compensation, including but not limited to the AEIP, the Company's Long Term Executive Incentive Share Plan and the Company's Supplemental Executive Retirement Plan or any successor plan, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed on the date of the Change-in-Control; (VII)   after a Change-in-Control, the failure by Energy East or the Company to continue to provide the Executive with benefits not less favorable in the aggregate than those enjoyed by the Executive under any of Energy East's or the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating on the date of the Change-in-Control, or the taking of any action by Energy East or the Company which would directly or indirectly materially reduce any of such benefits; (VIII)  the giving by Energy East to the Executive of a notice pursuant to Section 3 hereof that the Term shall not be extended; or (IX)    any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 10.1; for purposes of this Agreement, no such purported termination shall be effective.                   The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. In addition, a termination of the Executive's employment by the Executive, regardless of the reason, during the 30-day period immediately following the first anniversary of a Change-in-Control shall be deemed to be a termination for Good Reason for all purposes of this Agreement.                   (Q)   "Gross-Up Payment" shall have the meaning stated in Section 9.2(A) hereof.                   (R)   "Notice of Termination" shall have the meaning stated in Section 10.1 hereof.                   (S)   "NYSEG Board" shall mean the Board of Directors of the Company.                   (T)   "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) Energy East or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Energy East or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of Energy East in substantially the same proportions as their ownership of stock of Energy East.                   (U)   "Retirement" shall be deemed the reason for the termination by Energy East or the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, not including early retirement, generally applicable to its salaried employees, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive.                   (V)   "Retires" shall, for purposes of the second paragraph of Section 5.2 hereof, refer to the termination of the Executive's employment in accordance with the Company's retirement policy, not including early retirement (except that, on July 13, 2010, and thereafter, the Executive shall be deemed to have satisfied any normal retirement age requirement of that retirement policy), generally applicable from time to time to its salaried employees, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive.                   (W)   "Severance Payments" shall mean those payments described in Section 9.1 hereof.                   (X)   "Term" shall have the meaning stated in Section 3 hereof.              IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. ENERGY EAST CORPORATION By:  /s/ Wesley W. von Schack                   Wesley W. von Schack      Chairman, President and      Chief Executive Officer NEW YORK STATE ELECTRIC &      GAS CORPORATION By:  /s/ Daniel Farley                              Name: Daniel Farley      Title:  Vice President and Secretary     /s/ Michael I. German                           MICHAEL I. GERMAN

EX. 10.2         --------------------------------------------------------------------------------   OPTION AGREEMENT DATED August 28, 2000   --------------------------------------------------------------------------------     OSLER, HOSKIN & HARCOURT LLP - WHITE & CASE LLP       OPTION AGREEMENT OPTION AGREEMENT made as of August 28, 2000 (this "Agreement"), BETWEEN: UPM-KYMMENE CORPORATION, a corporation existing under the laws of Finland ("UPM") - and - REPAP ENTERPRISES INC., a corporation existing under the laws of Canada ("Repap"). WHEREAS UPM and Repap have entered into an Acquisition Agreement dated as of the date hereof (the "Acquisition Agreement") which provides, upon the terms and subject to the conditions set forth therein, for the completion of an amalgamation (the " Amalgamation") involving Repap and 3796477 Canada Inc.; AND WHEREAS, unless the context otherwise requires, words and phrases used herein shall have the meanings assigned to such words and phrases in the Acquisition Agreement; AND WHEREAS as a condition to UPM's entering into the Acquisition Agreement, UPM has required that Repap agree, and in order to induce UPM to enter into the Acquisition Agreement, Repap has agreed to grant UPM an option to purchase from the treasury of Repap, in accordance with the terms and conditions of this Agreement, up to 19.9% of the issued and outstanding Repap Common Shares on the date of the first Exercise Notice (as defined below); NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and in the Acquisition Agreement, the parties hereto agree as follows:   ARTICLE 1 THE OPTION Section 1.1 Grant of Option. Subject to the terms and conditions set forth herein, Repap hereby grants to UPM an irrevocable option (the "Option") to purchase from the treasury of Repap up to the greater of 19.9% of the issued and outstanding Repap Common Shares on the date hereof (being 148,048,167 Repap Common Shares) and 19.9% of the issued and outstanding Repap Common Shares on the date of the first Exercise Notice (as defined below) (in each case, the "Option Shares") in the manner set forth below at a purchase price (the "Purchase Price") per Option Share equal to $0.20 in cash per Option Share; provided, however, that in no event shall the number of shares for which this Option is exercisable exceed 19.9% of the issued and outstanding shares of Repap Common Shares at the time of exercise without giving effect to the number of Repap Common Shares issued or issuable pursuant to this Option. The number of Repap Common Shares that may be received upon the exercise of the Option and the Purchase Price are subject to adjustment as herein set forth. Section 1.2 Exercise of Option. The Option may be exercised by UPM, in whole or in part, at any time or from time to time after the occurrence of an Exercise Event (as defined below) and prior to the Termination Date (as defined below). An "Exercise Event" shall occur for purposes of this Agreement upon an Acquisition Proposal being made, publicly announced or otherwise publicly disclosed by any Person other than UPM prior to the Repap Meeting or in the circumstances described in Section 6.4(1)(b)(ii) of the Acquisition Agreement. The "Termination Date" shall occur for purposes of this Agreement upon the first to occur of any of the following: a. the Effective Date; b. the date which is six months following termination of the Acquisition Agreement; c. the date on which the Option shall have been exercised in full; d. the day next preceding the date on which the Acquisition Proposal referred to in Section 1.2(2) hereof is to be consummated; or e. if the Acquisition Agreement is terminated in circumstances in which no Break Fee is payable pursuant to Section 6.4 of the Acquisition Agreement. Repap shall notify UPM promptly in writing of the occurrence of any Exercise Event, it being understood that the giving of such notice by Repap shall not be a condition to the right of UPM to exercise the Option. In the event UPM wishes to exercise the Option, UPM shall send a written notice (an "Exercise Notice") to Repap specifying the total number of Option Shares that UPM wishes to purchase, the denominations of the certificate or certificates evidencing such Option Shares which UPM wishes to receive, the date (subject to the earlier of the satisfaction or waiver of the conditions set forth in Section 1.3 hereof) on which the Option Shares are to be issued (the "Closing Date") which shall be a Business Day not later than the fifth Business Day and not earlier than the second Business Day after delivery of such notice, and the place for the closing (the "Closing") of such purchase; provided, that if the closing of such purchase cannot be consummated by reason of any applicable judgment, injunction, decree, order, law or regulation, the period of time that would otherwise run pursuant to this sentence shall run instead from the date on which such restriction on consummation has expired or been terminated; and provided, further, that if prior notification to, approval of or filing with any Governmental Entity is required in connection with such purchase, UPM and Repap shall promptly file the required notice or application for approval and responses thereto, and shall expeditiously process the same and the period of time that otherwise would run pursuant to this sentence shall run instead from the last date on which any required notification periods have expired or been terminated and such approvals have been obtained and any requisite waiting period or periods shall have passed. Section 1.3 Conditions to Closing. The obligation of Repap to deliver Option Shares upon any exercise of the Option pursuant to Section 1.2(5) hereof is subject to the following conditions: 1. The Option Shares shall have been approved for listing on The Toronto Stock Exchange ("TSE"), provided however, that Repap and UPM agree that Repap shall not be obligated to qualify the Option Shares for resale in the United States or Canada other than on the terms and subject to the conditions set forth in Section 3.2 hereof; and 2. No preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting such issuance of Option Shares shall be in effect (provided that Repap has used its reasonable best efforts to resist or overturn same). Section 1.4 Closing. In the event of a Closing pursuant to Section 1.2(5), Repap shall deliver to UPM a certificate or certificates evidencing the applicable number of Option Shares (in the denominations specified therein), and UPM shall purchase each such Option Share from Repap at the Purchase Price. Payment of the Purchase Price shall be made by wire transfer of immediately available funds, provided that failure or refusal of Repap to designate such a bank account shall not preclude UPM from exercising the Option by delivery of a certified cheque or bank draft. Upon the tender of the applicable Purchase Price in immediately available funds, UPM shall be deemed to be the holder of record of the Repap Common Shares issuable upon such exercise, notwithstanding that the stock transfer books of Repap shall then be closed or that certificates representing such Repap Common Shares shall not then be actually delivered to UPM. Repap shall pay all expenses, and any and all federal, provincial, state and local taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates in the name of UPM or its assignee, transferee or designee, excluding for greater certainty, income taxes or other taxes payable by UPM in relation to its capital or profits. Section 1.5 Adjustments upon Share Issuances, Changes in Capitalization, etc. In the event of any change in Repap Common Shares or in the number of outstanding Repap Common Shares by reason of a stock dividend, split-up, recapitalization, combination, exchange of shares or similar transaction or any other extraordinary change in the corporate or capital structure of Repap (including, without limitation, the declaration or payment of an extraordinary dividend of cash, securities or other property), the type and number of shares or securities to be issued by Repap upon exercise of the Option and the Purchase Price shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction, so that UPM shall receive upon exercise of the Option the number and class of shares and/or other securities and/or cash and/or property that UPM would have received in respect of Repap Common Shares if the Option had been exercised immediately prior to such event, or the record date therefor, as applicable, and elected, to the fullest extent it would have been permitted to elect, to receive such securities, cash or other property (as UPM shall determine). In the event that Repap shall enter into an agreement (other than the Acquisition Agreement): (i) to consolidate with, amalgamate or merge into any person, other than UPM or any subsidiary of UPM, and shall not be the continuing or surviving corporation of such consolidation, amalgamation or merger; (ii) to permit any person, other than UPM or any subsidiary of UPM, to merge into Repap and Repap shall be the continuing or surviving corporation, but, in connection with such merger, the then outstanding Repap Common Shares shall be changed into or exchanged for shares or other securities of Repap or any other person or cash or any other property or the then outstanding Repap Common Shares shall after such merger represent less than 50% of the outstanding shares and share equivalents of the surviving corporation; or (iii) to sell or otherwise transfer all or substantially all of its assets to any person, other than UPM or any subsidiary of UPM; then, and in each such case, proper provision shall be made in the agreements governing such transaction (and the continuing or surviving or transferee corporation shall also enter into an agreement with UPM to provide UPM with such rights) so that UPM shall receive upon exercise of the Option, the number and class of shares and/or other securities and/or cash and/or property that UPM would have received in respect of Repap Common Shares if the Option had been exercised immediately prior to such transaction, or the record date therefor, as applicable, and elected, to the fullest extent it would have been permitted to elect, to receive such securities, cash or other property (as UPM shall determine), and the Purchase Price shall be adjusted appropriately. The provisions of this Agreement, including, without limitation, Sections 1.1, 1.2, 1.4 and 3.2, shall apply with appropriate adjustments to any securities for which the Option becomes exercisable pursuant to this Section 1.5. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Section 2.1 Representations of Repap. Repap hereby represents and warrants to UPM as follows: 1. Repap has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Repap and the consummation by Repap of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Repap are necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly executed and delivered by Repap and, assuming the due authorization, execution and delivery by UPM, constitutes the legal, valid and binding obligation of Repap, enforceable against Repap in accordance with its terms, subject to bankruptcy, insolvency and other applicable Laws affecting creditors' rights generally, and to general principles of equity. 2. Repap has taken all necessary corporate action to authorize and reserve and permit it to issue, and at all times from the date hereof through the Termination Date shall have reserved, all the Option Shares issuable pursuant to this Agreement, and Repap shall take all necessary corporate action to authorize and reserve and permit it to issue all additional Repap Common Shares or other securities which may be issued pursuant to this Agreement, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, shall be duly authorized, validly issued, fully paid and non-assessable, shall be delivered free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, charges and other encumbrances of any nature whatsoever (other than as provided in this Agreement) and shall not be subject to any pre-emptive rights. 3. Except for Regulatory Approvals, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any breach pursuant to any provision of the constating documents of Repap or any subsidiary of Repap or result in any breach of any loan or credit agreement, note, mortgage, indenture, lease, pension plan or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Repap or any subsidiary of Repap or their respective properties or assets, except that the Option Shares may not be resold except in accordance with applicable securities laws. Section 2.2 Representations of UPM. UPM has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by UPM and the consummation by UPM of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of UPM are necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly executed and delivered by UPM and, assuming the due authorization, execution and delivery by Repap, constitutes the legal, valid and binding obligation of UPM, enforceable against UPM in accordance with its terms, subject to bankruptcy, insolvency and other applicable Laws affecting creditors' rights generally, and to general principles of equity. The only agreements to which UPM is a party with any shareholder of Repap are those which UPM has provided true and complete copies of to Repap, and such agreements have not been amended, supplemented or otherwise varied since their respective dates. ARTICLE 3 COVENANTS OF REPAP Section 3.1 Listing; Other Action. As promptly as practicable, Repap shall use all reasonable efforts to cause the Option Shares to be approved for listing on the TSE, subject to notice of issuance, and shall provide prompt notice to the TSE of the issuance of each Option Share. Repap shall use all reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable law, regulation or policy (including complying with all applicable notification, filing, reporting and waiting period requirements under applicable laws and cooperating fully with UPM in preparing any applications or notices and providing such information to any Governmental Entity as it may require) to consummate and make effective the transactions contemplated hereby, including, without limitation, using its all reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Entity; provided however, that Repap shall not be obligated to qualify the Option Shares for resale other than on the terms and subject to the conditions set forth in Section 3.2. Section 3.2 Qualification In the event that UPM shall desire to sell any of the Option Shares and such sale in the manner proposed by UPM requires, in the opinion of counsel to UPM (which opinion shall be reasonably satisfactory to Repap and its counsel), qualification of such Option Shares for resale under applicable securities laws, Repap shall cooperate with UPM and any underwriters in qualifying such Option Shares for resale, including, without limitation, promptly filing a prospectus which complies with the requirements of applicable Canadian federal, provincial and territorial securities laws and United States federal and state securities laws, as the case may be, and entering into and complying with an underwriting agreement with such underwriters upon such terms and conditions as are customarily contained in underwriting agreements with respect to secondary distributions; provided, however, that Repap shall not be required to file more than two prospectuses hereunder and shall be entitled to delay the filing of any prospectus for up to 120 days (but not more than once in any 12 month period) if the offering would, in the judgment of the Board of Directors of Repap, require premature disclosure of any material corporate development or otherwise materially interfere with or materially adversely affect any pending or proposed offering of securities of Repap or any other material transaction involving Repap. If Option Shares are qualified pursuant to the provisions of this Section 3.2, Repap agrees (i) to furnish copies of the prospectus relating to the Option Shares covered thereby in such numbers as UPM may from time to time reasonably request and (ii) if any event shall occur as a result of which it becomes necessary to amend or supplement any prospectus, to prepare and file under the applicable securities laws such amendments and supplements as may be necessary to keep available for at least 90 days a prospectus covering the Option Shares meeting the requirements of such securities laws, and to furnish UPM with such numbers of copies of the prospectus, as amended or supplemented, as may reasonably be requested. UPM shall bear the cost of the registration or qualification, including but not limited to, all registration and filing fees, printing expenses, and fees and disbursements of counsel and accountants for Repap, and UPM shall pay the fees and disbursements of its counsel and the underwriting fees and commissions applicable to the Option Shares sold by UPM. Repap shall indemnify and hold harmless UPM, its affiliates and their respective officers and directors from and against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any statements contained in or omissions or alleged omissions from, each prospectus (or any amendment thereto) filed pursuant to this paragraph; provided, however, that this provision shall not apply to any loss, liability, claim, damage or expense to the extent it arises out of any untrue statement or omission made in reliance upon and in conformity with written information furnished to Repap by UPM, its affiliates and its officers and other representatives expressly for use in any prospectus (or any amendment thereto) filed pursuant to this paragraph. Repap shall also indemnify and hold harmless each underwriter and each person who controls any underwriter against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any statements contained in or omissions or alleged omissions from, each prospectus (or any amendment thereto) filed pursuant to this paragraph; provided, however, that this provision shall not apply to any loss, liability, claim, damage or expense to the extent it arises out of any untrue statement or omission made in reliance upon and in conformity with written information furnished to Repap by the underwriters expressly for use in any prospectus (or any amendment thereto) filed pursuant to this Section 3.2. ARTICLE 4 CERTAIN LIMITATIONS Section 4.1 Maximum Total Proceeds. Notwithstanding any other provision of this Agreement or the Acquisition Agreement, in no event shall UPM's Total Proceeds (as hereinafter defined) exceed the Break Fee (as defined in the Acquisition Agreement) and, if it otherwise would exceed such amount, UPM shall either: (i) reduce the number of Option Shares otherwise issuable; (ii) deliver to Repap for cancellation Option Shares previously purchased by UPM hereunder; (iii) pay cash to Repap; or (iv) at UPM's sole election, any combination thereof, so that UPM's Total Proceeds shall not exceed the Break Fee after taking into account the foregoing actions. As used herein, the term "Total Proceeds" shall mean the aggregate amount (before taxes) of the following: (i) the greater of (A) the net cash proceeds (or equivalent thereof) to UPM from the arm's length disposition by it of the Option Shares in the market, by private placement, by tender into an Acquisition Proposal or otherwise or (B) the consideration (or equivalent thereof) which would have been payable for the Option Shares pursuant to any Superior Proposal which is consummated and as a result of which amounts become payable to UPM pursuant to Section 6.4(1) of the Acquisition Agreement, without regard to whether UPM tenders its Option Shares pursuant thereof; less UPM's Purchase Price for such shares; and (ii) any amounts received by UPM pursuant to Section 6.4(1) of the Acquisition Agreement. ARTICLE 5 COVENANTS OF UPM Section 5.1 Voting Limitations. UPM hereby agrees with Repap that it will not exercise any voting rights attached to the Option Shares to vote in favour of the Amalgamation. Section 5.2 Distribution of Option Shares. UPM agrees with Repap that any resale of Option Shares, other than pursuant to an Acquisition Proposal, shall be widely distributed to the public and, in any event, so that no Repap shareholder would, as a result of such distribution, to UPM's knowledge, own 10% or more of the outstanding common shares of Repap. ARTICLE 6 TERMINATION OF AGREEMENT Section 6.1 Termination. This Agreement, other than the rights and obligations of UPM and Repap under Sections 3.2, 4.1 and this Section 6.1, shall terminate on the Termination Date. ARTICLE 7 MISCELLANEOUS Section 7.1 Amendment. This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. Section 7.2 Waiver. Either party hereto may (a) extend the time for or waive compliance with the performance of any obligation or other act of the other party hereto or (b) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party to be bound thereby. Section 7.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, or by a nationally recognized courier service to the respective parties at their addresses as specified in the Acquisition Agreement. Section 7.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner to the fullest extent permitted by applicable Law in order that the transactions contemplated hereby may be consummated as originally contemplated to the fullest extent possible. If for any reason such court or regulatory agency determines that UPM is not permitted to acquire the full number of shares of Repap Common Shares provided in this Agreement and also does not permit the payment of the Spread in respect to such prohibited shares, it is the express intention of Repap to allow UPM to acquire such lesser number of Repap Common Shares (or receive payment of the Spread in respect of such lesser number) as may be permissible, without any amendment or modification hereof. Section 7.5 Assignment; Binding Effect; Benefit. Except as expressly provided herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (by operation of law or otherwise) by either party without the prior written consent of the other party hereto. Notwithstanding the foregoing, UPM may assign this Agreement and any of the rights, interests or obligations hereunder to any wholly-owned subsidiary of UPM without the consent of Repap, provided that UPM remains jointly and severally liable hereunder with such wholly-owned subsidiary. Subject to the first and second sentence of this section, this Agreement shall be binding upon and shall enure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 7.6 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. Section 7.7 Governing Law. This Agreement shall be governed by, and construed in accordance, with the laws of the Province of Ontario and the federal laws of Canada applicable therein. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in the courts of the Province of Ontario. Section 7.8 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. Section 7.9 Entire Agreement. This Agreement and the Acquisition Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings between the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. Section 7.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. UPM-KYMMENE CORPORATION By: "Juha Niemelä" __________________ Authorized Signing Officer      By: "Reko Aalto-Setälä" ______________ Authorized Signing Officer REPAP ENTERPRISES INC.  By: "Harold (Hap) Stephen" __________ Authorized Signing Officer

EXHIBIT 10.2 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT         THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of June 1, 2000, by and between Michael Foos (the “Employee”) and Waste Connections, Inc., a Delaware corporation (the “Company”), and amends and restates the First Amended and Restated Employment Agreement entered into by the parties as of October 1, 1997, with reference to the following facts.         The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below.         NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows:         1.  Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein.         2.  Position and Responsibilities. During the Term, the Employee shall serve as Chief Accounting Officer and Vice President—Finance of the Company, reporting directly to the Company’s Chief Financial Officer, and shall perform such other duties and responsibilities as the Chief Financial Officer or the Board of Directors (the “Board”) of the Company may reasonably assign to the Employee from time to time. The Employee shall be based at the Company’s corporate headquarters in Folsom, California. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements.         3.  Term. The period of the Employee’s employment under this Agreement (the “Term”) commenced on October 1, 1997, and shall continue through May 31, 2003, unless terminated earlier as provided herein or extended by the Board. On each anniversary of the date of this Agreement, commencing June 1, 2001, this Agreement shall be extended automatically for an additional year, thus extending the Term to three years from such date, unless either party shall have given the other notice of termination hereof as provided herein.         4.  Compensation, Benefits and Reimbursement of Expenses.               (a)  Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows:                      (1)  Base Salary. The Employee shall be paid a base salary (“Base Salary”) of not less than One Hundred Twenty-Seven Thousand Five Hundred Dollars ($127,500) per year in installments consistent with the Company’s usual practices. The Board shall review the Employee’s Base Salary on October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company.                      (2)  Performance Bonus. The Employee shall be entitled to an annual cash bonus (the “Bonus”) based on the Company’s attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal thirty-five percent (35%) of the applicable year’s ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year’s financial objectives have been fully met. The Bonus shall be paid in accordance with the Company’s bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than seventy-five (75) days after the end of such fiscal year.                      (3)  Grant of Options. The Employee shall be eligible for annual grants of management stock options (“Options”) commensurate with his position and with option grants to other management employees of the Company, based on the recommendation of the Company’s President and as approved by the Board. The terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. 1 --------------------------------------------------------------------------------                      (4)  Grant of Restricted Stock. On October 1, 1997, the Company sold to the Employee, for $0.01 per share in cash, 20,000 shares of the Company’s Common Stock (the “Restricted Stock”). Such Restricted Stock was not transferable initially by the Employee, but 6,667 shares of Restricted Stock became unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on each of October 1, 1998, and October 1, 1999, and the remaining 6,666 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on October 1, 2000. If a Change in Control of the Company (as defined in Section 10(b)) occurs before all of the Employee’s Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), all of the Employee’s shares of Restricted Stock shall immediately become unrestricted and freely transferable on such Change of Control, and all shares of Restricted Stock granted to the Employee hereunder shall be treated as owned by the Employee without restriction for the purpose of determining the Employee’s percentage ownership of the Company on such Change of Control. If before all of the Employee’s Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), the Employee’s employment is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)), all of the Employee’s shares of Restricted Stock shall immediately become unrestricted and freely transferable on such termination. If the Employee’s employment is terminated by the Company for Cause or by the Employee without Good Reason before all of the Restricted Stock has become unrestricted and freely transferable, the Company may, within 90 days after such termination of employment, repurchase from the Employee for $0.01 per share in cash any shares of Restricted Stock that are subject to restrictions on transfer under this Section 4(a)(4) as of the termination date. The Employee may in his sole discretion file an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to the Restricted Stock.               (b)  Other Benefits. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee’s monthly service fee and costs of calls attributable to Company business. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement benefits. The Employee shall be entitled to three (3) weeks of paid vacation each year of his employment.               (c)  Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses (including mileage for business use of employee’s personal automobile at the maximum rate permitted under Internal Revenue Service regulations) incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses.               (d)  Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law.         5.  Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee’s ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company.         6.  Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company’s offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or 2 -------------------------------------------------------------------------------- return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others.         7.  Termination By Company.               (a)  Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the Board; provided, however, that before the Company may terminate the Employee’s employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). For purposes of this Agreement, Cause shall mean:                      (1)  a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach;                      (2)  a breach of any of the provisions of Section 12;                      (3)  repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement;                      (4)  conviction of a felony; or                      (5)  misappropriation of property belonging to the Company and/or any of its affiliates.               (b)  Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall, in lieu of any payments under Section 4(a)(1) and 4(a)(2) for the remainder of the Term, pay to the Employee an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) the full (not pro-rated) maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to three times the Employee’s current annual Base Salary under Section 4(a)(1) plus three times his maximum Bonus under Section 4(a)(2) (whether or not the entire amount was actually earned or paid) for the year in which the termination occurs. Such amount shall be paid as follows: one third on the Date of Termination and, provided that Employee has complied with the provisions of Section 12 hereof, one third on each of the first and second anniversaries of the Date of Termination of the Employee’s employment. In addition, on termination of the Employee under this Section 7(b), all of the Employee’s outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee’s Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee’s termination. The Employee acknowledges that extending the term of any incentive stock option pursuant to this Section 7(b), or Section 7(c), 7(d) or 8(a), could cause such option to lose its tax-qualified status if it is an incentive stock option under the Code and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result.               (c)  Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity 3 -------------------------------------------------------------------------------- shall continue for a period of more than six (6) consecutive months (“Disability”), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee’s employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on such termination, all of the Employee’s outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee’s Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee’s termination.               (d)  Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee’s estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee’s outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee’s Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee’s termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee’s heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company.         8.  Termination By Employee.               (a)  Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof at the times and subject to the conditions set forth therein. In addition, on termination of the Employee under this Section 8(a), all of the Employee’s outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee’s Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee’s termination.         For purposes of this Agreement, “Good Reason” shall mean:                      (1)  assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement;                      (2)  the relocation of the Company’s principal executive office to a location more than fifty (50) miles from its present location;                      (3)  a reduction by the Company in the Employee’s Base Salary without the Employee’s prior approval;                      (4)  a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee’s participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company);                      (5)  any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or 4 --------------------------------------------------------------------------------                      (6)  the failure of the Company to obtain the assumption of this Agreement by any successor entity.               (b)  Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination pursuant to this Section 8(b), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4).         9.  Provisions Applicable to Termination of Employment.               (a)  Notice of Termination. Any purported termination of Employee’s employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment (“Notice of Termination”). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination.               (b)  Date of Termination. For all purposes, “Date of Termination” shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee’s employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given.               (c)  Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans.         10.  Change In Control.               (a)  Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause provided, however, that such amount shall be payable in a lump sum on the Date of Termination and not in installments as provided in Section 7(b). In addition, on a Change of Control, all of the Employee’s outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, the term of any such options and rights shall be extended to the third anniversary of the Employee’s termination, and all shares of the Employee’s Restricted Stock shall immediately become unrestricted and freely transferable.         After a Change in Control, if any previously outstanding Option or other option or right (the “Terminated Option”) relating to the Company’s capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either:                      (1)  Issue an option, warrant or right, as appropriate (the “Successor Option”), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor’s/Parent’s common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or                      (2)  Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control in an amount agreed to by the Employee and the Company. Such amount shall be at least 5 -------------------------------------------------------------------------------- equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above.               (b)  Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that 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 transaction, (bb) 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, or if (ii) any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company’s outstanding voting securities (except that for purposes of this Section 10(b), “person” shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the membership 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 one-half of the directors then still in office who were directors at the beginning of the period.         The term “Parent” means a corporation, partnership, trust, limited liability company or other entity that is the ultimate “beneficial owner” (as defined above) of fifty percent (50%) or more of the Company’s outstanding voting securities.         11.  Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a “Payment”) constitutes an “excess parachute payment” within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the “Excise Tax”), the Company or its successors or assigns shall pay to the Employee an additional amount (the “Gross-Up Payment”) with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes.         The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys’ and experts’ fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 6 --------------------------------------------------------------------------------         12.  Non-Competition and Non-Solicitation.               (a)  In consideration of the provisions hereof, for the Restricted Period (as defined below), the Employee will not, except as specifically provided below, anywhere in any county in the State of California or anywhere in any other state in which the Company is engaged in business as of such termination date (the “Restricted Territory”), directly or indirectly, acting individually or as the owner, shareholder, partner or management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. The term “Restricted Period” shall mean the earlier of (i) the maximum period allowed under applicable law and (ii)(x) in the case of a Change of Control, until the third anniversary of the effective date of the Change of Control, (y) in the case of a termination by the Company without Cause pursuant to Section 7(b) or by the Employee for Good Reason pursuant to Section 8(a) and provided the Company has made the payments required under Section 7(b) or 8(a), as the case may be, until the third anniversary of the Date of Termination, or (z) in the case of Termination for Cause by the Company pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), until the first anniversary of the Date of Termination.               (b)  After termination of this Agreement by the Company or the Employee pursuant to Section 7 or 8 or termination of this Agreement upon a Change in Control pursuant to Section 10, the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in the Restricted Territory, (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in the Restricted Territory, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer, employee or contractor of the Company to enter into an employment or contractor agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company in the Restricted Territory that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the third anniversary of the date of such termination or the effective date of such Change of Control (whichever is later), unless otherwise permitted to do so by Section 12(a).               (c)  If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.         13.  Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder.         14.  Survival of Provisions. The obligations of the Company under Section 13 of this Agreement, and of the Employee under Section 12 of this Agreement, shall survive both the termination of the Employee’s employment and this Agreement.         15.  No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 7 --------------------------------------------------------------------------------         16.  Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business.         17.  Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice.         18.  Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee’s employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee.         19.  Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement.         20.  Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. The parties irrevocably and unconditionally submit to the jurisdiction and venue of any court, federal or state, situated within Sacramento County, California, for the purpose of any suit, action or other proceeding arising out of, or relating to or in connection with, this Agreement.         21.  Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable.         22.  Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5, 6, or 12 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6 or 12 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. The Employee agrees that if the Employee breaches any provision of Section 12, the Company may recover as partial damages all profits realized by the Employee at any time prior to such recovery on the exercise of any warrant, option or right to purchase the Company’s Common Stock and the subsequent sale of such stock, and may also cancel all outstanding such warrants, options and rights.         23.  Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument.         24.  Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. 8 --------------------------------------------------------------------------------         IN WITNESS WHEREOF, the parties have executed and delivered this Second Amended Employment Agreement as of the day and year set forth above.      WASTE CONNECTIONS, INC., a Delaware corporation   By:        --------------------------------------------------------------------------------      Ronald J. Mittelstaedt President and Chief Executive Officer      EMPLOYEE:           --------------------------------------------------------------------------------      Michael Foos   9

QuickLinks -- Click here to rapidly navigate through this document ASSET PURCHASE AGREEMENT     THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated November 10, 2000, is by and among Datalink Corporation, a Minnesota corporation ("Datalink"), Opensystems.com, Inc., a Massachusetts corporation ("Opensystems") and Lynn Mormann (the "Stockholder"). RECITALS:     WHEREAS, Opensystems is engaged in the business of designing and implementing data storage systems through its Appliance Division (the "Division");     WHEREAS, Datalink is also engaged in data storage business and directly, or through a wholly-owned subsidiary incorporated for purposes of this transaction ("Subsidiary"), desires to acquire and buy, and Opensystems desires to transfer and sell, certain of the tangible and intangible assets owned by Opensystems which are used directly and principally by the Division, pursuant to the terms and conditions of this Agreement;     WHEREAS, as an inducement for and condition to Datalink entering into this Agreement, Opensystems and Stockholder have agreed to be bound by a noncompetition agreement on the terms and conditions described below, and certain of Opensystems' employees have agreed to become employed and enter into noncompetition agreements with Datalink satisfactory to Datalink; and     WHEREAS, each of the parties to this Agreement desires to make certain representations, warranties and agreements in connection with the transaction contemplated herein and also to prescribe various conditions thereto.     THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1.  DEFINITIONS     Unless otherwise defined elsewhere in this Agreement, as used in this Agreement and any exhibits or schedules hereto, the following words and phrases shall have the meanings set forth below:     "Act" shall mean the Securities Act of 1933, as amended.     "Authorization" and "Authorizations" shall have the meanings ascribed to them in Section 5.18 below.     "Closing" shall mean the consummation of the transactions contemplated herein as described in Section 4.1 below.     "Closing Date" shall be the date of the Closing as described in Section 4.1 below.     "Code" shall mean the Internal Revenue Code of 1986, as amended and interpreted by treasury regulations.     "Datalink Common Stock" shall mean the Common Stock of Datalink, par value $.001 per share.     "Datalink Financial Statements" shall have the meaning ascribed to it in Section 7.9 below.     "Employee Benefit Plans" shall have the meaning ascribed to it in Section 5.20(a) below.     "Environmental Law" shall mean any environmental or health and safety-related law, regulation, rule, ordinance, or by-law at the federal, foreign, state, or local level, whether existing as of the date hereof, previously enforced or subsequently enacted.     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.     "Escrow Agent" shall mean Resource Trust Bank, Minneapolis, Minnesota. 1 --------------------------------------------------------------------------------     "Escrow Agreement" shall mean the Escrow Agreement by and among Datalink, Opensystems and the Escrow Agent.     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.     "Financial Statements" shall have the meaning ascribed to it in Section 5.4 below.     "Fraud" shall require a showing of an intent to deceive and, with respect to a claim of misrepresentation, that the party to be charged had Knowledge of the falsity of the representation (or acted recklessly in making the representation); and with respect to an omission, that the party to be charged Knowingly failed to disclose (or acted recklessly in failing to disclose).     "Hazardous Materials" shall mean and include any hazardous waste, hazardous material, hazardous substance, petroleum product, oil toxic substance or pollutant as defined in or pursuant to the Resource Conservation and Recovery Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Hazardous Materials Transportation Act or any other foreign, federal, state or local law, regulation, ordinance, rule or by-law, whether existing as of the date hereof, previously enforced or subsequently enacted pertaining to environmental or health and safety matters.     "Intellectual Property" shall have the meaning ascribed to it in Section 5.9(a) below.     "Knowledge" or "Knowingly" shall mean actual knowledge after reasonable investigation by the individual or the entity referred to.     "Person" shall mean an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof).     "Purchase Consideration" shall have the meaning ascribed to it in Section 3.1 below.     "SEC" shall mean the U.S. Securities and Exchange Commission.     "Taxes" shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value-added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.     "Tax Return" shall mean any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.     "Transferred Employees" shall mean John McLaughlin, Laraine Ripley, Steve Roche, Peggy Mormann, Tom Arlington, Mike Ball and Jay Querusio. SECTION 2.  SALE OF ASSETS     2.1  Sale of Assets by Opensystems.  Subject to the terms and conditions set forth in this Agreement, at the Closing, Opensystems will sell, convey, transfer, assign and deliver to Datalink, and Datalink will purchase from Opensystems, the exclusive right, title and interest, free and clear of all liens, security interests and encumbrances, in and to certain of Opensystems' property, whether personal, intangible or fixtures, used directly and principally in the operation of the Division 2 -------------------------------------------------------------------------------- (collectively, the "Assets"), except as specifically excluded in this Section 2.1 or pursuant to Section 2.2 below, including, without limitation, the following:     (a)  Tangible Assets.  All of Opensystems' physical assets used directly and principally by the Division and set forth on Schedule 2.1(a) attached hereto.     (b)  Contracts and Agreements.  The contracts and agreements relating to the operation of the Division that are listed individually or by category on Schedule 2.1(b) attached hereto including those noncompetition agreements between Opensystems and each of the Transferred Employees and any renewals, extensions, amendments or modifications thereof (the "Assigned Contracts").     (c)  Intangible Assets.  The tradename "Open System Solutions" (but not the domain name "opensystems.com" which shall be shared by the parties pursuant to Section 2.6, or the corporate name "Opensystems.com, Inc.), and the computer software, customer and prospect list and authorizations listed on Schedule 2.1(c) attached hereto.     (d)  Open Projects.  All of the open projects of the Division listed on Schedule 2.1(d), to include sales leads, product evaluations and open purchase orders for products not yet shipped by Opensystems as of Closing (the "Open Projects").     (e)  Goodwill.  The Division as a going concern, and any and all of its goodwill.     (f)  Customers.  Any and all of the Division's past and present customers and customer lists, potential customers, prospect and prospect lists and relationships with customers, suppliers and franchisers.     (g)  Business Records.  All files, logs, records, books of account, financial records, supplier files and lists, including telephone numbers, payroll and personnel records, marketing data and reports, marketing information, brochures, art work, photographs, advertising materials and other materials that primarily concern the operation of the Division, excluding Opensystems' corporate records and minute books provided that Opensystems shall be permitted to retain a copy of information of the Division necessary for tax purposes.     2.2  Excluded Assets.  The following assets of Opensystems (the "Excluded Assets") whether or not used in the Division shall be excluded from the Assets and shall be retained by Opensystems:     (a)  Cash.  Any and all cash and bank accounts and all investments, investment accounts or other similar holdings.     (b)  Accounts Receivable.  Accounts receivable for projects shipped to the customer prior to Closing. In the event a customer of either party inadvertently sends payment to the other party, the receiving party will immediately deliver such payments to the other party.     (c)  Credits.  Credit balances, reimbursements or rebates related to the Division arising prior to the Closing, including those listed on Schedule 2.2(c).     (d)  Other Assets.  All other assets of Opensystems which are not defined as Assets.     2.3  Assumption of Liabilities.  Datalink shall not assume and Datalink shall not be liable for any of the obligations or liabilities of Opensystems, Stockholder or the Division or for obligations related to the Assets of any kind or nature other than obligations or liabilities arising under the Assigned Contracts and the Open Projects after the Closing Date; provided, however, that Opensystems shall reimburse Datalink within 30 days of Datalink's invoice at Datalink's normal hourly rates (based on $1,600 per eight hour day) for installation and/or configuration services performed by Datalink personnel after Closing on products shipped by Opensystems prior to Closing and for which Opensystems either retains the account receivable as to such products or was paid prior to Closing. 3 --------------------------------------------------------------------------------     2.4  Right of Inspection.  From the date hereof and until Closing, Opensystems will make available at reasonable times Opensystems' books, records and other financial statements and information as are reasonably requested by Datalink for examination, and for the examination by their advisors and such other information relating to the Division and the Assets as Datalink may reasonably request.     2.5  Employees.  Datalink does not hereby agree to employ any of Opensystems' employees or assume any employment or collective bargaining agreement of Opensystems. Notwithstanding the foregoing, Datalink shall offer employment to the Transferred Employees on terms acceptable to Datalink. Datalink shall not be obligated to consummate the transactions contemplated hereunder unless each of the Transferred Employees accepts employment with Datalink on terms acceptable to Datalink, unless waived in writing by Datalink. It is expressly understood and agreed that:     (a) Datalink is not a successor or joint employer by virtue of anything in this Agreement, or any other accord or understanding with Opensystems or any thing done or not done by Opensystems pursuant to this Agreement and Datalink shall not, solely by virtue of this Agreement, be obligated or responsible for performance of any terms of any labor agreement applicable to any of Opensystems' employees, salaried or hourly.     (b) Datalink is not assuming, under this Agreement or otherwise, and Opensystems is and shall remain fully responsible for any obligation, responsibility or liability, whether contractual or statutory, arising out of Opensystems' termination of employment of such employees of the Division including without limitation any liability or obligation with respect to wages, salaries, holiday, sick leave entitlements, bonuses, vacations, health care plans or employee benefit plans or any other compensation arrangement of any nature whatsoever which arise from or relate to any person's employment by Opensystems in the Division or for any Employee Benefit Plan, sponsored or maintained by Opensystems. Datalink shall not be obligated to continue any Employee Benefit Plans or arrangements of any nature whatsoever presently or previously sponsored or maintained by Opensystems.     (c) Terms and conditions of the employment of any person Datalink desires to hire (including the Transferred Employees) are matters within Datalink's sole discretion, it being expressly understood that Datalink reserves the full right (among others) to terminate the employment of such persons at any time subject to the terms of any written employment agreement with Datalink (it being understood that any employment agreements between the Transferred Employees and Opensystems are not being assumed by Datalink).     (d) Any persons employed in the Division by Opensystems who accept Datalink's offer of employment, if any such offers are made, may be hired and therefore be considered new hires on the date of Closing. Unless Datalink otherwise provides in its discretion, the service hours accrued by any individual during his or her employment by Opensystems will not be recognized by Datalink for any purpose. Despite the foregoing, Datalink shall arrange for each Transferred Employees to be covered under Datalink's healthcare benefit plans (on terms acceptable to the Transferred Employee and Datalink) effective immediately after Closing.     (e) Despite any of the above, from and after Closing, Opensystems shall allow the Transferred Employees to continue to hold their options to purchase equity securities of Opensystems at the same exercise price and for the same period and otherwise on the same terms and conditions, but with the right to accrue additional vesting only for one year after Closing, as existing for the Transferred Employees as employees of Opensystems immediately prior to Closing (the "Old Options"). For this purpose, employment during the first year after Closing with Datalink shall be considered continued employment with Opensystems. At Opensystems' option, it may grant new options to the Transferred Employees in lieu of amending the terms of the Old Options. 4 --------------------------------------------------------------------------------     2.6  Post-Closing Cooperation.       (a) For a period of one year after Closing, Opensystems agrees to maintain its same primary inbound telephone number (508/668-2460) with an automated phone attendant allowing callers to select either Opensystems' continuing "Private I division" or the "Appliance Division" being sold to Datalink under this Agreement. Opensystems shall route all calls for the "Appliance Division" to Datalink (Datalink shall be responsible for the toll charges, if any, for routing the calls from Opensystems' main headquarters). Similarly, Opensystems agrees during this one year period to maintain its same primary website address (www.opensystems.com) with an opening page allowing users to select either Opensystems' continuing "Private I division" or the "Appliance Division" being sold to Datalink under this Agreement (and linking the "Appliance Division" to Datalink's own website). In addition, during such one year period, Opensystems shall electronically forward to Datalink all incoming email messages to the Transferred Employees and shall promptly forward to Datalink all incoming physical mail to the Transferred Employees and sales leads related to Division's business. To the extent that Opensystems incurs incremental expenses in providing these post-Closing services to Datalink, Datalink shall reimburse Opensystems within 30 days after invoice by Opensystems for the amount of these incremental expenses. In the event that during the one year period after Closing, Opensystems sells its Private I division or merges or consolidates with or into another business enterprise and, as a result, Opensystems cannot reasonably continue to provide the above post-Closing services, the parties agree to negotiate in good faith a transition or termination of these services.     (b) The parties also contemplate that the Transferred Employees will continue to work from one or more of Opensystems' facilities for up to three months after Closing and that Opensystems will maintain its insurance plans for the Transferred Employees for two weeks after Closing. Schedule 2.6 describes the monthly fees payable by Datalink to compensate Opensystems for this interim use of its facilities and the reimbursement amounts due by Datalink for the extended insurance coverage.     (c) In addition, Opensystems acknowledges that, after Closing, Datalink will be required to file a report on Form 8-K with the SEC that will include certain audited financial statements of the Division, together with unaudited proforma financial statements of the Division as combined with Datalink's operations. Opensystems shall cooperate with Datalink and its independent auditors, at Datalink's expense (except for the internal expense of Opensystems' employees who dedicate time and effort to assisting Datalink's auditors), in completing the audit and preparing the necessary financial statements of the Division's operations.     (d) In the event that after Closing, an Opensystems customer asserts a claim for a return or reimbursement in connection with products sold or services rendered by Opensystems prior to Closing, Datalink and Opensystems shall agree on who is responsible for customer contact to resolve the dispute (with the assistance of the other). Opensystems shall be responsible for all costs (without any indemnification deductible that might otherwise apply under Section 8.2(a) below) associated with the return or reimbursement, including Datalink or third party costs associated with removal of any equipment from a customer facility and its return to the manufacturer and the dollar amount of any credit extended or payment made to the customer.     (e) Prior to Closing, Opensystems terminated its Sales Representative Agreement dated September 14, 1998 (the "Halen Agreement") with Mark J. Halen, its independent sales representative ("Halen"). Datalink agrees to reimburse to Opensystems the commission amount, if any, owing to Halen by Opensystems under the terminated Halen Agreement on Datalink's post-Closing sales of "OSS Products" (as defined in the Halen Agreement) to "Customers/Accounts" (as defined in the Halen Agreement) located in New York City (including all encompassing boroughs) or in New Jersey, Delaware, Eastern Pennsylvania or Southern Connecticut. Within ten (10) business days after Closing, Opensystems shall provide Datalink with a list of Halen's outstanding quotes that may give rise to potential commissions to Halen. Datalink shall pay Opensystems any such commission reimbursement 5 -------------------------------------------------------------------------------- amount for Halen within ten (10) business days after receipt by Datalink of payment in full from the customer.     (f)  From and after Closing, Opensystems agrees to enforce against Halen and for Opensystems' and Datalink's benefit, at Opensystems' sole expense, the non-competition, nonsolicitation and non-disclosure provisions of the Halen Agreement (such provisions referred to together as the "Halen Noncompetition Provisions"). Opensystems will indemnify and hold Datalink harmless against any cost, liability or expense (including attorneys' fees), and without any indemnification deductible that otherwise might apply under Section 8.2(a) below, incurred by Datalink in connection with the enforcement for Opensystems' and Datalink's benefit of the Halen Noncompetition Provisions. If Opensystems fails to timely take action to prevent Halen from breaching the Halen Noncompetition Provisions, then Datalink may, in the name and stead of Opensystems, take any action (including the commencement of an arbitration proceeding under the Halen Agreement) that Datalink deems necessary or appropriate to enforce such provisions. SECTION 3.  PURCHASE CONSIDERATION     3.1  Purchase Consideration.  As full payment for the transfer of the Assets under Section 2.1 by Opensystems to Datalink, Datalink agrees to pay Opensystems the sum of the following (the "Purchase Consideration"):     (a)  Cash.  At Closing, Seven Million Dollars ($7,000,000) in cash by wire transfer or bank check;     (b)  Datalink Common Stock.  At Closing, 79,177 shares of Datalink Common Stock registered to Opensystems.com, Inc. (the "Shares"), valued for purposes of this Agreement at One Million Dollars ($1,000,000). 63,342 of the Shares shall be escrowed pursuant to Section 3.2. Because Datalink uses a third party transfer agent for issuance of the Shares, Datalink shall cause the transfer agent to issue and deliver the certificates representing the Shares within five (5) business days after Closing.     (c)  Target Revenue Payment.  Datalink will pay Opensystems an additional Two Million Five Hundred Thousand Dollars ($2,500,000) if the Revenues (as defined below) of the Division meet or exceed $23,500,000 (the "Target Revenue") for the calendar year 2001 (the "Target Revenue Payment"). The Target Revenue Payment shall be due and payable within 60 days after the end of the month in 2001, if any, in which Datalink's independent accountants have determined that the Target Revenue has been achieved and shall be paid in cash or by wire transfer or bank check. For purposes of determining the Target Revenue, "Revenues" shall mean the 2001 net revenues of Datalink for sales of products and services (net of any returns, rebates and discounts and any sales, use or similar taxes or shipping charges) shipped to, and within three weeks of December 31, 2001 installed for (to the extent that installation is required), (i) Opensystems customers and prospects identified on Schedule 3.1(c)(i)  and such other customers allocated under Datalink's normal internal sales compensation practices to the Transferred Employees (including an allocation determined in Datalink's discretion upon the disability, death or termination of employment during 2001 of any Transferred Employee), (ii) those Opensystems customers and prospects of Halen identified on Schedule 3.1(c)(ii) and (iii) Opensystems (or its customers introduced to Datalink) to the extent that Opensystems (or its introduced customers) purchase products or services from Datalink in connection with Permitted Private I Activities (as such term is defined in the Non-Compete Agreement attached hereto as Exhibit 4.2(b)(ix)).     Despite the foregoing, if Datalink sells products or services to an Opensystems customer or prospect identified on Schedule 3.1(c)(i) or (ii) for a facility geographically outside of the Transferred Employee's or Halen's principal pre-Closing sales territory for Opensystems (i.e., New England, New 6 -------------------------------------------------------------------------------- York/New Jersey or North Carolina, as applicable), Datalink revenues from the customer will count toward "Revenues" only if the Transferred Employee's or Halen's contact (as applicable) with the customer or prospect is the procuring cause of the sale. Further, in the event that the Opensystems customer or prospect is also a Datalink customer or prospect, Datalink shall equitably determine (in its discretion) an allocation of product and service sales for the customer or prospect taking into account the relative efforts of Datalink and the Transferred Employees in procuring such sales.     (d)  Sales and Use Taxes.  Opensystems shall pay any sales, use or other similar taxes payable on account of the sale of the Assets to Datalink hereunder.     3.2  Escrow of Certain Datalink Common Stock.  Despite anything in this Agreement to the contrary, 63,342 of the Shares issued to Opensystems hereunder shall be delivered to the Escrow Agent as provided in the Escrow Agreement substantially in the form of Exhibit 3.2 hereto (the "Escrowed Shares"). The Escrowed Shares shall be held by the Escrow Agent for a period of two (2) years after the Closing Date for purposes of Section 7 below. SECTION 4.  CLOSING     4.1  Closing.  The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Messerli & Kramer P.A. at noon, local time, on November 10, 2000, or at such other time and place and on such other date as Datalink and Opensystems shall agree (the "Closing Date").     4.2  Deliverables at Closing.  The parties shall deliver the following instruments, documents and property at the Closing to one another:     (a)  By Datalink.  Datalink shall deliver the following instruments, documents and property to Opensystems at the Closing: (i)the cash Purchase Consideration set forth in Sections 3.1(a); (ii)an undertaking to deliver to Opensystems within five (5) business days after Closing the stock certificate representing the 15,835 unescrowed Shares; (iii)an undertaking to deliver to the Escrow Agent within five (5) business days after Closing the stock certificate representing the Escrowed Shares; (iv)an undertaking to deliver within five (5) business days after Closing to Opensystems and the Escrow Agent the Escrow Agreement executed by Datalink and the Escrow Agent; (v)a certificate of the President and Chief Executive Officer of Datalink certifying on behalf of Datalink the truth and accuracy in all material respects of Datalink's representations and warranties and compliance with all of its covenants and agreements on and as of the Closing Date; and (vi)resolutions of the Board of Directors of Datalink and Subsidiary, if applicable, authorizing the transactions contemplated hereby.     (b)  By Opensystems and Stockholder.  Opensystems and Stockholder shall deliver the following instruments, documents and property to Datalink at the Closing: (i)a Bill of Sale substantially in the form of Exhibit 4.2(b)(i) hereto executed by Opensystems; 7 -------------------------------------------------------------------------------- (ii)any and all assignments and other appropriate documents and instruments in form necessary and reasonably acceptable to Datalink to transfer and assign to Datalink the Assets; (iii)an undertaking to deliver to Datalink and the Escrow Agent within five (5) business days the Escrow Agreement as executed by Opensystems, together with a stock power endorsed in blank with signature guaranteed relating to the Escrowed Shares certificate; (iv)assignment to Datalink in a form satisfactory to it of the existing Opensystems noncompetition agreements with each of the Transferred Employees; (v)consents of third parties necessary to transfer the Assets to Datalink unless waived in writing by Datalink; (vi)all consents, approvals, documents and certificates contemplated by this Agreement or reasonably requested by Datalink or its counsel and copies of all contracts, commitments, leases and other documents required to be identified on the Schedules hereto; (vii)UCC-3 Termination Statements terminating liens, if any, on the Assets; (viii)a three year noncompetition agreement by Opensystems and Stockholder in the form of Exhibit 4.2(b)(ix) hereto. This agreement will, among other matters, preclude Opensystems and Stockholder from engaging in the business of designing, marketing, integrating, implementing and supporting data storage solutions and systems (including those from Network Appliance, Inc.). However, the agreement will not prevent Opensystems and Stockholder from designing, marketing, integrating, implementing and supporting storage devices and systems that are required to maintain, collect, archive, index and store data files of the Opensystems Private I division's software application for the Private I division's customers; (ix)documentation amending the Old Options for the Transferred Employees, or evidence that Opensystems has issued replacement options for the Transferred Employees, as provided by Section 2.5(g) above; (x)a certificate of the President of Opensystems and by Stockholder certifying the truth and accuracy in all material respects of Opensystems' representations and warranties and compliance with all of its covenants and agreements on and as of the Closing Date; and (xi)resolutions of the Board of Directors and Stockholder of Opensystems authorizing the transactions contemplated hereby.     (c)  Additional Matters.  Each party agrees to execute and deliver such additional instruments, documents and property, and to take such additional action, as may reasonably be requested by another party hereto, or his, her or its counsel, in order to effectuate the transactions contemplated by this Agreement.     4.3  Conditions to Closing.  The Obligations of the parties to close hereunder are subject to the satisfaction of the following conditions on or before the Closing Date:     (a)  Opensystems' Obligation.  The obligation of Opensystems to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following contingencies on or before the Closing Date: (i)Datalink shall have performed, satisfied, and complied with all of its agreements, obligations and conditions required under this Agreement to be performed or 8 -------------------------------------------------------------------------------- complied with by it prior to the Closing including delivering all of the documents specified in Section 4.2(a); (ii)The warranties and representations of Datalink made in this Agreement are true and correct in all material respects as of the Closing Date as though made at that time and Datalink shall deliver a certificate as described above to that effect. (iii)Datalink has hired the Transferred Employees at Closing on terms acceptable to both Datalink and the Transferred Employees.     (b)  Datalink's Obligation.  The obligation of Datalink to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following contingencies on or before the Closing Date: (i)Opensystems and Stockholder shall have performed, satisfied, and complied with all of their respective agreements, obligations and conditions required under this Agreement to be performed or complied with by them prior to or at the Closing including delivering all of the documents specified in Section 4.2(b); (ii)The warranties and representations of Opensystems made in this Agreement are true and correct in all material respects as of the Closing Date as though made at that time and Opensystems and Stockholder shall deliver a certificate as described above to that effect. (iii)Datalink has hired the Transferred Employees at Closing on terms acceptable to both Datalink and the Transferred Employees. SECTION 5.  REPRESENTATIONS AND WARRANTIES OF OPENSYSTEMS     As a material inducement to Datalink to enter into this Agreement and to consummate the transactions contemplated hereby, Opensystems hereby makes to Datalink each of the representations and warranties set forth in this Section 5. Certain exceptions to such representations and warranties are set forth on the Schedule of Exceptions attached hereto as Schedule 5(a) and incorporated herein. Any matter which would constitute a breach of such representations and warranties shall not constitute a breach if it is set forth on the Schedule of Exceptions; provided, however, that disclosure of such a matter on the Schedule of Exceptions shall not relieve Opensystems of its indemnification obligations regarding such matter under Section 7.2 hereof if so indicated on Schedule 5(b), the Schedule of Indemnifiable Exceptions.     5.1  Organization and Qualification.  Opensystems is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has full power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or as such business is currently conducted.     5.2  Authority.  Opensystems has the corporate power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Opensystems pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each such other agreement, document and instrument by Opensystems has been duly and validly authorized and approved by all necessary action on the part of Opensystems and no other action on the part of Opensystems or Stockholder is required in connection therewith. This Agreement and each agreement, document and instrument to be executed and delivered by Opensystems and Stockholder pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Opensystems and Stockholder, as the case may be, each enforceable in accordance with their respective terms, except to the extent that enforcement is limited by bankruptcy, insolvency, moratorium, conservatorship, 9 -------------------------------------------------------------------------------- receivership or similar laws of general application affecting creditors' rights or by the application by a court of equity principles. The execution, delivery and performance by Opensystems and Stockholder of this Agreement and each such agreement, document and instrument:     (a) does not and will not violate any foreign, federal, state, local or other laws, regulations or ordinances applicable to Opensystems or Stockholder;     (b) does not or will not violate any term or provision of the Articles of Organization or Bylaws of Opensystems; and     (c) except as set forth on Schedule 5.2(c), does not and will not result in a breach of, constitute or result in a default under, accelerate any obligation under or give rise to a right of termination of, any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Opensystems or Stockholder is a party or by which the Assets are bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the Assets.     Except as set forth on Schedule 5.2(c), no consent or waiver by, approval of, or designation, declaration or filing with, any Person is required in connection with the execution, delivery and performance by Opensystems and Stockholder of this Agreement and each agreement, document and instrument to be executed and delivered by Opensystems or Stockholder pursuant to this Agreement.     5.3  Subsidiaries.  Opensystems has no subsidiaries.     5.4  Financial Statements.  Schedule 5.4 contains Opensystems' internally prepared unaudited statement of income of the Division for calendar year 1999 and for the nine months ended September 30, 2000 (such financial statements being referred to collectively herein as the "Financial Statements"). The Financial Statements are complete and correct, present fairly in all material respects the results of the operations of the Division for the periods covered thereby and are consistent with the books and records of Opensystems.     5.5  Title to Properties; Liens; Condition of Properties.       (a) Opensystems does not own any real property used by the Division. The Schedule of Leases (Schedule 5.5(a)) contains a copy of and an accurate and complete list of all of Opensystems' leasehold interests in real and personal property used primarily by the Division including a brief description of each leasehold interest and, if applicable, all liens, mortgages or other encumbrances upon each leasehold interest. All such leases to which Opensystems is a party are currently in full force and effect and, to the Knowledge of Opensystems, each party thereto has performed all of its obligations under each of such leases and is not in default thereunder, and Opensystems is not aware of any event or condition which could result in a default under any such lease after notice or lapse of time or both, nor has Opensystems received notice of any alleged default under any such lease. Except as set forth on the Schedule of Leases, the consummation of the transactions contemplated by this Agreement will not result in any modification, termination, breach or default or require any consent under any such lease.     (b) None of the Assets have an original cost per unit in excess of $500 or with a fair market value in excess of $5,000, except as set forth on the Schedule of Fixed Assets (Schedule 5.5(b)) attached hereto. Opensystems has good and marketable title to the Assets and none of the Assets is subject to any mortgage, pledge, lien, conditional sales agreement, security interest, encumbrance or other charge except as specifically reflected in the Financial Statements. Except as set forth on Schedule 5.5(b), all of the Assets owned or leased by Opensystems are in good repair and in working order, reasonable wear and tear excepted. The Assets are the only assets necessary to operate the Division as currently conducted or proposed to be conducted by Opensystems. 10 --------------------------------------------------------------------------------     5.6  Taxes.  After Closing and as a result of the transactions contemplated by this Agreement, Datalink will not be responsible or liable for any Taxes (including for any interest, penalties or other expenses related thereto) related to the Division's pre-Closing operations, or related to Opensystems' operations at any time, nor will the Assets be subject to any lien or other claim by any federal, state or local governmental authority relating to any such Taxes.     5.7  Absence of Undisclosed Liabilities.  To the Knowledge of Opensystems or Stockholder, as of the date hereof, Opensystems had and has no indebtedness, liabilities or obligations of any nature or kind, whether accrued, absolute, contingent or otherwise asserted or unasserted, and whether due or to become due (including, without limitation, potential liabilities relating to products or services provided by Opensystems or the conduct of Opensystems' business prior to the date hereof regardless of whether claims in respect thereof had been asserted as of such date), except liabilities which are reflected on the Financial Statements, are otherwise expressly disclosed in the Schedules to this Agreement, that are not material or that have been incurred since September 30, 2000 in the ordinary course of business.     5.8  Absence of Certain Changes.  Except as provided in the Schedule of Changes (Schedule 5.8 hereto), since September 30, 2000, there has not been, with respect to the Division:     (a) any operation of Opensystems out of the ordinary course of business or any change in the financial condition, properties, assets, liabilities, business or operations of Opensystems which change, by itself or in conjunction with all other such changes, has been or is reasonably likely to be materially adverse with respect to the Division;     (b) any purchase, sale, license or other disposition, or any agreement or other arrangement for the purchase, sale, license or other disposition, of any part of the Assets (including any patents, trademarks and copyrights) other than purchases and sales in the ordinary course of business;     (c) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Assets or the Division in excess of $5,000 per single occurrence;     (d) any material change in the manner in which inventory of the Division is marketed or any increase in inventory levels in excess of historical levels for comparable periods;     (e) any acceleration, termination, modification or cancellation of any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) involving more than $10,000 to which Opensystems is a party or by which it is bound and which is an Assigned Contract;     (f)  any agreement or understanding, whether in writing or otherwise, for Opensystems to take any of the actions specified in paragraphs (a) through (e) above.     5.9  Intellectual Property.       (a) There are no domestic and foreign patents, patent applications, copyrighted works including software, copyright applications and registrations, trade names, trademarks and service marks, registered trademarks and trademark applications, registered service marks and service mark applications which are owned by or licensed to Opensystems and primarily used by the Division (collectively, the "Intellectual Property") other than the tradename "Open System Solutions," the corporate name "Opensystems.com, Inc." and the internet domain name "opensystems.com."     (b) Except as set forth on the Schedule of Intellectual Property (Schedule 5.9), to the Knowledge of Opensystems, (i) use of the Intellectual Property and any other intellectual property used by Opensystems does not require the consent of any other person and the same is freely transferable (except as otherwise provided by law or pursuant to the applicable license or use agreement); (ii) the Intellectual Property is owned exclusively by or licensed to Opensystems, free and clear of any attachments, liens, encumbrances or adverse claims; and (iii) neither Opensystems' present or 11 -------------------------------------------------------------------------------- contemplated activities, products or services with respect to the Division infringe, misappropriate, dilute, impair or constitute unfair competition with respect to any patent, tradename, trademark, copyright or other proprietary rights of others.     (c) Except as set forth on the Schedule of Intellectual Property, no other person has an interest in or right or license to use, or the right to license others under, the Intellectual Property. There are no claims or demands of any other person pertaining thereto and no proceedings have been instituted, are pending or, to the Knowledge of Opensystems, are threatened which challenge the rights of Opensystems in respect thereof and Opensystems has no Knowledge of any facts which could reasonably be the basis of any such claims. To the Knowledge of Opensystems, there is no infringement of any of the Intellectual Property by others nor is any of the Intellectual Property subject to any outstanding order, decree, judgment, stipulation, settlement, lien, charge, encumbrance or attachment. No claim or demand has been made and no proceeding has been filed or, to the Knowledge of Opensystems, is threatened to be filed charging Opensystems with infringement of any patent, trade name, trademark, service mark or copyright and Opensystems does not know of any facts which could reasonably be the basis of any such claims. To the Knowledge of Opensystems, there are no royalties, honoraria, fees or other payments payable by or on behalf of Opensystems to any person with respect to any of the Intellectual Property.     5.10  Trade Secrets and Customer Lists.  Opensystems owns or has the right to use, free and clear of any claims or rights of others, all trade secrets, inventions, developments, customer lists, manufacturing and secret processes, hardware designs, programming processes, software and other information and know-how (if any) required for or used in the manufacture or marketing of all products formerly or presently sold, manufactured, licensed, under development or produced by the Division, including products licensed from others which are listed on Schedule 5.10. There are no payments which are required to be made by or on behalf of Opensystems for the use of such trade secrets, inventions, developments, customer lists, copyrighted materials, manufacturing and secret processes and know-how. To the Knowledge of Opensystems, the Division is not using or in any way making any unlawful or wrongful use of any confidential information, copyrighted materials, know-how or trade secrets of any third party. Except as set forth on Schedule 5.10, to the Knowledge of Opensystems, none of the Transferred Employees is a party to any non-competition or confidentiality agreement with any party other than Opensystems or Datalink.     5.11  Contracts.  Copies of the Assigned Contracts are described in the Schedule of Assigned Contracts (Schedule 5.11) and have been previously delivered to Datalink. The delivered copies are true, correct and complete in all material respects, and have been subject to no amendment, extension or other modification as of the date hereof. Each Assigned Contract is binding and enforceable in accordance with its terms and is in full force or effect without any default thereunder by Opensystems or, to the Knowledge of Opensystems, by any other party thereto (a "default" being defined for purposes hereof as an actual default or any set of facts which would, upon receipt of notice or passage of time, or both, constitute a default). Except as set forth in the Schedules to this Agreement, the execution, delivery and performance of this Agreement, and the agreements, documents and instruments contemplated hereby, by Opensystems and Stockholder does not and will not affect the validity or enforceability of, or in any way modify Opensystems' rights or obligations under any of the Assigned Contracts.     5.12  Litigation.  Except as set forth on the Schedule of Litigation (Schedule 5.12 hereto), there are no suits, actions or administrative, arbitration or other proceedings or governmental investigations pending or threatened against or relating to Opensystems, the Assets or the Division. Except as set forth on the Schedule of Litigation, Opensystems is not otherwise engaged as a party in any suit, action or administrative, arbitration or other proceeding. Opensystems has not entered into or been subject to any consent decree, compliance order or administrative order with respect to any of the Assets or the Division. Opensystems has not received any request for information, notice, demand letter, 12 -------------------------------------------------------------------------------- administrative inquiry or formal or informal complaint or claim with respect to the Assets or the Division. Opensystems has not been named by the U.S. Environmental Protection Agency or a state environmental agency as a potentially responsible party (or similar designation under applicable state law) in connection with any site at which hazardous substances, hazardous materials, toxic substances, oil or petroleum products have been released or are threatened to be released. Except as set forth on the Schedule of Litigation, there are no existing or, to the Knowledge of Opensystems, threatened product liability, warranty or other similar claims, or any facts upon which a claim of such nature could be based, against Opensystems for services or products of the Division which are defective or fail to meet any service or product warranties. Opensystems is not aware of any facts providing a basis for any matter addressed in this Section 5.12 or has any Knowledge that any such matters will be forthcoming.     5.13  Compliance with Laws.  Opensystems is not in material violation of any laws, rules or regulations which apply to the conduct of Opensystems' business or properties which violation has had or may be expected to have a material adverse effect on the Assets or the Division's financial condition or results of operations. With respect to the Division, there has never been any citation, fine or penalty imposed, asserted or threatened against Opensystems under any foreign, federal, state, local or other law or regulation relating to employment, immigration, occupational safety, zoning or environmental matters and Opensystems is not aware of any circumstances, occurrences or conditions likely to result in the imposition or assertion of such a citation, fine or penalty, nor has Opensystems received any notice to the effect that Opensystems is in violation of any such laws or regulations.     5.14  Insurance.  The Assets are insured to the extent disclosed in the Schedule of Insurance (Schedule 5.14) attached hereto including present product liability insurance policies and product liability insurance policies held by Opensystems over the past two years. All such present policies of insurance are in full force and effect, all premiums with respect thereto are currently paid and Opensystems is in compliance with the terms thereof. To the Knowledge of Opensystems, such insurance policies are sufficient for compliance by Opensystems with all requirements of law and all agreements and leases to which Opensystems is a party and provide insurance coverage for the Assets and operations of the Division, and for the Transferred Employees, generally comparable in type and amount to that which is customarily carried by other corporations engaged in similar businesses and of approximately the same size and similarly situated as Opensystems. The workers' compensation insurance of Opensystems complies with applicable statutory requirements as to the amount of such coverage. Neither this Agreement nor the consummation of the transactions contemplated hereby will cause any such insurance policy not to be in full force and effect.     5.15  Product Warranty.  To the Knowledge of Opensystems, each product manufactured, sold, leased or delivered by the Division has been in conformity with all applicable contractual commitments and all express and implied warranties. To the Knowledge of Opensystems, Opensystems has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand which may give rise to any liability) for replacement or repair thereof or other damages in connection therewith, other than in accordance with the past custom and practice of the Division, and provided that liabilities arising from a recall required by a vendor and not arising from any action or inaction on the part of Opensystems are not included within this Section 5.15. To the Knowledge of Opensystems, no product manufactured, sold, leased or delivered by Opensystems is subject to any guaranty, warranty or other indemnity other than from the manufacturer.     5.16  Product Liability.  To the Knowledge of Opensystems, Opensystems has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any product manufactured, sold, leased or delivered or services rendered by the Division. 13 --------------------------------------------------------------------------------     5.17  Finders' Fees.  Neither Opensystems nor Stockholder has incurred or will incur or become liable for any broker's commission or finder's fee relating to or in connection with the transactions contemplated by this Agreement, except as described on the Schedule of Finders' Fees (Schedule 5.17 hereto).     5.18  Authorizations.  Opensystems has obtained and is in material compliance with all federal, foreign, state, provincial, municipal, local or other governmental consents, certifications, licenses, permits, registrations, grants and other authorizations which are necessary to permit it to conduct the Division as presently conducted and for which the failure to comply with has had or may be expected to have a material adverse effect on the Division's business, financial condition or results of operations (collectively the "Authorizations" and individually an "Authorization"). No proceeding is pending or, to the Knowledge of Opensystems, is threatened in which any Person or governmental authority is seeking to revoke or deny the renewal of any Authorization. All Authorizations related to the Division are listed in the Schedule of Authorizations (Schedule 5.18). Each Authorization is in full force and effect without any default thereunder by Opensystems (a "default" being defined for purposes hereof as an actual default or any set of facts which would, upon receipt of notice or passage of time, or both, constitute a default), will remain in full force and effect after giving effect to the transactions contemplated by this Agreement and Opensystems has not received notice of any claim or charge that Opensystems has breached any Authorization.     5.19  Transactions with Interested Persons.     Neither Stockholder nor his spouse or children, owns, directly or indirectly, on an individual or joint basis, any material interest in, or serves as an officer or director or in another similar capacity of, any customer, competitor or supplier of the Division, or any organization which has a material contract or arrangement with the Division.     5.20  Employee Benefit Plans.  After Closing and as a result of the transactions contemplated by this Agreement, Datalink will not be responsible or liable for any payments or other obligations of Opensystems related to any employee benefit plans, as that term is defined in Section 3(3) of ERISA, and fringe benefit plans, as that term is defined in Section 6039D(d) of the Code, which now are or ever have been maintained by Opensystems (or any subsidiary of Opensystems) or to which Opensystems (or any subsidiary of Opensystems) now has or has ever had an obligation to contribute (the "Employee Benefit Plans").     5.21  Hazardous Materials; Environmental Compliance; Disclosure of Environmental Information.  In connection with operating the Division, Opensystems has never generated, used, stored or handled any Hazardous Materials nor has it treated, stored, disposed of, spilled or released any Hazardous Materials at any site presently or formerly owned, leased, operated or used by Opensystems or shipped any Hazardous Materials for treatment, storage or disposal at any other site or facilities. To the Knowledge of Opensystems, no other person has ever generated, used, handled, stored or disposed of any Hazardous Materials at any site presently or formerly owned, leased, operated or used by Opensystems, nor to the Knowledge of Opensystems has there been or is there threatened any release of any Hazardous Materials on or at any such site. To the Knowledge of Opensystems, Opensystems does not presently own or lease, nor has it previously owned or leased, any site on which underground storage tanks are or were located. No lien has been imposed by any governmental agency on any property, facility, machinery, or equipment owned, operated, leased or used by Opensystems in connection with the presence of any Hazardous Materials.     To the Knowledge of Opensystems, Opensystems has no liability under nor has it ever violated any Environmental Law with respect to any property owned, operated, leased, or used by Opensystems and any facilities and operations thereon. In addition, any property owned, operated, leased, or used by Opensystems, and any facilities and operations thereon are presently in material compliance with all applicable Environmental Laws. Opensystems has not entered into or been subject to any consent 14 -------------------------------------------------------------------------------- decree, compliance order or administrative order with respect to any environmental or health and safety matter or received any request for information, notice, demand letter, administrative inquiry, or formal or informal complaint or claim with respect to any environmental or health and safety matter or any enforcement of any Environmental Law; and Opensystems and Stockholder have no Knowledge that any of the above will be forthcoming.     Opensystems does not have and is not aware of any documents, records, and information concerning any environmental or health and safety matter relevant to the Division, whether generated by Opensystems or others, including, without limitation, environmental audits, environmental risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans, and reports, correspondence, permits, licenses, approvals, consents or other authorizations issued by any environmental agency.     5.22  Customers.  The Schedule of Customers (Schedule 5.22) sets forth the names of all customers to which Opensystems through the Division has sold in excess of $50,000 of its products or services during calendar years 1998, 1999 or year to date in 2000. Such schedule also indicates all customers with which Opensystems has entered into a contract or agreement. Except as set forth on the Schedule of Customers, during 1998 and 1999 and in 2000 through the date hereof, no such customer has canceled or otherwise terminated its relationship with Opensystems or decreased materially its usage or purchase of the products or services of Opensystems. To the Knowledge of Opensystems, no such customer has any plan or intention to terminate, cancel or otherwise modify its relationship with Opensystems in a manner which would be materially adverse to Opensystems.     5.23  Employees.  Opensystems is not delinquent in payments to any of the Transferred Employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it to the date hereof or amounts required to be reimbursed to such employees. Upon termination of the employment of any of Opensystems' employees, Datalink will not by reason of anything done prior to the Closing be liable to any of such employees for "severance pay" or any other payments. To the Knowledge of Opensystems, Opensystems is in compliance with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment and wages and hours with respect to the Transferred Employees. Except as set forth on Schedule 5.23, to the Knowledge of Opensystems, there are no charges of employment or age discrimination, sexual harassment or unfair labor practices or other claims by the Transferred Employees against Opensystems the asserted value of which exceeds $5,000 individually or $15,000 in the aggregate or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending or threatened against or involving Opensystems. No question concerning representation exists respecting the Transferred Employees. No grievance which might have a material adverse effect on the Division or the conduct of the Division's business or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claim therefor has been asserted. No collective bargaining agreement is in effect or is currently being or is about to be negotiated by Opensystems for the employees of the Division.     5.24  Copies of Documents.  Except as described in the Schedules to this Agreement, Opensystems has included in the Schedules attached hereto true and correct copies of (a) all documents referred to in this Section 5 including, without limitation, those referred to in the Schedules delivered to Datalink pursuant to this Agreement, and (b) all other corporate books and records related to the Division. However, if Opensystems has previously provided a copy of any documents to Datalink, Opensystems' obligations hereunder will be satisfied by describing the document on any Schedule hereto and indicating its prior delivery to Datalink.     5.25  Completeness.  The representations, warranties and statements contained in this Agreement and in the certificates, exhibits and schedules delivered by Opensystems to Datalink pursuant to this Agreement, when taken together, do not and shall not contain any untrue statement of a material fact, 15 -------------------------------------------------------------------------------- and do not and shall not omit to state a material fact required to be stated therein or necessary in order to make such representations, warranties or statements not misleading in light of the circumstances in which they were made.     5.26  Certain Securities Law Matters.  Opensystems is an "accredited investor" within the meaning of Rule 501(a) under the Act and, through its officers and directors, has such knowledge and experience in financial business matters that its is capable of evaluating the merits and risks of an investment in Datalink Common Stock to be received pursuant to this Agreement. Opensystems acknowledges being furnished by Datalink with a copy of Datalink's most recent annual, quarterly and periodic reports on Forms 10-K, 10-Q and 8-K, respectively (the "SEC Reports"), and being offered the opportunity to ask questions of, and receive answers from, Datalink's officers with respect to Datalink's business and financial affairs. Opensystems hereby acknowledges and agrees that the Datalink Common Stock to be acquired pursuant to this Agreement is being acquired for its own account and not for any other person, or with a view to distribution or sale thereof, and that such securities have not been registered under the Act or applicable state securities or "Blue Sky" laws, and therefore cannot be resold unless so registered or exempted therefrom. Opensystems understands that certificates representing the Datalink Common Stock will bear the following legend reflecting the foregoing restrictions on transfer: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act") or under any applicable state securities laws (the "Laws"). The shares may not be sold, transferred, assigned, pledged or otherwise disposed of at any time unless they are registered under such Act and laws or unless in the opinion of legal counsel acceptable to the Company such disposition will not result in a violation of such Act or any such Laws."     5.27  No Material Adverse Change.  Since September 30, 2000, there has been no material adverse change in the financial condition, results of operations, assets, liabilities or business of Opensystems and, to Opensystems' Knowledge, no fact or condition exists, or is contemplated or threatened, which might reasonably cause any such change at any time in the future. SECTION 6.  REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER     Stockholder hereby makes to Datalink each of the representations and warranties set forth in this Section 6 as follows:     6.1  Ownership of Opensystems.  Stockholder is the sole record and beneficial shareholder of Opensystems and its sole director.     6.2  Authority.  Stockholder has full right, authority, power and capacity (i) to enter into this Agreement and each agreement, document and instrument to be executed and delivered by him pursuant to this Agreement and (ii) to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and instrument executed and delivered by Stockholder pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Stockholder, enforceable in accordance with their respective terms, except to the extent that enforcement is limited by bankruptcy, insolvency, moratorium, conservatorship, receivership or similar laws of general application affecting creditors' rights or by the application by a court of equity principles. Except as expressly disclosed in the Schedules to this Agreement, the execution, delivery and performance of this Agreement and each such agreement, document and instrument by Stockholder: (i) does not and will not violate any foreign, federal, state, local or other laws, regulations or ordinances applicable to Stockholder or require him to obtain any approval, consent or waiver of, or make any filing with, any Person or authority (governmental or otherwise) that has not been obtained or made and (ii) does not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of, any indenture or loan 16 -------------------------------------------------------------------------------- or credit agreement or any other agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Stockholder is a party or by which Stockholder's property is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the Assets.     6.3  NASD Affiliation.  Stockholder (i) is not and does not control a member of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) is not a registered representative with a NASD member firm and (iii) is not the parent, brother or sister, brother-in-law or sister-in-law, son or daughter or son-in-law or daughter-in-law of an NASD member or of a registered representative of a NASD member firm. SECTION 7.  REPRESENTATIONS AND WARRANTIES OF DATALINK     Datalink hereby makes to Opensystems each of the representations and warranties set forth in this Section 7 as follows:     7.1  Organization and Good Standing.  Datalink and the Subsidiary are corporations duly incorporated, validly existing and in good standing under the laws of the State of Minnesota with full corporate power and authority to conduct their business as now being conducted.     7.2  Authority.  Datalink and the Subsidiary have the right, power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by them pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each such other agreement, document and instrument by either of them has been duly and validly authorized and approved by all necessary action on the part of either of them and no other action on the part of either of them is required in connection therewith. This Agreement and each agreement, document and instrument to be executed and delivered by each of them pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of each of them, each enforceable in accordance with their respective terms, except to the extent that enforcement is limited by bankruptcy, insolvency, moratorium, conservatorship, receivership or similar laws of general application affecting creditors' rights or by the application by a court of equity principles. The execution, delivery and performance by Datalink and Subsidiary of this Agreement and each such agreement, document and instrument:     (a) does not and will not violate any foreign, federal, state, local or other laws, regulations or ordinances applicable to Datalink or the Subsidiary;     (b) does not or will not violate any term or provision of the Articles of Incorporation or Bylaws of Datalink and Subsidiary; or     (c) does not and will not result in a breach of, constitute or result in a default under, accelerate any obligation under or give rise to a right of termination of, any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Datalink or the Subsidiary is a party or by which the property of Datalink or the Subsidiary is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of Datalink's or the Subsidiary's assets.     No consent or waiver by, approval of, or designation, declaration or filing with, any Person or authority (governmental or otherwise) is required in connection with the execution, delivery and performance by Datalink or the Subsidiary of this Agreement and each agreement, document and instrument to be executed and delivered by Datalink or the Subsidiary pursuant to this Agreement. 17 --------------------------------------------------------------------------------     7.3  Datalink Common Stock.  The Datalink Common Stock being issued hereunder will be (i) duly authorized, validly issued and outstanding, (ii) fully paid, non-assessable and free of preemptive rights and (iii) except as otherwise provided by this Agreement, free and clear of any and all pledges, claims, restrictions, charges, liens, security interests, encumbrances or other interests of third parties of any nature whatsoever.     7.4  Capitalization.  The authorized and issued capital stock of Datalink is as set forth in Datalink's report on Form 10-Q for the six months ended June 30, 2000 as filed with the SEC, except for shares of capital stock issued in the ordinary course of business since June 30, 2000 under Datalink's employee stock purchase plan.     7.5  Litigation.  Except as set forth in Datalink's annual, quarterly and periodic filings with the SEC, there are no material suits, actions or administrative, arbitration or other proceedings or governmental investigations pending or threatened against or relating to Datalink or the Subsidiary. Except as set forth in such SEC filings, neither Datalink nor the Subsidiary is otherwise engaged as a party in any material suit, action or administrative, arbitration or other proceeding.     7.6  Finders' Fees.  Except for a fee payable to Morgan Keegan & Co., neither Datalink nor the Subsidiary has incurred or will incur or become liable for any broker's commission or finder's fee relating to or in connection with the transactions contemplated by this Agreement.     7.7  Completeness.  The representations, warranties and statements contained in this Agreement and in the certificates, exhibits and schedules delivered by Datalink to Opensystems pursuant to this Agreement, when taken together, and Datalink's annual, quarterly and periodic filings with the SEC, do not and shall not contain any untrue statement of a material fact, and do not and shall not omit to state a material fact required to be stated therein or necessary in order to make such representations, warranties or statements not misleading in light of the circumstances in which they were made.     7.8  Information Regarding Datalink.  Datalink has made available to Opensystems true and complete copies of all reports filed by it with the SEC pursuant to the Exchange Act, commencing with its Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1999. None of the foregoing reports, nor any other filing made by Datalink with the SEC, contained, at the time thereof, any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. Datalink has filed all reports and other documents with the SEC that it has been required to file.     7.9  Datalink Financial Statements.  Datalink's audited financial statements as of and for the fiscal years ended December 31, 1999 and 1998 contained in Datalink's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1999 (collectively, the "Datalink Financial Statements") are true and complete copies of such statements. The Datalink Financial Statements present fairly in all material respects the financial position and results of operations of Datalink as of the respective dates and for the respective periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a basis consistent (except as otherwise noted) with prior periods.     7.10  No Material Adverse Change.  Since December 31, 1999, and except as disclosed in Datalink's filings with the SEC, there has been no material adverse change in the financial condition, results of operations, assets, liabilities or business of Datalink and, to Datalink's Knowledge, no fact or condition exists, or is contemplated or threatened, which might reasonably cause any such change at any time in the future. 18 -------------------------------------------------------------------------------- SECTION 8.  INDEMNIFICATION     8.1  Materiality; Survival.  All representations, warranties, agreements, covenants and obligations herein or in any schedule, certificate or financial statement delivered by any party incident to the transactions contemplated hereby are material, shall be deemed to have been relied upon by the parties and shall survive the Closing hereof for a period of three years as to matters related to Taxes and for two years as to all other matters.     8.2  Indemnification.       (a) Opensystems agrees to defend, indemnify and hold Datalink and the Subsidiary and their respective subsidiaries and affiliates and the persons serving as officers, directors, partners, employees or agents thereof harmless from and against any claims, damages, liabilities, losses, fines, penalties, costs, and expenses (including, without limitation, reasonable counsel fees and expenses as the same are incurred; together referred to as "Losses") of any kind or nature whatsoever which may be sustained or suffered by any of them to the extent that the aggregate Losses, net of any insurance proceeds collected by Datalink or the Subsidiary, exceed $50,000 (but do not in the aggregate exceed $10,500,000) and arise out of, are based upon or are in connection with any of the following matters: (i)a breach of any representation, warranty, agreement, covenant or obligation made by Opensystems or Stockholder in this Agreement or in any Schedule, Exhibit, certificate or financial statement required to be delivered hereunder or in connection herewith or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing constituting a breach of such representations, warranties or covenants; (ii)Fraud in connection with the making by Opensystems or Stockholder of any representation, warranty, covenant or obligation hereunder or an intentional misrepresentation by Opensystems or Stockholder of any representation, warranty, covenant or obligation hereunder; (iii)any return, rebate or other expense (including warranty, installation, configuration or other service work) associated with products shipped and/or installed, or services rendered, by the Division prior to Closing; or (iv)any claim arising due to Opensystems with respect to joint use of the opensystems.com website as contemplated by Section 2.6 above.     (b) Datalink shall give prompt written notice to Opensystems and, if the Escrow Agreement is still in effect, the Escrow Agent, of any claim, liability or expense to which the indemnification obligations hereunder would apply. Such notice shall state the information then available regarding the amount of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the claim, liability or expense is asserted. The failure to promptly notify Opensystems and the Escrow Agent (if applicable) as provided above shall not relieve Opensystems of any liability hereunder except to the extent that the rights of Opensystems have been materially and adversely prejudiced as a result of the failure to give, or the delay in giving, such notice.     (c) If such indemnification claim, liability or expense is the subject of litigation, Opensystems shall have the right at its own expense to expeditiously defend the litigation with counsel reasonably satisfactory to Datalink.     (d) Upon resolution of the indemnification claim, whether by final judicial decision after all periods for appeal have lapsed, settlement, arbitration decision or otherwise, Datalink shall give Opensystems written notice of the Losses incurred by Datalink with respect to the claim (the "Datalink Final Notice"). Thereafter, Opensystems shall have 30 days to give Datalink written notice that it intends to dispute the amount of Datalink's claimed Losses. Within 30 days after receipt of said written 19 -------------------------------------------------------------------------------- notice, Datalink shall attempt to settle the dispute with Opensystems. If Opensystems and Datalink do not reach settlement of Datalink's claim within such 30 days, the dispute may at any time thereafter be submitted by either party to arbitration in Boston, Massachusetts, before three arbitrators, one of which is selected by Opensystems, one of which is selected by Datalink and the third of which is selected by the first two arbitrators. The arbitration shall be conducted by the American Arbitration Association in accordance with the rules and procedures of the American Arbitration Association then in effect. Opensystems and Datalink agree that the arbitrators' award (which shall be agreed to unanimously by the arbitrators) shall be final and binding upon them with respect to the dispute and may be entered in any court having jurisdiction thereof. All costs of the arbitration (including the reasonable legal expenses of all parties thereto) shall be borne by Opensystems and/or Datalink in the amounts determined by the arbitrators, which shall base such determination upon the relative merits of the respective positions of the parties in the dispute. The judgment upon the award may be entered in any court having jurisdiction thereof. There shall be added to the amount of any arbitration award interest at the rate of 10% per annum on the amount required to be paid pursuant to such award. This interest will be computed from the date payment would have been paid if not disputed by Opensystems to the date paid and the arbitrators shall include provisions therefor in any award rendered. Following the resolution of such dispute by the arbitrators, Datalink shall submit a copy of the arbitrators' award or decision to the Escrow Agent, which shall be entitled to rely upon such copy.     Any claims as determined above in favor of Datalink first shall be resolved by cancellation of the Escrowed Shares. If the Datalink Final Notice is given and is not disputed by Opensystems, or if an arbitrators' award on Datalink's claim is granted, then the shares to be canceled shall be valued at $12.63 per share (to be appropriately adjusted on a proportional basis for any post-Closing stock split or dividend, reverse stock split or other similar corporate event). If Datalink's claim cannot be resolved with the number of shares of Datalink Common Stock remaining in escrow, then Opensystems shall within ten (10) business days after written demand, pay the remaining claim amount to Datalink in cash or, Opensystems' sole discretion, with other shares of Datalink Common Stock that may be owned or acquired by Opensystems (valued in the same manner as above).     Despite the above provisions of this subsection (d), Opensystems may resolve any claim by paying cash to Datalink. In such case, the shares of Datalink Common Stock that otherwise would have been released from escrow to Datalink for cancellation shall instead be released to Opensystems, and Datalink shall join with Opensystems in so instructing the Escrow Agent.     (e) Notwithstanding anything else in this Section 8 to the contrary, no claim by Datalink under Section 8.2(a)(i), other than as related to Taxes, or under Section 8.2(a)(iii) may be enforced against Opensystems unless Datalink gives Opensystems written notice of such claim under Section 8.2(b) above within two (2) years from the Closing Date. In addition, notwithstanding anything else in this Section 8 to the contrary, no claim by Datalink under Section 8.2(a)(i) related to Taxes may be enforced against Opensystems unless Datalink gives Opensystems written notice of such claim under Section 8.2(b) above within three (3) years from the Closing Date. Further notwithstanding anything else in this Section 8 to the contrary, no claim by Datalink under Section 8.2(a)(ii) may be enforced against Opensystems unless (i) Datalink gives Opensystems written notice of such claim under Section 8.2(b) above within four (4) years from the Closing Date.     (f)  Notwithstanding anything to contrary in this Agreement, the Escrow Shares having a value (computed as described above) equal to the face amount of any Indemnifiable claim shall be withheld from release by the Escrow Agent so long as Escrow Agent has received notice of an Indemnifiable claim which has not been resolved pursuant to this Section 8.2.     (g) Datalink agrees to defend, indemnify and hold Opensystems harmless (in the same manner as described with respect to Datalink in subsections (b) through (e) above) from and against any Losses (to the extent that the aggregate Losses, net of any insurance proceeds collected by Opensystems or 20 -------------------------------------------------------------------------------- Stockholder, exceed $50,000, but do not exceed $10,500,000) of any kind or nature whatsoever which may be sustained or suffered by any of them arising out of, based upon or in connection with (i) a breach of any representation, warranty, agreement, covenant or obligation made by Datalink in this Agreement or in any Schedule, Schedule, certificate or financial statement delivered hereunder or in connection herewith (notwithstanding any investigation by or Knowledge of any of the indemnified parties) or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing constituting a breach of such representations, warranties or covenants, (ii) Fraud in connection with the making by Datalink of any representation, warranty, covenant or obligation hereunder or an intentional misrepresentation by Datalink of any representation, warranty, covenant or obligation hereunder or (iii) any claim arising due to Datalink with respect to joint use of the opensystems.com website as contemplated by Section 2.6 above. SECTION 9.  POST-CLOSING OBLIGATIONS.     9.1  Registration Rights.       (a)  Notice of Registration.  If at any time after the Closing, Datalink shall determine to register any of its equity securities for its own account other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a registration in which the only equity security being registered is Common Stock issuable upon conversion of convertible debt securities which are also being registered, Datalink will promptly give Opensystems written notice (the ("Registration Notice") thereof and extend to it the right to include in such registration (and any related qualifications including compliance with Blue Sky laws) and in any underwriting involved therein, any or all of the Shares (except for those Shares which are still subject to the Escrow Agreement at the time of the Registration Notice) owned by Opensystems and specified in a written request made by it within ten days after the receipt of the Registration Notice.     (b)  Underwriting.  If the registration of which Datalink gives notice is for a registered public offering involving an underwriting, Datalink shall so advise Opensystems as part of the Registration Notice. In such event, the right of Opensystems to registration pursuant to this Section 9.1 shall be conditioned upon Opensystems' participating in such underwriting and the inclusion of the Shares in the underwriting shall be limited to the extent provided herein. Opensystems shall (together with Datalink and any other Person distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by Datalink. Notwithstanding any other provision of this Section 9.1, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Shares to be included in such registration in its sole discretion. If Opensystems disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to Datalink.     (c)  Right to Terminate Registration.  Datalink shall have the right to terminate or withdraw any registration initiated by it under this Section 9.1 prior to the effectiveness of such registration whether or not Opensystems has elected to include securities in such registration.     (d)  Expenses of Registration.  With respect to each inclusion of Shares in a registration statement pursuant to this Section 9.1, Datalink shall bear the following fees, costs and expenses: all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for Datalink and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Fees and disbursements of counsel and accountants for Opensystems, underwriting discounts and commissions and transfer taxes for Opensystems and any other expenses incurred by Opensystems not expressly included above shall be borne by Opensystems. 21 --------------------------------------------------------------------------------     (e)  Registration Procedures.  In the case of each registration effected by Datalink pursuant to this Agreement, Datalink will keep Opensystems advised in writing as to the initiation of such registration and as to the completion thereof. Datalink will: (i)Prepare and file with the Commission a registration statement and such amendments and supplements as may be necessary and use commercially reasonable efforts to cause such registration statement to become and remain effective for at least 90 days or until the distribution described in the registration statement has been completed, whichever first occurs; and (ii)Furnish to Opensystems such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities.     9.2  Registration Indemnification.       (a)  By Datalink.  Datalink will indemnify Opensystems, and Opensystems' officers and directors, and each person controlling such Opensystems within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or 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, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, 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 light of the circumstances in which they were made, not misleading, or any violation by Datalink of the Securities Act, the Exchange Act, state securities laws or any rule or regulation promulgated under such laws applicable to Datalink in connection with any such registration, and Datalink will reimburse each said persons 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 that Datalink will not be liable in any such case (i) 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 Datalink by an instrument duly executed by said persons and stated to be specifically for use therein or (ii) insofar as the claim, loss, damage, liability or expense relates to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus but eliminated or remedied in the prospectus.     (b)  By Opensystems.  Opensystems will, if Shares are included in the securities as to which such registration is being effected, indemnify Datalink, each of its directors and officers, other holders of Datalink's securities covered by such registration statement, their officers and directors and each person controlling such other holder within the meaning of Section 15 of the Securities Act, each person who controls Datalink within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) 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 omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by Opensystems, and each person controlling it within the meaning of Section 15 of the Securities Act, the Exchange Act, state securities laws or any rule or regulation promulgated under such laws applicable to it, and will reimburse Datalink, such other holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred, as such expenses are incurred, in 22 -------------------------------------------------------------------------------- connection with investigating or defending any such claim, loss, damage, liability or action, but in the case of Datalink or the other holders or their officers, directors or controlling persons, 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 information furnished to Datalink by Opensystems.     (c)  Notice and Defense.  Each party entitled to indemnification under this Section 9.2 (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 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 the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or there are separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (whose consent shall not be unreasonably withheld), 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. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.     9.3  Information by Opensystems.  Opensystems shall furnish to Datalink such information regarding Opensystems, the Shares held by it and the distribution proposed by Opensystems as Datalink may request in writing and as shall be required in connection with any registration referred to in this Agreement.     9.4  Termination of Registration Rights.  The rights granted pursuant to Section 9.1 shall terminate upon the date Opensystems is able to immediately sell all Shares held by it under Rule 144 during any 90-day period.     9.5  Standoff Agreement.  Opensystems and Stockholder each agree in connection with any registration hereunder not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of or transfer the economic value of any of Datalink's securities (other than those included in the registration) without the prior written consent of Datalink or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the underwriters, so long as all executive officers, directors and holders of 5% of the outstanding stock of Datalink on a fully diluted basis are similarly bound. Opensystems and Stockholder each agree to enter into separate agreements providing for the foregoing, as may be required by the underwriters. Despite the above, Opensystems may distribute to Stockholder as a dividend all or any portion of Datalink securities so long as Stockholder agrees in writing to be bound by the provisions of this Section. SECTION 10.  MISCELLANEOUS     10.1  Fees and Expenses.  Except as otherwise provided herein, each of the parties to this Agreement will bear its own expenses in connection with the negotiation and consummation of the 23 -------------------------------------------------------------------------------- transactions contemplated by this Agreement. All sales and transfer taxes, fees and duties under applicable law (including all stock transfer taxes, fees and duties, if any) incurred in connection with this Agreement or the transactions contemplated thereby will be borne and paid by Opensystems.     10.2  Confidentiality.  Opensystems and Stockholder acknowledge that Datalink is a publicly traded company and agree that they will treat the existence and terms of this Agreement and the transactions contemplated hereby as strictly confidential and will not disclose them to any Person without the prior written consent of Datalink or unless Datalink publicly discloses such information. Notwithstanding the foregoing or the termination of this Agreement, Datalink and Opensystems agree that the terms of the Confidentiality Agreement dated May 26, 2000 between the parties shall remain in full force and effect.     10.3  Law Governing.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without reference to the choice of law provisions thereof.     10.4  Notices.  All notices, requests, demands and other communications hereunder shall be deemed to have been duly given on the date delivered if delivered by hand, three days after being sent by certified or registered mail (postage prepaid and with return receipt requested), on the date delivered if by overnight courier service, on the date delivered if by telecopy or other written form of electronic confirmation: To:  DATALINK CORPORATION:   Greg R. Meland, Chief Executive Officer 7423 Washington Avenue South Minneapolis, Minnesota 55439 (612) 946-7894 (telefax)   With a copy to:       Jeffrey C. Robbins, Esq. Messerli & Kramer P.A. 150 South Fifth Street, Suite 1800 Minneapolis, Minnesota 55402 (612) 672-3777 (telefax)   To:  OPENSYSTEMS.COM, INC.:       Attn: Lynn Mormann, President 55 West Street Walpole, MA 02081 (508) 668-3989 (telefax)   With a copy to:       David A. White, Esq. White & McDermott, P.C. 65 William Street Wellesley, Massachusetts 02481 (781) 237-8120 (telefax)             or to such other address of which any party may notify the other parties as provided above. Notices are effective upon receipt or, if mailed, five (5) business days after the placing thereof in the United States mail in the manner provided above.     10.5  Entire Agreement.  This Agreement, including the Schedules and Exhibits referred to herein, constitutes the entire agreement between the parties with respect to its subject matters and supersedes all previous written or oral negotiations, commitments and writings; no promises, representations, understandings, warranties and agreements have been made by any of the parties hereto except as referred to herein or in such Schedules and Exhibits; and all inducements to the making of this Agreement relied upon by all the parties hereto have been expressed herein or in said Schedules or Exhibits or in such other writings. 24 --------------------------------------------------------------------------------     10.6  Assignability.  This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties named herein and their respective successors and permitted assigns; provided, however, that (a) an assignment of this Agreement may be made by Datalink to a wholly-owned subsidiary of Datalink upon written notice to Opensystems and Stockholder, although no such assignment shall relieve Datalink of any liabilities or obligations under this Agreement and (b) this Agreement may not be assigned by Opensystems or Stockholder without the prior written consent of Datalink.     10.7  Waivers; Severability.  The failure of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. If any one or more of the provisions of this Agreement are held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and the parties will use all reasonable efforts to substitute for such invalid, illegal or unenforceable provisions one or more valid, legal and enforceable provisions which, insofar as practicable, implement the purposes and intents hereof. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.     10.8  Specific Performance.  Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matters covered by this Agreement (subject to the provisions set forth in Section 8.2), in addition to any other remedy to which they may be entitled, at law or in equity.     10.9  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement.     10.10  Amendments.  This Agreement may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by each party hereto, or in the case of a waiver, the party waiving compliance.      IN WITNESS WHEREOF, the undersigned have hereto affixed their signatures. DATALINK CORPORATION, A MINNESOTA CORPORATION       By:       /s/ GREG MELAND    -------------------------------------------------------------------------------- Greg R. Meland, Chief Executive Officer           OPENSYSTEMS.COM, INC., A MASSACHUSETTS CORPORATION       STOCKHOLDER:   By:       /s/ LYNN MORMANN    -------------------------------------------------------------------------------- Lynn Mormann President       /s/ LYNN MORMANN    -------------------------------------------------------------------------------- Lynn Mormann 25 -------------------------------------------------------------------------------- QUICKLINKS ASSET PURCHASE AGREEMENT RECITALS:

EXHIBIT 10.i.(b)   THIRD AMENDMENT AND AGREEMENT UNDER THE PARTNERSHIP AGREEMENT        This Third Amendment and Agreement Under the Partnership Agreement (this "Agreement") dated as of August 1, 1997 by and among (i) IMC Global Operations Inc., a Delaware corporation ("Operations"), (ii) Agrico, Limited Partnership (the "FRP Partner"), a Delaware limited partnership of which Freeport-McMoran Resource Partners, a Limited Partnership, a Delaware limited partnership ("FRP"), owns a 99.8% limited partnership interest and Agrico, Inc., a Delaware corporation (" FRP GPCo"), owns a 0.2% general partnership interest, (iii) IMC-Agrico MP, Inc. (the "Managing Partner"), a Delaware corporation, and (iv) IMC-Agrico Company, a Delaware general partnership (the "Partnership").      WHEREAS, Operations, the FRP Partner and the Managing Partner are parties to an Amended and Restated Partnership Agreement dated as of July 1, 1993, as further amended and restated as of May 26, 1995, as further amended by the Amendment and Agreement under the Partnership Agreement dated January 23, 1996, as further amended by the Second Amendment and Agreement under the Partnership Agreement dated as of January 1, 1997 (as amended, the "Partnership Agreement");      WHEREAS, the Partnership Agreement provides for certain pricing for sales to the IMC AgriBusiness unit of IMC Global Inc. ("IMC"); and      WHEREAS, Operations, the FRP Partner, the Managing Partner and the Partnership believe that certain amendments to the Partnership Agreement are necessary or appropriate;      NOW, THEREFORE, in consideration of the covenants and agreements herein set forth and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:      Section 1. Except as otherwise defined or amended herein, capitalized terms used in this Agreement shall have the meaning ascribed to such terms in Exhibit A to the Partnership Agreement.      Section 2. Schedule 9.12 of the Partnership Agreement is hereby amended and restated to read in its entirety as follows:      "A. Sales to IMC Canada Ltd. of GTSP, DAP, GMAP 11-52-0, GMAP 10-50-0 and PFS ("Canada Products") shall be invoiced to Operations by IMC-Agrico Company at the estimated IMC-Agrico Company quarterly weighted average domestic sales realization F.O.B. plant, subject to the limitation described in Section D below, ("Quarterly Market Price") for each of Florida, Louisiana, or Offsites, depending upon the source of the Canada Products, less 10%, so long as the aggregate volume for the Canada Products does not exceed 57,619 P2O5 tons for the fiscal year beginning July 1. Sales of the Canada Products in any annual period in excess of 57,619 P2O5 tons shall be invoiced at 100% of the Quarterly Market Price for Florida, Louisiana or Offsites, depending upon the source of the product.      Sales to IMC Canada Ltd. of any products other than those listed above shall be invoiced to Operations by IMC-Agrico Company at the Quarterly Market Price for Florida, Louisiana or Offsites , depending upon the source of the product.      B. (i) Sales of up to 600,000 tons in any Fiscal Year to IMC AgriBusiness of GTSP, DAP, GMAP 11-52-0 and GMAP 10-50-0 (collectively, "Concentrated Phosphates") shall be invoiced to IMC AgriBusiness by IMC-Agrico at a price equal to the average of the low prices reported in the last issues of Green Market and Fertilizer Markets for the month preceding the date of shipment, less a discount of 2%.      Sales of tons of Concentrated Phosphates in excess of the 600,000 tons specified above in any Fiscal Year shall be made on terms to be mutually agreed between IMC AgriBusiness and IMC-Agrico.      (ii) Sales of up to 78,000 tons in any Fiscal Year to IMC AgriBusiness of PMAP shall be invoiced to IMC AgriBusiness by IMC-Agrico Company at a price equal to the Partnership's domestic weighted average sales realization F.O.B. plant (excluding sales to IMC AgriBusiness) less a discount of 18%.      Sales of tons of PMAP in excess of 78,000 tons in any Fiscal Year shall be invoiced to IMC AgriBusiness by IMC-Agrico at a price equal to the average of the low prices reported in the last issue of Green Market and Fertilizer Markets for the month preceding the date of shipment, less a discount of $25 per ton.      (iii) Sales to IMC AgriBusiness of PFS shall be invoiced to IMC AgriBusiness by IMC-Agrico, upon agreement of the parties, at a price either (a) equal to (1) the Partnership's domestic weighted average sales realization F.O.B. plant (excluding sales to IMC AgriBusiness) for DAP minus (2) the market cost component of DAP attributable to anhydrous ammonia, or (b) negotiated at arms-length by IMC AgriBusiness and IMC-Agrico.      C. Any transfer of sales responsibility from IMC's wholesale division to IMC AgriBusiness must be approved by the Policy Committee.      D. Estimated prices invoiced by IMC-Agrico to IMC Canada Ltd. shall be adjusted to actual quarterly sales prices at the end of each quarter. Final price adjustments shall be made within 20 days of the end of each fiscal quarter and within 45 days of the end of each fiscal year."      Section 3. This Agreement is solely for the benefit of the parties hereto and no provision of this Agreement shall be deemed to confer upon third parties, any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.      Section 4. This Agreement may be signed in counterparts. Any single counterpart or set of counterparts signed, in either case, by all the parties hereto shall constitute a full and original agreement for all purposes.      IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first written above.       IMC Global Operations Inc. (formerly IMC Fertilizer, Inc.) By: /s/ Marshall I. Smith Name Printed: Marshall I. Smith Title: Vice President     Agrico, Limited Partnership By: Freeport-McMoran Inc., its general partnership By: /s/ R. M. Woehleber Name Printed: Robert M. Woehleber Title: Vice President   IMC-Agrico MP, Inc. By: /s/ Marshall I. Smith Name Printed: Marshall I. Smith Title: Vice President   IMC-Agrico Company By: IMC-Agrico MP, Inc. By: /s/ Marshall I. Smith Name Printed: Marshall I. Smith Title: Vice President

EXHIBIT 10.1 AMENDMENT TO EMPLOYMENT AGREEMENT         THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is entered into as of July 20, 2000 by and between Jeremy R. Lent and NextCard, Inc., amending that certain Employment Agreement dated as of January 1, 1999 (the “Existing Agreement”) between the parties. Capitalized terms not otherwise defined herein will have the meanings set forth in the Existing Agreement. For the purposes hereof, the “Effective Date” will be the date upon which a person commences service as Chief Executive Officer of the Company, succeeding Employee in that capacity.         THE PARTIES HERETO AGREE AS FOLLOWS:         A.  Effective on the Effective Date, Section 1 of the Existing Agreement is hereby amended to read in its entirety as follows:               1.  EMPLOYMENT AND DUTIES. The Company agrees to employ Employee as its Chairman of the Board and Chief Strategy Officer, and Employee agrees to serve the Company in such capacities, with the authority and responsibilities customarily accorded an executive with those titles, including without limitation those set forth on the Company’s Bylaws. Employee shall loyally and conscientiously perform such services and duties as are customarily incident to the title of Chairman of the Board, and additionally those of the Chief Strategy Officer, which services shall generally comprise offering strategic guidance to the Chief Executive Officer and, as appropriate, other executive officers, advising the Board on the Company’s strategic alternatives and opportunities and communicating the Company’s strategy, when appropriate, to external constituencies. Employee will devote the amount of time he r easonably deems appropriate to the performance of his duties under this Agreement. Employee shall duly and faithfully perform and observe any and all rules and regulations which the Company has established governing the conduct of its business or its employees. Employee shall report to the Company’s Board of Directors. Employee shall maintain an office at the Company’s headquarters, however Employee may carry out his duties from locations outside the Company’s headquarters, in his reasonable discretion, including a home office.         B.  Effective on the Effective Date, the first sentence of Section 2(a) of the Existing Agreement is amended to read as follows:                      (a)  The Company shall continue to pay Employee a base salary of $350,000 per year, subject to increase from time to time (but no less frequently than annually with the first such review after the date hereof to occur one year from Employee’s 2000 salary review) in the good faith discretion of the Board of Directors of the Company, payable in arrears in equal semi-monthly installments.         C.  Effective on the Effective Date, Section 2(b) of the Existing Agreement is amended in its entirety to read as follows:                             i)  2000 Bonus. For the Company’s fiscal year 2000, Employee shall be eligible for a cash bonus equal to 100% of the Employee’s annualized base salary at the end of 2000, if the Company achieves the performance goals that determine the maximum eligibility of Company management for bonus awards. In the event that the Company fails to achieve the performance goals corresponding to maximum eligibility, Employee shall receive that proportion of the maximum cash bonus which is equivalent to the same proportion of the respective maximum cash bonuses generally achieved by the rest of the senior management team for that year.                             ii)  Subsequent Bonuses. For each fiscal year after fiscal year 2000, if the Company achieves the performance goals that determine the eligibility of Company management for maximum bonus awards, Employee shall be eligible for a cash bonus award in the range between 75% and 100% of the Employee’s base salary at the end of that fiscal year, which amount shall be determined by the Board of Directors in its discretion as a function of Employee’s involvement in the Company’s affairs during that fiscal year. In the event that the Company fails to achieve the performance goals corresponding to maximum eligibility, Employee shall receive that proportion of the maximum cash bonus which is equivalent to the same proportion of the respective maximum cash bonuses generally achieved by the rest of the senior managem ent team for that year. --------------------------------------------------------------------------------         D.  Effective on the Effective Date, Section 10(A)iii) of the Existing Agreement is amended in its entirety to read as follows:                             iii)  The Company’s requiring Employee to be based in excess of 25 miles from the Company’s present executive offices located at San Francisco, California (or from any other office or place from which Employee has then determined to work), except for minimal amount of travel on Company business to the extent reasonably required to perform Employee’s job (but in any event no greater than Employee’s travel obligations as of the date of this Amendment).         E.  Employee’s address for purposes of Section 14(F) of the Existing Agreement will be as follows:   Jeremy Lent 160 Oak View Drive San Rafael, CA 94903         F.  Except as amended by this Amendment, the Existing Agreement will continue in full force and effect.         IN WITNESS WHEREOF, the parties have executed this Amendment. COMPANY:      NEXTCARD, INC.   By:   /s/ Jeffrey D. Brody      --------------------------------------------------------------------------------               By:   /s/ Safi U. Qureshey      --------------------------------------------------------------------------------             EMPLOYEE:      /s/ Jeremy Lent      --------------------------------------------------------------------------------        Jeremy Lent

Exhibit 10.26 Amendment To 1996 Stock Option Plan 1996 Stock Option Plan is hereby amended effective March 29, 2000 as follows (the “Plan”): A.  Section 24 is amended by adding the following definitions: “Cause” means (i) any act of personal dishonesty taken by the Participant in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Participant, (ii) the conviction of a felony, (iii) a willful act by the Participant that constitutes gross misconduct and that is injurious to the Company, (iv) for a period of not less than thirty (30) days following delivery to the Participant of a written demand for performance from the Company that describes the basis for the Company’s belief that the Participant has not substantially performed his duties, continued violations by the Participant of the Participant’s obligations to the Company that are demonstrably willful and deliberate on the Participant’s part or (v) as otherwise provided in the Stock Option Agreement. “Change of Control” means the occurrence of any of the following:         (i)  Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting securities entitled to vote generally in the election of directors;         (ii)  Any action or event occurring within a two-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, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but 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);         (iii)  The consummation of 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 or the entity that controls such surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company, such surviving entity or entity that controls such surviving entity outstanding immediately after such merger or consolidation; or         (iv)  The consummation of the sale or disposition by the Company of all substantially all of the Company’s assets. B.  Section 5.6 is amended by deleting the previous Section 5.6 and replacing it in its entirety as follows:         5.6  Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following:               (a)  If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant’ s Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. Notwithstanding the foregoing, if the Company or any successor thereto terminates the Participant’s employment without Cause within twelve months following a Change of Control, the Participant’s Options, and restricted stock acquired upon exercise of the Participant’s Options or otherwise granted under the Plan shall become 100% vested and exercisable; provided, however, that no such acceleration shall occur in the event that it would preclud e accounting for any business combination of the Company involving a Change of Control as a “pooling of interests.”               Notwithstanding any other provisions of the Plan or any Award Agreement, or other related agreement, in the event that any payment or benefit received or to be received by the Participant (whether pursuant -------------------------------------------------------------------------------- to the terms of the Plan, any Award Agreement or other related agreement, or other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) would be subject (in whole or part), to any excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the payment or benefit received or to be received by the Participant (whether pursuant to the terms of the Plan, any Option Agreement, Restricted Stock Purchase Agreement or other related agreement) shall be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Participant would be subject in respect of such unreduced Total Payments).               Unless the Company and the Participant otherwise agree in writing, any determination required under this Section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Participant and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations cont emplated by this Section.               (b)  If the Participant is terminated because of death or Disability (or the Participant dies within three (3) months of such termination), then Participant’s Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant’s legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options.

          CONNECTICUT NATURAL GAS CORPORATION EMPLOYEE SAVINGS PLAN AS AMENDED AND RESTATED (Effective except where otherwise indicated as of January 1, 2000)   CONNECTICUT NATURAL GAS CORPORATION EMPLOYEE SAVINGS PLAN AS AMENDED AND RESTATED TABLE OF CONTENTS     Page Section 1 PURPOSE OF PLAN 1 Section 2 DEFINITIONS 1 Section 3 ELIGIBILITY AND PARTICIPATION 15 Section 4 SALARY REDUCTION AND EMPLOYEE CONTRIBUTIONS; TESTING; ROLLOVER CONTRIBUTIONS 17 Section 5 MATCHING CONTRIBUTIONS BY THE COMPANY 33 Section 6 LIMITATION ON CONTRIBUTIONS 34 Section 7 INVESTMENT OF CONTRIBUTIONS 40 Section 8 ACCOUNTS AND PARTICIPANTS 43 Section 9 VESTING OF INTERESTS 45 Section 10 DISTRIBUTION OF ACCOUNTS 47 Section 11 WITHDRAWAL BY A PARTICIPANT 52 Section 12 ADMINISTRATION 58 Section 13 TRUST AGREEMENT 62 Section 14 FIDUCIARY RESPONSIBILITIES 62 Section 15 TERMINATION OR AMENDMENT OF PLAN 64 Section 16 GENERAL PROVISIONS 67 Section 17 TOP-HEAVY PLAN REQUIREMENTS 69   CONNECTICUT NATURAL GAS CORPORATION EMPLOYEE SAVINGS PLAN AS AMENDED AND RESTATED (Effective except where otherwise indicated as of January 1, 2000) Section 1 PURPOSE OF PLAN 1.01 The Connecticut Natural Gas Corporation (hereafter called "CNG") Employee Savings Plan (the "Plan") is designed to (i) encourage and assist eligible employees in a long-range program of savings, and (ii) enable them to acquire ownership of Common Stock as herein defined. The participating employees may use this Plan as a means of adding to their retirement income, although the Plan permits earlier withdrawals. 1.02 This document amends and restates, effective except where otherwise indicated as of January 1, 2000, the Plan which was originally adopted on June 30, 1980. The provisions of the Plan, as so amended and restated, are effective in respect of Plan Years, as herein defined, beginning on or after January 1, 2000. Any provisions of the amended and restated Plan that are effective prior to January 1, 2000 shall be deemed to amend as of the applicable effective dates the corresponding provisions of the Plan as in effect before this amendment and restatement. Section 2 DEFINITIONS 2.01 "Account" shall mean the account established and maintained for each Participant's share of contributions made to the Plan, and earnings thereon, and such term shall include the various subaccounts contemplated by Section 8, which subaccounts are sometimes referred to as "sources of money." 2.01A "Affiliate" shall mean any member of a controlled group of corporations (as defined in Section 414(b) of the Code) of which CNG a member, any member of a group of trades or businesses which are under common control (as defined in Section 414(c) of the Code) of which CNG is a member, any member of an affiliated service group (as defined in Section 414(m) of the Code) of which CNG is a member, and any other organization deemed to be affiliated with CNG under Section 414(o) of the Code. Any entity, however, shall be considered an Affiliate hereunder only during the period it is or was such a member or affiliated organization. Following the consummation of the merger of CTG Resources, Inc. with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG Resources, Inc., Energy East Corporation ("EEC") and Oak Merger Co., EEC will be the common parent of an "affiliated group" (the "EEC Group") within the meaning of Section 1504 of the Code of which CNG is a member and EEC will be an Affiliate of CNG. Anything to the contrary notwithstanding, the Plan shall be interpreted and administered at all times in accordance with the terms of the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as applicable to the EEC Group and those members thereof which are Affiliates. 2.02 "Anniversary Date" shall mean the last day of December of any year. 2.03 "Beneficiary" shall mean the beneficiary or beneficiaries entitled to the Benefits upon the death of a Participant, as designated by the Participant by written designation on file with the Committee, of if no such designation shall be on file, the Participant shall be conclusively deemed to have so designated his surviving spouse, if any, and if none, his living issue equally, per stirpes, and if none, his estate. Notwithstanding the foregoing, in the event of the death of a Participant who has at least one Hour of Service under the Plan or at least one hour of paid leave on or after August 23, 1984, his Account shall be paid to his surviving spouse, unless (1) the spouse of the Participant consents in writing to a different designation of Beneficiary (including any class of beneficiaries or contingent beneficiaries), the spouse's consent acknowledges the effect of such election, and such election is witnessed by a Plan representative or a notary public; or (2) the Participant does not have a spouse at the time of his death. Any consent by a Participant's spouse shall only be effective with respect to that spouse. 2.04 "Benefits" shall mean the distributions provided for herein to each Participant, or to his Beneficiary. 2.05 "Board of Directors" shall mean the Board of Directors of CNG. 2.05A "Change in Control" shall mean (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either 1) the then outstanding shares of common stock of the Corporation (the "Outstanding Common Stock") or 2) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: 1) any acquisition directly from the Corporation, 2) any acquisition by the Corporation, 3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or 4) any acquisition by any corporation pursuant to a transaction which complies with clauses 1), 2) and 3) of subsection (iii) of this Section 2.05A; or (ii) Individuals who, as of January 1, 2000, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to January 1, 2000 whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, 1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation'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 Common Stock and Outstanding Voting Securities, as the case may be, 2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or any related corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and 3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. Following the effective date of the Agreement and Plan of Exchange, pursuant to which outstanding shares of CNG common stock were exchanged for shares of the common stock of CTG Resources, Inc., the term 'Corporation,' as used in this Section 2.05A, shall mean CTG Resources, Inc., or any successor thereto. As used in this Section 2.05A, the terms "Incumbent Board" or "Board of Directors" are intended to refer to the Board of Directors of CTG Resources, Inc. 2.06 "Code" shall mean the internal Revenue Code of 1986, as amended from time to time, and as interpreted from time to time by any regulations issued pursuant thereto, and references to any section thereof shall be deemed to refer to the like section of any subsequent federal Internal Revenue law. 2.07 "Committee" shall mean the Administrative Committee described in Section 12. 2.07A "Common Stock" shall mean (i) prior to the consummation of the merger of CTG Resources, Inc. with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG Resources, Inc., Energy East Corporation and Oak Merger Co., the common stock of CTG Resources, Inc., and (ii) on and after the date of the consummation of such merger, the common stock of Energy East Corporation or its successor or successors. 2.08 "Company" shall mean CNG, and any Affiliate (or any division of CNG or its Affiliates) which, with the consent of CNG, shall adopt this Plan for its employees. 2.09 "Compensation" shall mean: (a) the basic regular remuneration in the form of salary or wages paid to an Employee for services rendered to the Company, increased by the amount set aside by the Company under salary reduction agreement with such Employee for contribution to this Plan or under a cafeteria plan as described in Section 125 of the Code, and excluding commissions, bonuses, pay for overtime or special pay, the Company's cost for any public or private employee benefit plan including this Plan and any other form of additional compensation. Effective July 1, 1999, however, "Compensation" shall include commissions. (b) When "Net Compensation" is referred to herein, it shall mean such basic regular remuneration without any increase on account of amounts set aside under any salary reduction agreement. (c) In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1997, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a) (17) (B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1997, any reference in this Plan to the limitation under Section 401 (a) (17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. 2.10 "CNG Pension Plan" shall mean the CONNECTICUT NATURAL GAS CORPORATION PENSION PLAN, as it may be amended hereafter. 2.11 "Continuous Service" shall mean the aggregate Periods of Employment by the Company in any capacity which may not be disregarded under subsection (c) of this Section and subject to the provisions of subsection (b) of this Section. Continuous Service shall be measured in full years and completed months, rounded, after termination of Continuous Service, to the nearest full month (16 or more days being deemed an additional month). Continuous Service prior to January 1, 1978 shall be computed under the rules of the CNG Pension Plan relating to Continuous Service as in effect from time to time, including service under those rules for The Hartford Gas Company, The New Britain Gas Light Company and The Greenwich Gas Company. (a) Definitions. The terms used in this Section 2.11 shall have the following meanings: (i) Employment Commencement Date - the day on which a person first completes an Hour of Service in any capacity for the Company. (ii) Reemployment Commencement Date - the day on which a person formerly employed by the Company again first completes an Hour of Service in any capacity for the Company. (iii) Severance from Service Date - the first to occur of (A) the date of quit, discharge, retirement or death, and (B) the first anniversary of the beginning date of a continuous period in which a person employed by the Company in any capacity is absent from active employment (with or without pay) other than for a cause set forth in (A). Failure to return to active employment when due shall constitute a quit on that date. (iv) Period of Employment - the period of service from an Employment or Reemployment Commencement Date to a Severance from Service Date. (v) Period of Severance - the period of absence from service commencing on a Severance from Service Date and ending on the day before the first Hour of Service is completed after such severance. (b) Temporary Absences. (i) If a person employed by the Company quits, is discharged or retires, his Continuous Service shall include any continuous period of less than twelve (12) months during which he is absent from active employment by the Company, with or without pay (a Period of Severance or other absence) within which less than twelve (12) month period such person returns to active employment. If a person employed by the Company is absent for any other reason (such as vacation, leave of absence, lay-off, etc.), and then quits, is discharged or retires, the period of time during which he may return and receive credit for Continuous Service (for the period between the Severance from Service Date and the return) begins on the Severance from Service Date and ends twelve (12) months after the first day of absence. Continuous Service shall be preserved during any leave of absence authorized by the Company in excess of twelve (12) months, and during any lay-off (but not in excess of two (2) years from the date of initial absence). (ii) Requests for leaves of absence shall be dealt with by the Company on a uniform, nondiscriminatory basis. (iii) Military Service: Military service in the armed forces of the United States or, effective on or after December 12, 1994, qualified military service shall be deemed while reemployment rights are protected by law to be an authorized leave of absence expiring with the expiration of such reemployment rights. Furthermore, during any such period of military service or qualified military service and thereafter while reemployment rights are so protected, Continuous Service shall be counted to the extent required by such law, including effective on or after December 12, 1994, Section 414(u) of the Code. "Qualified military service" means any service in the uniformed services (as defined in chapter 43 of the United States Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service. (iv) Absence due to Disability: Continuous Service shall be preserved during any period of disability. Any period of disability during which a person receives sick leave in accordance with the established sick leave policy of the Company (other than under the Company's Long Term Disability Plan) shall be counted as Continuous Service. Any other period of disability (including while a person is receiving benefits under the Company's Long Term Disability Plan) shall be deemed to be authorized leave of absence expiring upon recovery from disability, including the counting of Continuous Service for the balance of the first twelve (12) months of any disability. As used in this clause (iv), disability shall mean the inability by reason of physical or mental illness or injury to perform the normal duties of one's employment by the Company or any other comparable employment. The Committee may, no more frequently than once each three months, require an Employee to undergo a physical examination at the Company's expense by a medical doctor, registered nurse or paramedic selected by the Committee to verify the continuation of a disability. If an Employee shall refuse to submit to such examinations, he will be deemed to have quit. (v) Change in Job Category: Any period during which a person is employed by CNG or any of its Affiliates, but not as an Employee within the meaning of Section 2.14, shall be considered as Continuous Service to the extent it would have been considered Continuous Service under the rules of this Section 2.11 had the person been an Employee of the Company. Notwithstanding the preceding sentence, any such period of employment with an Affiliate which has not adopted the Plan will not be considered as Continuous Service for purposes of Section 5.01. (vi) Less Than Full Time Employment: All periods of less than full time employment will count as Continuous Service so long as there is no Severance from Service Date. (vii) If an individual is considered to be employed by the CNG or an Affiliate pursuant to Section 414(n) of the Code, then he shall receive credit for Continuous Service pursuant to this Section 2.11 as if he were employed by the Company. (viii) In the case of a person who is absent from employment for any period (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by the individual, or (4) for purposes of caring for such child for a period immediately following such birth or placement, Continuous Service shall be preserved for a period of twelve (12) months measured from the date which would otherwise constitute the Severance from Service Date; provided that such period shall not be counted as Continuous Service. (c) Reinstatement of Service. Upon reemployment by the Company, the following rules shall apply: (i) Prior to beginning of vesting: (1) In the event a person who had not attained any vested interest under Section 9.03 on his Severance from Service Date is reemployed after a period of absence of less than a complete twelve (12) months or of lesser duration than his prior Continuous Service, he shall be reinstated in his prior Continuous Service. (2) In the event a person who had not attained any such vested interest on his Severance from Service Date is reemployed after a period of absence of a complete twelve (12) months duration and of equal or greater duration than his prior Continuous Service, his prior Continuous Service shall be disregarded unless, effective January 1, 1985, his period of absence is less than five (5) years, in which case it shall not be disregarded. (ii) After beginning of vesting: In the event a person who had attained any such vested interest on his Severance from Service Date is reemployed at any time, his Continuous Service shall be reinstated. (d) The manner of determining Continuous Service hereunder shall be consistent with the manner of so doing under the CNG Pension Plan, except that the special rule set forth therein relating to the counting of service for vesting purposes with G. Fox & Company (The May Company) shall not apply. 2.12 "Disability" or "Disabled" shall mean total and permanent disability within the meaning of the CNG Pension Plan, and any final determination of disability under said Plan of a Participant who is also a member of said Plan shall be conclusive for purposes of this Plan and shall be binding upon the Company and the Participant. Disability shall be determined without regard to any applicable age requirement under the CNG Pension Plan. 2.13 "Effective Date" shall mean the effective date of this restatement, which is January 1, 2000 unless otherwise indicated. 2.14 "Employee" shall mean any individual who is actively employed and compensated by the Company and who is on the Management Payroll of the Company or is subject to the Company Salary Administration Program. The term shall also include any individual whose employment by the Company is subject to the terms of a collective bargaining agreement between the Company and employee representatives, but only if participation in the Plan is specifically provided for in the collective bargaining agreement for said employees. 2.15 "Fiscal Year" shall mean the fiscal year of CNG. 2.16 "Highly Compensated Employee" shall mean with respect to any Plan Year beginning on or after January 1, 1997, any individual who is a Highly Compensated active Employee or Highly Compensated former Employee. (a) A Highly Compensated active Employee includes any Employee who performs service for the Company during the determination year and who, during the look-back year, received compensation (as defined in Section 414(q)(4) of the Code) from CNG and its Affiliates in excess of $80,000 (as adjusted pursuant to Section 415(d) of the Code) and, if CNG elects application for such look-back year by amending the Plan to provide that it has made such election, was a member of the top-paid group for such look-back year. The term Highly Compensated active Employee also includes Employees who are 5 percent owners (as defined in Section 416(i)(1) of the Code) of CNG or any Affiliate at any time during the look-back year or determination year. (b) For this purpose, the determination year shall be the Plan Year. The look-back year shall be the prior Plan Year. (c) A Highly Compensated former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Company during the determination year, and was a Highly Compensated active Employee as defined in the Plan for either the separation year or any determination year ending on or after the Employee's 55th birthday. (d) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. 2.17 "Hour of Service" shall mean: (a) Each hour for which an Employee is paid, directly or indirectly, or entitled to be paid by the Company: (i) on account of services as an Employee; (ii) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence, provided that not more than 501 Hours of Service shall be credited under this clause (ii) for any single continuous period (whether or not such period occurs in a single computation period); (iii) as a result of any award of back pay, without regard to mitigation of damages; (b) Each hour which an Employee would have normally been scheduled to work during absence from service while in the Armed Services of the United States or, effective on or after December 12, 1994, qualified military service (as defined in Section 2.11(b)(iii)) and during such period as reemployment rights are protected by law, but only if such Employee returns to service with the Company within the time after discharge from the Armed Services or qualified military service as reemployment rights are so protected; and (c) Each hour for which an individual employed by CNG or any of its Affiliates would have received credit for an Hour of Service under the preceding rules but for the fact that he was employed in a job category not included in the definition of Employee set forth in Section 2.14, and each hour for which an individual would have received credit for an Hour of Service under such rules but for the fact that, rather than being employed by the Company, he was an employee of an Affiliate which had not adopted the Plan. If an individual is considered to be employed by CNG or an Affiliate pursuant to Section 414(n) of the Code, then he shall also receive credit for Hours of Service pursuant to this Section 2.17 as if he were employed by CNG or an Affiliate, but he shall not be entitled to participate. (d) Each hour shall be credited for the computation period for which earned or for which payment was made or awarded. No hour shall be credited more than once, and hours worked at premium pay rates shall be counted the same as regular time hours. In lieu of maintenance of actual Hours of Service records for all or any class of individuals entitled to Hours of Service credit hereunder, credit may be given for 45 Hours of Service for each week for which credit would be required for at least one Hour of Service under this Section. Any uncertainties regarding the crediting of hours shall be resolved in accordance with regulations of the U.S. Department of Labor (currently Section 2530.200b-2 et. seq.), where applicable, and in the absence of regulations, under uniform, non-discriminatory practices adopted by the Committee. 2.18 "Normal Retirement Date" of each Participant shall mean the first day of the calendar month next following the date he attains age 65. 2.19 "Participant" shall mean any eligible Employee who elects to make contributions under the Plan. If an Employee is eligible to participate but does not elect to have salary reduction contributions made on his behalf or to make employee after-tax contributions, he shall nevertheless be considered to be a Participant who is reducing zero percent (0%) of his salary or contributing zero percent (0%) on an after-tax basis. 2.20 "Payroll Period" shall mean any period on account of which Compensation is paid to a Participant. 2.21 "Plan Year" shall mean the fiscal period on which the records of the Plan are maintained and shall be the twelve (12) month period ending with an Anniversary Date. 2.22 "Trust" shall mean the Trust created by CNG for the purpose of receiving and investing contributions to the Plan and income and gain therefrom, and Trustee shall mean the trustee from time to time administering the Trust. 2.23 "Trust Fund" shall mean the assets of the Trust consisting of all contributions thereto and earnings and gains thereon, net of investment losses and net of expenses of the Trust not paid for by the Company, less amounts withdrawn by or distributed to Participants or their Beneficiaries. 2.24 "Change Date" shall mean January 1, April 1, July 1 and October 1 of each year. 2.25 "Valuation Date" shall mean the date as of which a Participant's Account is valued hereunder, as determined in accordance with the provisions of Section 8. 2.26 Whenever the context requires, the masculine gender herein shall include the feminine and the singular form shall include the plural. Section 3 ELIGIBILITY AND PARTICIPATION 3.01 Each Employee shall be eligible to become a Participant hereunder on the last to occur of the following: (a) when he has been employed by CNG or an Affiliate one year or more; (b) when he has completed 1,000 or more Hours of Service during the twelve (12) months beginning on the day of his first Hour of Service, or if he does not complete 1,000 or more Hours of Service during such twelve (12) months, when he first completes 1,000 or more Hours of Service during any Plan Year beginning after the day he completes his first Hour of Service; (c) when he attains the age of twenty-one (21) years; and (d) when he becomes an Employee within the meaning of Section 2.14. (e) On and after July 1, 1999, each Employee (as defined in Section 2.14) who has not previously met the service requirement for eligibility, as provided in Section 3.01(a) and (b) above, shall be eligible to make salary reduction (CODA) contributions and voluntary unmatched after tax contributions within the limits prescribed under Section 4.01 of the Plan beginning with the last to occur of (1) the first Payroll Period beginning on or after July 1, 1999, or (2) the first Payroll Period beginning on or after the first day of the month following the Employee's date of employment as an Employee, or (3) the first Payroll Period beginning on or after the first day of the month following the Employee's attainment of age twenty-one (21). Such individuals shall also be eligible to make contributions by way of rollover or direct transfer in accordance with Section 4.12 hereof. The provisions of the Plan regarding elections and changes thereto applicable to Participants generally shall also apply to such individuals. However, notwithstanding anything to the contrary in Section 5 or elsewhere in the Plan, such Employees shall not be entitled to begin receiving allocations of matching contributions until the time they are otherwise entitled to participate in the Plan, determined in accordance with the provisions of this Section 3.01 (other than this Section 3.01(e)) and Section 3.04. 3.02 Active participation in the Plan shall cease when the Participant ceases to be an Employee. A rehired Employee who retains any Continuous Service from his prior period of employment shall be eligible to resume active participation hereunder on his date of rehire. Any other rehired Employee must again satisfy the requirements of Section 3.01. 3.03 An Employee who is eligible may elect to participate in the Plan by executing such authorization forms as shall be prescribed for that purpose by the Company. Such forms shall consist generally of a salary reduction agreement and a payroll deduction election to be executed and delivered to the Company (which shall inform the Committee of such authorization and any changes therein or suspensions thereof). The time or times within which an eligible Employee may elect to participate in the Plan shall be governed by the applicable Plan provisions relating thereto. 3.04 Unless otherwise provided by the Committee, participation in the Plan shall commence (a) prior to July 1, 2000, as of the first full Payroll Period of the month following the date upon which the Employee satisfies the requirements for eligibility, provided that the Company has received the notice referred to in Section 3.03 at least fifteen (15) days prior to the commencement of that Payroll Period or (b) on and after July 1, 2000, as of the first full Payroll Period practicable that begins on or after the beginning of the month following the date upon which the Employee who has satisfied the requirements for eligibility provides to the Company the notice referred to in Section 3.03. An Employee who does not elect to participate when first eligible may elect to participate (a) prior to July 1, 2000, as of the first full Payroll Period coincident with or next following any subsequent Change Date, provided that the Company has received the notice referred to in Section 3.03 at least fifteen (15) days prior thereto, or (b) on and after July 1, 2000, as of the beginning of the first full Payroll Period practicable after the Company has received the notice referred to in Section 3.03. Section 4 SALARY REDUCTION AND EMPLOYEE CONTRIBUTIONS; TESTING; ROLLOVER CONTRIBUTIONS 4.01 Each Participant shall, by salary reduction agreement and payroll deduction authorization, cause to be contributed to the Plan the amount that may be authorized by him in the manner provided for by Section 3.03. Unless otherwise permitted under rules prescribed by the Committee, the following limitations shall apply to such contributions: (a) Contributions (referred to as "CODA" contributions or "salary reduction" contributions) may be made in whole percentage amounts of between 1% and 16% of a Participant's Compensation. However, Participants who are entitled to at least a 4 1/2% match under Section 5.01(b) shall be entitled to have CODA contributions made at the 4 1/2% level. (b) Voluntary unmatched after-tax contributions are permitted in whole percentage amounts of between 1% and 10% of such Participant's Compensation. The maximum amount of voluntary unmatched after-tax contributions which may be made by payroll deduction on account of any calendar year shall be 10% of such Participant's Compensation for such year, except that if the Company shall have in effect for the same Participants more than one employee retirement plan which is "qualified" under Section 401(a) of the Code, voluntary (unmatched) contributions by a Participant during any year to all such plans including this Plan shall not exceed ten percent (10%) of such Participant's Compensation for such Year. (c) Subject to the limits under Section 415 of the Code, the maximum amount of such contributions which may be made on account of any calendar year shall be the sum of the amounts allowed under paragraphs (a) and (b). (d) Any contribution amounts shall be set as a whole percentage of the Participant's Compensation; except that Participants who are eligible for at least a 4-1/2% of Compensation match shall be entitled to have CODA contributions made at the 4 1/2% level. 4.02 (a) The provisions of this Section 4.02(a) shall be applicable prior to July 1, 2000. A Participant may change the amounts of his authorized salary reduction and payroll deduction (within the limits specified in Section 4.01) as of the first full Payroll Period coincident with or following a Change Date, provided that the Company has received notice of such change at least fifteen (15) days prior to the applicable Change Date. Unless otherwise prescribed by the Committee, changes may be made on a quarterly basis as of the date specified in the preceding sentence. A change in both authorized salary reduction and payroll deduction amounts may be made at the same time. A Participant may suspend his salary reduction and payroll deduction authorization at any time, provided that at least fifteen (15) days prior written notice is given to the Company. Such suspension shall be effective as of the beginning of the first Payroll Period of the month coincident with or next following the expiration of the fifteen (15) day notice period. Unless otherwise provided by the Committee, a Participant who has suspended his contributions may re-enter the Plan as of the first day of the first full Payroll Period coincident with or next following a subsequent Change Date, provided that the suspension has been in effect for a period of at least three (3) months on that subsequent Change Date and the Company has received notice thereof at least fifteen (15) days prior to that subsequent Change Date. (b) The provisions of this Section 4.02(b) shall be applicable on and after July 1, 2000. A Participant may change the amounts of his authorized salary reduction and payroll deduction (within the limits specified in Section 4.01) at any time by giving prior written notice to the Company. Such change shall be effective as of the beginning of the first Payroll Period practicable commencing after the Company has received notice of such change. A change in both authorized salary reduction and payroll deduction amounts may be made at the same time. A Participant may suspend his salary reduction and payroll deduction authorization at any time by giving prior written notice to the Company. Such suspension shall be effective as of the beginning of the first Payroll Period practicable commencing after the Company receives such notice. Unless otherwise provided by the Committee, a Participant who has suspended his contributions may re-enter the Plan at any time by giving prior written notice to the Company. Such re-entry shall be effective as of the beginning of the first Payroll Period practicable after the Company has received such notice. 4.03 Without becoming subject to the limitations of Section 4.02(a), a Participant may, by written notice to the Company, suspend or change the amount of his authorized salary reduction and payroll deduction for any period or periods during which (a) he is on authorized leave of absence at less than full pay; or (b) no contributions are made under the Plan by the Company. Any such suspension or change shall become effective with the beginning of the Payroll Period following receipt of such notice by the Company. 4.04 If a Participant remains an Employee but ceases to receive Compensation, his salary reduction and payroll deduction shall be automatically suspended. 4.05 Commencing January 1, 1982, participant contributions to this Plan which (i) are not made pursuant to salary reduction agreement and (ii) are not matched by Employer contributions and (iii) otherwise conform to applicable Code requirements, (a) shall be treated as qualified voluntary employee contributions as contemplated by Code Section 219, and (b) shall not be included as voluntary (unmatched) contributions in applying the limitations of Section 4.01(b) on voluntary (unmatched) contributions. The Committee shall establish procedures (including time limits) consistent with applicable law whereby Participants may designate any part or all of such contributions made during a calendar year as not being qualified voluntary employee contributions. Once during each calendar year a Participant may make one contribution to the Plan, other than through payroll deduction, which contribution will be subject to the overall limitations of Section 4.01, will be treated as qualified voluntary employee contribution and will not in any event be subject to matching contribution by the Company. No contributions may be made to the Plan pursuant to this Section 4.05 after December 31, 1986. 4.6 In the event the total Company contributions (including salary reduction contributions, matching contributions, and any top-heavy contributions) made for any Plan Year exceed fifteen percent (15%) of the total W-2 earnings of all Participants, or such lesser or greater percentage of total compensation paid to Participants during such Plan Year as may from time to time qualify for deduction from gross income under the provisions of the Code, then the Company shall arrange for a limitation on the amount of salary reduction contributions, or shall suspend such contributions entirely, in order that such limitation is not exceeded. 4.7 (a) No Participant shall be permitted to have Elective Deferrals made under this Plan, or any other qualified plan maintained by CNG or an Affiliate, during any taxable year of the Participant, in excess of the dollar limitation contained in Section 402(g) of the Code in effect at the beginning of such taxable year. This amount is $10,500 for 2000, and as indexed thereafter as provided in Section 402(g)(5) of the Code. (b) A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Committee on or before March 1 of the following taxable year of the amount of the Excess Elective Deferrals to be assigned to the Plan, and certifying such amounts are Excess Elective Deferrals. If a Participant has Excess Elective Deferrals under this Plan and other plans of CNG or an Affiliate, however, then the Participant shall be deemed to have made such designation. An Employee who has Excess Elective Deferrals for a taxable year may receive a corrective distribution of Excess Elective Deferrals during the same year, provided that the corrective distribution is made after the date on which the Plan received the Excess Elective Deferral, and the Plan designates the distribution as a distribution of Excess Elective Deferrals. (c) Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year, or on whose behalf Excess Elective Deferrals are deemed to have been claimed. (d) Definitions: (1) "Elective Deferrals" shall mean any Company contributions made to the Plan at the election of the Participant, in lieu of cash compensation, and shall include contributions made pursuant to a wage or salary reduction agreement or other deferral mechanism. With respect to any taxable year, a Participant's Elective Deferral is the sum of all Company or Affiliate contributions made on behalf of such Participant pursuant to an election to defer under any qualified CODA as described in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in Section 402(h) (1) (B), any plan as described under Section 501(c) (18), and any employer contributions made on the behalf of a Participant for the purchase of an annuity contract under Section 403(b) pursuant to a salary reduction agreement. (2) "Excess Elective Deferrals" shall mean those Elective Deferrals that are includible in a Participant's gross income under Section 402(g) of the Code to the extent such Participant's Elective Deferrals for a taxable year exceed the dollar limitation under such Code Section. (e) Determination of income or loss: Excess Elective Deferrals shall be adjusted for any income or loss for the taxable year. The income or loss allocable to Excess Elective Deferrals under this Plan is the income or loss allocable to the Participant's Pre-Tax Account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Excess Elective Deferrals under this Plan for the year and the denominator is the Participant's Pre-Tax Account without regard to any income or loss occurring during such taxable year. 4.08 (a) The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year beginning on or after January 1, 1997 must satisfy one of the following tests: (1) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year multiplied by 1.25; or (2) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees for the Plan Year does not exceed the ADP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year by more than two (2) percentage points. (b) Special Rules: (1) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have salary reduction contributions allocated to his accounts under two or more arrangements described in Section 401(k) of the Code that are maintained by CNG or an Affiliate, shall be determined as if such contributions were made under a single arrangement. If a Highly Compensated Employee participates in two or more such cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(k) of the Code. (2) In the event that this Plan satisfies the requirements of Sections 401(k), 401(a) (4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the ADP of employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year. (3) For purposes of applying the ADP test for any Plan Year, CNG may elect, by amending the Plan to provide that it has made such election, to use the ADP for the Plan Year for Non-highly Compensated Employees for the Plan Year rather than the ADP for the next preceding Plan Year for Non-highly Compensated Employees for such next preceding Plan Year, but if such an election is made, it may not be changed except to the extent provided in applicable governmental regulations, rulings or announcements. In accordance with the preceding sentence, CNG hereby elects to use the ADP for the Plan Year for Non-highly Compensated Employees for the Plan Year for purposes of applying the ADP test for Plan Years commencing on or after January 1, 1997, and the Plan is hereby amended to so provide. (4) For purposes of determining the ADP test, salary reduction contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which contributions relate. (5) The Company shall maintain records sufficient to demonstrate satisfaction of the ADP test. (6) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. The provisions of this Section 4.08 shall be applied separately in respect of any Participants covered under each separate collective bargaining agreement and may be applied separately in respect of Participants who have not met the service requirements for eligibility as provided in Sections 3.01(a) and (b). (c) "Actual Deferral Percentage" shall mean, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of (1) the amount of Company contributions actually paid over to the trust on behalf of such Participant for the Plan Year to (2) the Participant's compensation for such Plan Year. Company contributions on behalf of any Participant shall include: (1) any Elective Deferrals made pursuant to the Participant's salary reduction election, including Excess Elective Deferrals of Highly Compensated Employees, but excluding (a) Excess Elective Deferrals of Non-highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of CNG or its Affiliates and (b) Elective Deferrals that are taken into account in the Average Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals). (d) Notwithstanding any other provisions of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the Company with respect to such amounts. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such employees. The respective portions of the Excess Contributions for a Plan Year attributable to each Highly Compensated Employee shall be determined by allocating the Excess Contributions for the Plan Year to Highly Compensated Employees beginning with the Highly Compensated Employees with the highest amount of Company contributions taken into account in computing the ADP for the Plan Year and continuing in descending order until the aggregate amount of Excess Contributions has been fully allocated. (e) Determination of Income or Loss: Excess Contributions shall be adjusted for any income or loss for the Plan Year. The income or loss allocable to Excess Contributions is the income or loss allocable to the Participant's Pre-Tax Account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Contributions for the year and the denominator is the Participant's Pre-Tax Account without regard to any income or loss occurring during such Plan Year. (f) Accounting for Excess Contributions: Excess Contributions shall be distributed from the Participant's Pre-Tax Account for the Plan Year. (g) "Excess Contributions" shall mean, with respect to any Plan Year, the excess of: (1) The aggregate amount of Company contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (2) The maximum amount of such contributions permitted by the ADP test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages, until such test is met). 4.09 (a) The Average Contribution Percentage (hereinafter "ACP") for Participants who are Highly Compensated Employees for each Plan Year beginning on or after January 1, 1997 must satisfy one of the following tests: (1) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year multiplied by 1.25; or (2) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year multiplied by two (2), provided that the ACP for Participants who are Highly Compensated Employees for the Plan Year does not exceed the ACP for the next preceding Plan Year for Participants who are Non-highly Compensated Employees for such next preceding Plan Year by more than two (2) percentage points. (b) Special Rules: (1) Multiple Use: If one or more Highly Compensated Employees participate in both a Section 401(k) arrangement and a plan subject to the ACP test maintained by CNG or an Affiliate and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a Section 401(k) arrangement will be reduced so that the limit is not exceeded. The amount by which the ACP is reduced shall be treated as Excess Aggregate Contributions and allocated to Highly Compensated Employees as provided in Section 4.09(d) below. The ADP and ACP of the Highly Compensated Employees used for this purpose are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if either the ADP or ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP or ACP of the Non-highly Compensated Employees for the next preceding Plan Year or, if CNG has so elected by Plan amendment under Section 4.08(b)(3) or 4.09(b)(4), the current Plan Year. (2) For purposes of this Section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his Account under two or more plans described in Section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by CNG or an Affiliate, shall be determined as if the total of such Contribution Percentage Amounts were made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(m) of the Code. (3) In the event that this Plan satisfies the requirements of Sections 401(m), 401(a) (4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentage of employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year. (4) For purposes of applying the ACP test for any Plan Year, CNG may elect, by amending the Plan to provide that it has made such election, to use the ACP for the Plan Year for Non-highly Compensated Employees for the Plan Year rather than the ACP for the next preceding Plan Year for Non-highly Compensated Employees for such next preceding Plan Year, but if such an election is made, it may not be changed except to the extent provided in applicable governmental regulations, rulings or announcements. In accordance with the preceding sentence, CNG hereby elects to use the ACP for the Plan Year for Non-highly Compensated Employees for the Plan Year for purposes of applying the ACP test for Plan Years commencing on or after January 1, 1997, and the Plan is hereby amended to so provide. (5) For purposes of determining the Average Contribution Percentage test, Employee Contributions are considered to have been made in the Plan Year in which contributed to the trust. Matching contributions will be considered made for a Plan Year if made no later than the end of the twelve-month period beginning on the day after the close of the Plan Year. (6) The Company shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Elective Deferrals used in such test. (7) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. The provisions of this Section 4.09 shall not apply in respect of any Participants covered under a collective bargaining agreement and may be applied separately in respect of Participants who have not met the service requirement for eligibility as provided in Sections 3.01(a) and (b). (c) Definitions: (1) "Aggregate Limit" for a Plan Year shall mean the greater of (1) or (2) below, where (1) equals the sum of (i) 125 percent of the greater of (A) the ADP for the next preceding Plan Year of the Non-highly Compensated Employees for such next preceding Plan Year or (B) the ACP for the next preceding Plan Year of Non-highly Compensated Employees under the Plan subject to Code Section 401(m) for the next preceding Plan Year and (ii) two plus the lesser of (A) or (B) above, but in no event more than twice the lesser of (A) or (B) above; and (2) equals the sum of (i) 125 percent of the lesser of (A) or (B) above, and (ii) two plus the greater of (A) or (B) above, but in no event more than twice the greater of (A) or (B) above. If CNG has elected by Plan amendment to use the ADP and/or the ACP for the Plan Year for Non-highly Compensated Employees rather than for the next preceding Plan Year, then such election shall also apply for purposes of determining the Aggregate Limit. (2) "Average Contribution Percentage" shall mean the average of the Contribution Percentages (calculated separately for each Eligible Participant in the group) of the Eligible Participants in a group. (3) "Contribution Percentage" shall mean the ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's compensation for the relevant Plan Year. (4) "Contribution Percentage Amounts" shall mean the sum of the Employee Contributions and Matching Contributions made under the Plan on behalf of the Participant for the relevant Plan Year. The Company also may elect to use Elective Deferrals in the Contribution Percentage Amounts so long as the ADP test is met before the Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (5) "Eligible Participant" shall mean any Participant who is eligible to participate hereunder. (6) "Employee Contribution" shall mean any contribution made to the Plan by or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated. (7) "Matching Contribution" shall mean a Company contribution made to this Plan on behalf of a Participant on account of an Employee Contribution made by such Participant, or on account of a Participant's wage or salary deferral. (d) Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. The respective portion of Excess Aggregate Contributions for a Plan Year attributable to each Highly Compensated Employee shall be determined by allocating the Excess Aggregate Contributions for the Plan Year to Highly Compensated Employees beginning with the Highly Compensated Employees with the highest amount of Contribution Percentage Amounts taken into account in computing the ACP and/or Aggregate Limit test for the Plan Year and continuing in descending order until the aggregate amount of Excess Aggregate Contributions has been fully allocated. If such Excess Aggregate Contributions are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the Company with respect to those amounts. (e) Determination of Income or Loss: Excess Aggregate Contributions shall be adjusted for any income for the Plan Year. The income or loss allocable to Excess Aggregate Contributions is the income or loss allocable to the Participant's Employee After-Tax Contribution Account, and Company Matching Account for the Plan Year, determined separately for each type of contribution, and then each to be multiplied by a separate fraction, the numerator of which is such Participant's Excess Aggregate Contributions for the year attributable to that type of contribution (determined pursuant to paragraph (g) below) and the denominator is the Participant's Account balance attributable to that type of contribution, without regard to any income or loss occurring during such Plan Year, with such amounts to then be added together. (f) Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess Aggregate Contributions shall be applied to reduce Company contributions hereunder. (g) Accounting for Excess Aggregate Contributions: Any Excess Aggregate Contributions on behalf of a Highly Compensated Employee shall first be attributable to Employee Contributions, and such Excess Aggregate Contributions shall be distributed from the Participant's Employee After-Tax Contribution Account to the extent this will eliminate Excess Aggregate Contributions. If any Excess Aggregate Contributions still exist, then such Excess Aggregate Contributions shall be forfeited, if forfeitable or distributed from the Participant's Company Matching Account. (h) "Excess Aggregate Contributions" shall mean, with respect to any Plan Year, the excess of: (1) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (2) The maximum Contribution Percentage Amounts permitted by the ACP test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages, until such test is met). 4.10 (a) If during the course of the Plan Year the Company determines that the ADP, ACP or Aggregate limit tests may not be met, the Company may take appropriate action by limiting salary reduction contributions and/or payroll deduction contributions by Highly Compensated Employees in order that the Plan meet one of the percentage tests described earlier. (b) In performing the ADP and ACP tests, the Committee may elect to (1) take into account compensation while the individual is an eligible Participant in the Plan for the relevant Plan Year, and (2) use any definition of compensation that satisfies Section 414(s) of the Code; provided that all Participants are treated on a uniform basis for the relevant Plan Year. (c) If, after corrections are made for Excess Deferrals, Excess Contributions, and Excess Aggregate Contributions, the Committee determines that the effective rate of match for any Highly Compensated Employee exceeds the appropriate rate of match provided under the Plan to such Participant, then such excess matching contributions shall be forfeited immediately, without regard to the Plan's otherwise applicable vesting schedule, and utilized to reduce future Company contributions. 4.11 Sections 4.08 , 4.09 and 4.10 are effective except where otherwise indicated for Plan Years beginning on or after January 1, 1997. 4.12 Effective January 1, 1993, a Participant may contribute to the Plan, or have transferred directly on his behalf from another qualified plan, cash amounts which constitute an "eligible rollover distribution" as defined in Section 402(c) (4) of the Code. In the case of amounts which the Participant contributes by way of rollover, such amount must be received by the Trustee within sixty (60) days of the Participant's receipt of the distribution. Only cash may be rolled over or transferred directly, and no property transfers will be accepted. In no event shall the portion of any distribution that represents the return of after-tax contributions be transferred or rolled over. Section 5 MATCHING CONTRIBUTIONS BY THE COMPANY 5.01 Except as provided in Section 3.01(e), the Company shall contribute for the benefit of each Participant an amount equal to whichever of the following amounts is applicable: (a) seventy-five percent (75%) of the Participant's CODA contributions during the Payroll Period up to six percent (6%) of Compensation (maximum matching contribution of 4.5% of Compensation) in the case of a Participant who as of June 30 of the applicable calendar year had (or will have) either (i) attained the age of forty-five (45) years or (ii) completed twenty (20) years of Continuous Service; and (b) fifty percent (50%) of the Participant's CODA contributions during the Payroll Period up to six percent (6%) of Compensation (maximum matching contribution of 3% of Compensation) with respect to all other Participants. (c) Such contributions need not be made out of net operating profits; the Plan is intended to be a discretionary profit sharing plan in accordance with Section 401(a) (27) of the Code, and is not intended to be a plan subject to the funding requirements of Section 412 of the Code. (d) The matching levels for a calendar year shall be determined as of June 30 of that year, based upon whether the Participant either has satisfied the requirements or is expected to satisfy the requirements as of that date. (e) It is the intent of the Company, and the Plan is so interpreted, so as to not penalize Participants whose salary reduction (CODA) contributions are required to cease as a result of the limitation under Section 402(g) of the Code (currently $10,500); and accordingly, matching contributions shall continue for such Participants for the balance of the year as determined by the Committee at the rate of match applicable to such Participant in order that the Participant not be penalized by the timing of such salary reduction (CODA) contributions. 5.02 The portion of any Participant's Company Matching Account (as defined in Section 8) which is forfeited because of termination of employment before full vesting as provided for in Section 9 shall be regarded as a contribution by the Company and applied as a credit against the next succeeding contribution or contributions of the Company under Section 5.01. Section 6 LIMITATION ON CONTRIBUTIONS 6.01 If the Participant does not participate in, and has never participated in another qualified plan maintained by the Company or a welfare benefit fund, as defined in Section 419(e) of the Code maintained by the Company, or an individual medical account, as defined in Section 415(1) (2) of the Code, maintained by the Company, which provides an Annual Addition, the amount of Annual Additions which may be credited to a Participant's Account for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation in this Plan. If the Company contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. The Committee may suspend or reduce salary reduction and/or payroll deduction contributions in order to satisfy such limitations. 6.02 Prior to determining the Participant's actual Compensation for the Limitation Year, the Company may determine the Maximum Permissible Amount on the basis of a reasonable estimation of the Participant's annual Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. 6.03 As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year. 6.04 If, pursuant to Section 6.03 or as a result of allocation of forfeitures, there is an Excess Amount with respect to a Participant for the Limitation Year, such Excess Amount will be disposed of as follows: (a) Any voluntary after-tax contributions, to the extent they would reduce the Excess Amount, will be returned to the Participant, and if an Excess Amount still exists, any salary reduction contributions, to the extent they would reduce the Excess Amount, will be distributed to the Participant. (b) If after the application of paragraph (a) an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Account will be used to reduce Company contributions (including any allocation of forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. (c) If after the application of paragraph (a) an Excess Amount still exists, and any Participant is not covered by the Plan at the end of a Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Company contributions (including allocation of any forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year, if necessary. (d) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, it will participate in the allocation of the Trust's investment gains or losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any Employer or Employee contributions may be made to the Plan for that Limitation Year. Except as provided in paragraph (a) above, Excess Amounts may not be distributed to Participants or former Participants. 6.05 This Section applies if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan maintained by the Company, a welfare benefit fund, as defined in Section 419(e) of the Code maintained by the Company, or an individual medical account, as defined in Section 415(1) (2) of the Code, maintained by the Company, which provides an Annual Addition, during any such Limitation Year. The Annual Additions which may be credited to a Participant's Account under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount, reduced by the Annual Additions credited to a Participant's Account under such other plans and welfare benefit funds for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by the Company are less than the Maximum Permissible Amount and the Company contribution that would otherwise be contributed or allocated to the Participant's Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other defined contribution plans and welfare benefit funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year. 6.06 Prior to determining the Participant's actual Compensation for the Limitation Year, the Company may determine the Maximum Permissible Amount in the manner described in Section 6.02. 6.07 As soon as administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year. 6.08 If, pursuant to Section 6.07 or as a result of the allocation of forfeitures, a Participant's Annual Additions under this Plan and such other plans result in an Excess Amount, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date. 6.09 If any Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another Plan, the Excess Amount attributed to this Plan will be the product of: (a) the total Excess Amount allocated as of such date, times (b) the ratio of (i) the Annual Additions allocated to the Participant for the Limitation Year as of the date under this Plan, to (ii) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified defined contribution plans. 6.10 Any Excess Amount attributed to this Plan under Section 6.09 will be disposed in the manner described in Section 6.04. 6.11 For purposes of this Section 6, the following definitions shall apply: (a) Annual Additions: The sum of the following amounts credited to a Participant's Account for the Limitation Year: (1) Company contributions (including without limitation salary reduction contributions); (2) forfeitures; and (3) voluntary after-tax contributions. For this purpose, any Excess Amount applied under Section 6.04 in the Limitation Year to reduce Company contributions will be considered Annual Additions for such Limitation Year. Amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(1) (2) of the Code, which is part of a pension or annuity plan maintained by the Company, are treated as Annual Additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Section 419A(d) (3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Company, are treated as Annual Additions to a defined contribution plan. (b) Company: For purposes of this Section 6, Company shall mean the Company that adopts this Plan, and all members of a controlled group of corporations (as defined in section 414(b) as modified by section 415(h) of the Code), all commonly controlled trades or businesses (as defined in Section 414(c) as modified by 415(h) of the Code), or all members of an affiliated service group (as defined in Section 414(m) of the Code) of which the Company is a part, and any other entity required to be aggregated with the Company pursuant to the regulations under Section 414(o) of the Code. (c) Compensation: A Participant's wages as defined in Section 3401(a) of the Code and all other payments of compensation to an Employee by the Company (in the course of the Company's trade or business) for which the Company is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a) (3) of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the service performed (such as the exception for agricultural labor in Section 3401(a) (2)). For purposes of applying the Limitations of this Section 6, Compensation for a Limitation Year is the Compensation actually paid or includible in gross income during such year. Effective on and after January 1, 1998, Compensation shall be adjusted to include amounts specified in Section 415(c)(3)(D) of the Code. (d) Excess Amount: The excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (e) Limitation Year: The Plan Year. (f) Maximum Permissible Amount: The maximum Annual Addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year shall not exceed the lesser of (1) $30,000 (or, effective for Limitation Years beginning prior to January 1, 1995, if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b) (1) of the Code), or (2) twenty-five percent (25%) of the Participant's Compensation (as defined in Section 6.11(c) hereof) for the Limitation Year. The Compensation limitation referred to in (2) shall not apply to any contribution for medical benefits (within the meaning of Section 401(h) or Section 419A(f) (2) of the Code) which is otherwise treated as an Annual Addition under Section 415(1) (1) or Section 419A(d) (2) of the Code. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the Maximum Permissible Amount will not exceed the defined contribution dollar limitation set forth in (1) multiplied by the following fraction: number of months in short Limitation Year divided by 12. Section 7 INVESTMENT OF CONTRIBUTIONS 7.01 The Company shall pay over to the Trustee at least monthly the amount of the total salary reductions and payroll deductions withheld by the Company during such month, together with the corresponding contributions to be made by the Company, but in no event shall such amounts be paid over to the Trustee later than the 15th business day after the end of such month. At its option, the Company may, in lieu of cash, deliver to the Trustee on account of any contribution payable by it hereunder, or any portion thereof, shares of Common Stock, such shares to be applied against such contribution at an amount equal to their market value at the time of delivery, such market value to be determined by taking the mean between the high and low trading price of the stock on the New York Stock Exchange for the next preceding trading day. 7.02 Participants (including terminated Participants, retirees and Beneficiaries with Account balances under the Plan) may direct the Trustee as to the investment of the following Accounts from among the investment options provided under the Plan: (1) Pre-Tax Account; (2) Employee After-Tax Contribution Account; (3) IRA Account; and (4) Rollover Account. The investment options under the Plan are a Common Stock Fund and such additional funds as the Committee agrees to offer for investment under the Plan. The underlying investment for each such additional fund shall be a mutual fund or other pooled investment fund, and at least four (4) such funds shall be offered. Separate investment elections may be chosen for existing Account balances (sources of money) and future contributions, although a single investment election shall apply with respect to all existing investment fund Account balances for which investment directions are permitted and a single investment election shall apply with respect to all future contributions for which investment elections are permitted. Investment elections shall be made in increments of 5%. Changes in the investment elections for existing Account balances and for future contributions are permitted at any time. Any changes in the investment elections may be made on a daily basis (any business day), subject to any restrictions imposed by the Trustee on the movement between funds or timing thereof. Common Stock investments shall be made by purchase by the Trustee, in the open market or otherwise, at not more than market price at the time of purchase, of shares of such stock, and dividends and other increments thereon will be likewise invested. 7.03 Each Participant (including a terminated Participant, retiree or Beneficiary with an Account balance under the Plan) shall be entitled to direct the Trustee as to the manner in which any shares of Common Stock allocated to his Account (including any fractional shares) are to be voted, tendered in the case of a tender offer, or converted in the case of a conversion election, in accordance with the rules and procedures set forth in the Trust Agreement. 7.04 (a) Participants (including terminated Participants, retirees and Beneficiaries with Account balances under the Plan) shall be entitled to direct the investment of their Company Matching Accounts. The investment options available with respect to the Company Matching Account shall include Common Stock and the same other investments available to Participants with respect to other contributions under the Plan for which investment direction is available. Participants shall have the option of reallocating the investment of the Company Matching Account at any time, at the same time as the option is exercised and subject to the same rules with respect to the other existing Accounts under the Plan for which the Participant has the ability to direct investments (i.e., the Pre-Tax Account, the Employee After-Tax Contribution Account, the IRA Account and the Rollover Account). However, the Participant may elect separate investment allocation percentages for the Company Matching Account and for such other Accounts. All investment directions shall be in increments of 5%. Unless the Participant affirmatively elects otherwise as part of an election change with respect to existing Account balances, or except as otherwise provided in the Plan, his Company Matching Account shall be invested in Common Stock. (b) Participants (including terminated Participants, retirees and Beneficiaries with Account balances under the Plan) shall be entitled to direct the investment of their Paysop Transfer Account subject to the same rules regarding direction of investment of Company Matching Accounts described in Section 7.04(a). However, the Participant may elect separate investment percentages for the Paysop Transfer Account and for the Company Matching Account. Amounts in a Participant's Paysop Transfer Account shall continue to be invested in Common Stock unless the Participant affirmatively elects otherwise as part of an election change with respect to existing Accounts balances, or except as otherwise provided in the Plan. (c) The Committee is authorized to adopt administrative rules and procedures to effectuate the intent of the provisions of this Section 7.04, including, without limitation, reasonable estimation of shares to be transferred and allocated, rounding of share amounts, and the like. (d) It is recognized that sales of Common Stock in order to effectuate investment directions shall be done as soon as is reasonably practicable by the Trustee, based upon market conditions and similar considerations. (e) Future matching contributions made to the Plan will be accounted for under the Company Matching Account. Such future matching contributions shall be invested in Common Stock unless the Participant affirmatively elects otherwise (as part of and subject to the same rules as the Participant's election change with respect to future contributions) or except as otherwise provided in the Plan. Unless otherwise prescribed by the Committee, any such affirmative election to direct that future matching contributions be invested other than in Common Stock shall apply to all future matching contributions and shall pattern the Participant's election with respect to future contributions to other Accounts under the Plan, e.g., to the Pre-Tax Account. Section 8 ACCOUNTS AND PARTICIPANTS 8.01 The Committee shall cause the unsegregated Account of each Participant to be separated into separate unsegregated subaccounts, as follows: (a) The Company Matching Account containing all amounts contributed as matching contributions and earnings thereon; (b) The Pre-Tax Account containing all salary reduction contributions made on behalf of the Participant and earnings thereon; (c) The Employee After-Tax Contribution Account containing after-tax payroll deduction contributions made by the Participant and earnings thereon; (d) The IRA Account containing contributions made pursuant to Section 4.05 and earnings thereon; (e) The Rollover Account containing any rollover or direct transfer amounts added under Section 4.12 and earnings thereon; and (f) The Paysop Transfer Account, as described below in Section 8.06. 8.02 Except as otherwise provided in Section 12.08, dividends on shares of Common Stock shall be used to purchase additional shares of Common Stock for the Account of the Participant so invested. The Account of Plan Participants (including terminated Participants, retirees and Beneficiaries with Account balances under the Plan) shall increase or decrease in value based upon the performance of the various investment options and the allocation of such Accounts among such investment alternatives. 8.03 Valuations of a Participant's Account shall be performed on a daily basis (as of a business day). The Committee shall require the Trustee to provide accounts of its transactions under the Trust Agreement on a quarterly basis. 8.04 For purposes of this Section, a Participant shall be continued to be treated as such, even after his employment has terminated, until final valuation of his Account is made as provided for in Section 10. 8.05 The Committee may keep such additional accounts or subaccounts as it deems necessary or proper to accomplish the purposes of this Plan. 8.06 An additional Account shall be established for a Plan Participant which represents amounts attributable to shares (and fractions thereof) of common stock which were transferred to the Trustee hereunder in connection with the termination of the Connecticut Natural Gas Corporation Tax Credit Stock Ownership Plan. Such account shall be referred to herein as the Participant's "Paysop Transfer Account." The amounts in a Participant's Paysop Transfer Account shall remain invested in Common Stock unless the Participant directs otherwise as provided in the Plan. Dividends payable on Common Stock shall be used to purchase additional shares of Common Stock, except as otherwise provided in the Plan. The Plan Participant shall have a 100% vested interest in such Paysop Transfer Account. The provisions of Section 7.03, regarding voting of Common Stock, shall also apply to this Account. The payment of benefits from said Account shall generally be governed by the rules respecting distributions from the Plan. However, the following special rules shall apply: (a) Each Participant shall be permitted to elect to receive a distribution of all or a portion of his Paysop Transfer Account once annually at any time during the Plan Year. The Plan shall then distribute to the Participant the portion of his Paysop Transfer Account which is covered by the election, as soon as practicable following such election. (b) If a Participant separates from service for any reason, then distribution of the Participant's Paysop Transfer Account balance will begin not later than one (1) year after the close of the Plan Year in which the event occurs, unless the Participant otherwise elects. Furthermore, distributions from a Participant's Paysop Transfer Account shall be made in substantially equal annual installments over a period of five (5) years, unless the Participant elects to receive the distribution in a lump sum. Payments shall be made in whole shares of Common Stock and any fractional shares shall be paid in cash. In no event shall such distribution period exceed the period permitted under Section 401(a) (9) of the Code. Section 9 VESTING OF INTERESTS 9.01 A Participant shall always have a fully vested interest in his Pre-Tax Account, Employee After-Tax Contributions Account, IRA Account, Rollover Account, and Paysop Transfer Account. 9.02 Upon total or partial termination of the Plan, or complete discontinuance of contributions under the Plan by the Company, an affected Participant's interest in his Company Matching Account shall become fully vested. Any Participant who dies, becomes Disabled or reaches his 65th birthday while a Participant in the employment of CNG or an Affiliate shall likewise have a fully vested interest in such Account. 9.03 Except as provided in Section 9.02, each Participant shall have a vested interest in his Company Matching Account equal to 20% thereof for each full year of Continuous Service determined under Section 2.11, so that a Participant shall be fully vested in such Account after five (5) full years of Continuous Service. Notwithstanding the foregoing, effective as of the date of a Change of Control, as defined in Section 2.05A, each Participant who is employed by CNG or any of its parent, subsidiaries or other affiliates (e.g., The Energy Network, Inc.) or any successor thereto on or after the effective date of such Change of Control shall have a fully vested interest in his Company Matching Account without regard to the number of years of Continuous Service completed. Effective immediately prior to the effective time of the consummation of the merger of CTG Resources, Inc. with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG Resources, Inc., Energy East Corporation and Oak Merger Co., the last sentence of the preceding paragraph shall be revised automatically and without further action to read as follows: Notwithstanding the foregoing, effective as of the date of a Change of Control, as defined in Section 2.05A, each Participant who both is employed by CNG or any of its parent, subsidiaries or other affiliates (e.g., The Energy Network, Inc.) and is a Participant immediately prior to the effective time of the consummation of the merger of CTG Resources, Inc. with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG Resources, Inc., Energy East Corporation and Oak Merger Co., shall have a fully vested interest in his Company Matching Account without regard to the number of years of Continuous Service completed. 9.04 If a former Participant whose employment terminated is readmitted to the Plan, his vested percentage in amounts credited to his Company Matching Account for Plan Years subsequent to his readmission shall be based on Continuous Service determined under Section 2.11. Section 10 DISTRIBUTION OF ACCOUNTS 10.01 (a) Upon the termination of the Participant's employment with CNG and its Affiliates as the result of (i) his retirement on or after his Normal Retirement Date or Early Retirement Date, (ii) his death, or (iii) his Disability, his Account shall be paid to the Participant or his Beneficiary in a lump sum. As used herein, a Participant shall meet the requirements for an Early Retirement Date if he had attained age 55 and completed at least ten (10) years of Continuous Service. (b) Payment shall be made to a retired Participant as soon as practicable following (i) the date of termination of employment or (ii) a later date if the Participant has made the election to defer distribution provided for in Section 10.01(d). (c) Payment shall be made to a Disabled Participant as soon as practicable following (i) the date on which the Participant is found to be Disabled, or (ii) a later date if he has made the election provided for in Section 10.01(e). (d) In the case of termination by retirement, a Participant may, at any time before his Account becomes distributable, elect to defer payment of his Account until a future date by filing written notice of such election with the Committee on the form prescribed by the Committee, and if a Participant has not attained his Normal Retirement Date, payment shall be deferred until his Normal Retirement Date unless he elects otherwise. The Participant need not at that time identify the date upon which payment is to be made, and may at a future date notify the Committee of his intention to receive such payment. Payment must in any event be made by April 1 of the calendar year following the year in which the Participant attains age 70-1/2 or, if later, terminates his employment with CNG and its Affiliates. Furthermore, notwithstanding the foregoing, distribution shall in any event be made or commence by April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2, if he is then still employed and he (i) attained age 70-1/2 prior to January 1, 2001 or (ii) is a 5% owner (as defined in Section 416 of the Code), and shall be made in accordance with Treasury Department Regulations over a period not extending beyond his actuarial life expectancy (with recalculation permitted on an annual basis, and with life expectancy determined in accordance with Section 1.72-9 of IRS regulations). Clause (i) of the preceding sentence shall not apply if the Participant attained age 70-1/2 prior to January 1, 1988; and installment distributions shall not be permitted except as provided in the preceding sentence. Any such installment distributions shall terminate at the time of the Participant's termination of employment, at which time the provisions of Section 10.01(a) shall be applicable. All Plan distributions shall comply with Section 401(a) (9) of the Code, including the minimum distribution incidental benefit rule. (e) In the event of termination as the result of the Disability of the Participant, the Participant may defer payment of his Account until a future date not later than his Normal Retirement Date, if the value of his Account exceeds $5,000, and payment shall be deferred until his Normal Retirement Date unless he elects otherwise. The Participant need not at that time identify the date upon which payment is to be made, and may at a future date notify the Committee of his intention to receive such payment, which shall in any event be made by the time he attains his Normal Retirement Date. (f) A retiree shall be entitled to receive his Company Matching Account at a time different than the time for distribution of his other Accounts. 10.02 (a) If the employment of a Participant is terminated for any reason other than a reason specified in Section 10.01, and if the Participant's vested Account exceeds $5,000, then the terminated Participant may defer the payment of the vested portion of his Account until any future date not later than his Normal Retirement Date. If such vested Account exceeds $5,000, no distribution may be made prior to the Participant's Normal Retirement Date without his consent. (b) If the vested Account does not exceed $5,000, the then vested portion of his Account shall be paid as soon as practicable following the date of termination (or January 1, 2000 if he terminated prior to January 1, 2000). If the Participant's Account exceeds $5,000, it may be paid at that time but shall not be paid until his Normal Retirement Date without his consent. (c) If a payment is made to a Participant prior to the time the Participant incurs a five year Period of Severance, under the authority of Section 10.02(b), of less than the entire balance of the Participant's Account, and such Participant is less than 100% vested at the time of such payment, the remaining portion of the Participant's Account shall be maintained as a separate account until such Participant incurs a five year Period of Severance. If the Participant returns to the service of CNG or an Affiliate before he has incurred a five year Period of Severance, the following formula shall be used to determine his vested portion in such separate account: X = AB (Fo - F)              Fo Where X is the vested portion, AB is the separate account balance at the time the determination is being made, Fo is the non-vested percentage at the time of distribution and F is the non-vested percentage at the time the determination is being made. In each case the non-vested percentage is 100% less the vested percentage. (d) In the event that an ex-Participant resumes participation in the Plan following a five year Period of Severance at a time at which his Account was more than 0% and less than 100% vested, if the vested portion was not distributed to him prior to resumption of participation, it shall thereafter be held in a separate subaccount within his Account so that his vested share of subsequent contributions to his Account can be determined. (e) The nonvested portion of such Participant's Account shall be held therein until such Participant has incurred a Period of Severance as defined in Section 2.11 of five years, whereupon it shall be forfeited and applied in accordance with Section 5.02. If such Participant returns to the employ of CNG or any Affiliate prior to a five year Period of Severance, no forfeiture shall occur. 10.03 (a)iii Payments out of all Accounts under the Plan shall be made in shares of Common Stock or cash, depending on the manner in which such amounts are invested. A Participant or Beneficiary may elect, however, to have such amounts converted to cash or Common Stock, at market value, prior to such payment. Any such election must be made prior to the date for which distribution is to be made. (b) The Committee in its discretion may adopt non-discriminatory policies, uniformly applied, which provide for the crediting of dividends on Common Stock prior to the distribution date to the Participant entitled to the distribution of such Common Stock, and such dividends may similarly be used to purchase additional shares of Common Stock to be distributed. (c) The amount of a distribution to a Plan Participant shall be based upon his Account as of the date of distribution. 10.04 Anything herein to the contrary notwithstanding, unless the Participant otherwise elects, payment of benefits to him under the Plan will begin not later than the 60th day after the close of the Plan Year in which occurs the last to occur of (a) the date on which such Participant attains age 65; (b) the tenth anniversary of the year in which such Participant commenced participation in the Plan; and (c) the date of termination of such Participant's employment. If the amount of the payment required to begin on the day above stated cannot be ascertained by such day, a payment retroactive to such day may be made no later than sixty (60) days after the earliest date on which the amount of such payment can be ascertained under the Plan. 10.05 In the event that the Company adopts an amendment to the Plan which revises the vesting schedule, the following rules shall apply: (a) the vested amount of a Participant's Account, determined as of the later of (1) the date such amendment is adopted or (2) the date it becomes effective, shall not be reduced thereby; and (b) each Participant as of the later of such dates who has at least three (3) years of Continuous Service and whose vested percentage is or may be reduced by such amendment may elect to have his vested percentage determined under the prior vesting schedule. Any such election must be made by the last to occur of (1) the date which is sixty (60) days after the day the amendment is adopted, (2) the date which is sixty (60) days after the day the amendment becomes effective, or (3) the date which is sixty (60) days after the date the Participant is given written notice of the amendment by the Company or Committee. 10.06 Distributions from the Paysop Transfer Account are governed by Section 8.06 hereof. 10.07 (a) If the value of a Participant's Account exceeds $5,000, the Participant must consent to any distribution of such Account prior to his Normal Retirement Date. The consent of the Participant shall be obtained within the 90-day period ending on the first day of the first period for which an amount is paid under the Plan. The Committee shall notify the Participant of such right to defer any distribution. Such notification shall be provided not less than 30 days and no more than 90 days prior to the date benefits are to be paid. (b) Distributions may occur less than 30 days after the notice is given, provided that: (1) The Committee informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution, and (2) the Participant, after receiving the notice, affirmatively elects a distribution. Section 11 WITHDRAWAL BY A PARTICIPANT 11.01 A Participant may, prior to termination of employment, elect to withdraw a portion or all of his Employee After-Tax Contribution Account and/or his IRA Account at any time during the calendar year; provided that only one withdrawal may be made under this Section 11.01 in any calendar year. Elections to make withdrawals shall be made in writing, on the form prescribed by the Committee, and shall be filed with the Committee within such time period prior to the date on which such withdrawal is to be made as the Committee may prescribe. Upon the filing of the election with the Committee, the Committee shall forthwith notify the Trustee of the Participant's intent to withdraw. The Committee shall instruct the Trustee to make payment of the amount of the withdrawal as soon as practicable after the date as of which it is to be effective. The Committee shall prescribe and adhere to non-discrimination rules to implement the provisions of this Section 11.01. 11.02 (a) Upon application of a Participant, the Committee may authorize distribution by the Trustee of any part or all of the total amount of contributions to a Participant's Pre-Tax Account (but in no event earnings on such contributions earned after December 31, 1988) as soon as practicable thereafter if in the opinion of the Committee the amount to be withdrawn is needed to defray part or all of the expenses incurred or to be incurred by the Participant as a result of hardship. For purpose of this Section, hardship shall mean an immediate and heavy financial need of the Participant, but only to the extent the amount required to meet such need is not reasonably available from other resources of the Participant. (b) The following are the financial needs considered immediate and heavy: (1) expenses for medical care described in Section 213(d) of the Code previously incurred by the Participant, his spouse, or dependents (as defined in Section 152 of the Code) or necessary for these persons to obtain medical care described in Section 213 of the Code; (2) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, or his spouse, children or dependents (as defined in Section 152 of the Code); (4) payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence; or (5) immediate and heavy financial debt and/or taxes incurred by the Participant which make the threat of personal bankruptcy or foreclosure imminent. (c) A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if: (1) The Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans available under all plans maintained by CNG and its Affiliates; (2) The Participant's salary reduction contributions and payroll deduction contributions under this Plan and all other plans of CNG and its Affiliates, other than pursuant to its cafeteria plan and health insurance program, will be suspended for twelve months after receipt of the hardship distribution. The Participant must agree to this provision and take action consistent with its requirements as a condition to receipt of a hardship distribution; (3) The distribution is not in excess of the immediate and heavy financial need. The amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution; and (4) All plans maintained by CNG and its Affiliates provide (and by inclusion of this provision, this Plan does provide) that the Employee may not make wage or salary deferral contributions for the Employee's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such taxable year less the amount of such Employee's wage or salary deferral contributions for the taxable year of the hardship distribution. (d) The Employee must represent that the need cannot be satisfied through reimbursement or compensation by insurance or otherwise, by reasonable liquidation of the Employee's assets (to the extent it would not itself cause an immediate and heavy financial need), by cessation of contributions under the Plan, or by other distributions or loans from plans maintained by the Company or any other employer, or by borrowing from commercial sources on reasonable commercial terms. (e) No more than one withdrawal may be made by a Participant in any twelve (12) month period. The Committee shall follow uniform, nondiscriminatory principles and procedures in application of this Section 11.02, and shall permit the Participant to direct the Fund or Funds from which the withdrawal will take place (if one is permitted). Except as provided in this Section 11.02 (and Section 10.01(d)), no distribution may be made from a Participant's Pre-Tax Account while the Participant remains in the employ of CNG or any Affiliate. 11.03 (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under the Plan, a distributee may elect, at the time and in the manner prescribed by the Committee, and subject to such rules as the Committee may adopt consistent with the provisions of the Code and regulations thereunder, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. (1) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a) (9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (4) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 11.04 An active Participant, and any terminated Participant or Beneficiary with an Account balance under the Plan who qualifies as a "party in interest" under Section 3(14) of ERISA, will be permitted to direct the investment of a portion of his Account in a loan to himself, subject to the following rules: (a) No purpose for the loan need be shown; however, see paragraph (e) as it relates to the duration of loans; (b) There is a minimum loan amount of $1,000; (c) The maximum amount of a loan, when added to the outstanding balance of all other loans to the Participant from all qualified plans of CNG and its Affiliates, shall be $50,000; provided that the $50,000 limit shall be reduced by the highest outstanding loan balance of such loans during the one-year period ending on the day before the date of any new loan; and provided further that the maximum amount of a loan, when added to the outstanding balance of all other loans from the Plan, shall in no event exceed one-half (1/2) of the Participant's vested interest in his Account; (d) Loans may not be made from a Participant's Paysop Transfer Account, although the vested portion of such Account shall be taken into consideration in determining the maximum available loan amount; (e) The loan must be payable in full within five (5) years following the date made, except that a loan which is made for the purpose of financing the acquisition of the principal residence of the Participant (a "principal residence" loan) must be payable in full within fifteen (15) years following the date made; (f) A Participant may not have more than one "general purpose" loan outstanding at any time, or more than one "principal residence" loan outstanding at any time (maximum two (2) loans); (g) Loans will be made available to eligible Participants on a reasonably equivalent basis and shall not be made available to Highly Compensated Participants in an amount greater than to other eligible Participants; (h) Loans shall require level amortization with payments to be made at least quarterly; (i) Loans must be adequately secured, utilizing one-half (1/2) of the Participant's vested interest in his Account as security; (j) Interest will be at a reasonable rate, as determined by the Committee based upon prevailing rates offered by commercial lenders for comparable loans. Unless otherwise prescribed by the Committee pursuant to written procedures, the interest rate shall be the prime rate (as published in The Wall Street Journal) in effect on the first business day of the calendar quarter in which the loan is made, plus one percent (1%); (k) Loans to Plan Participants who are active Employees shall be repaid through payroll deduction. The Committee is authorized to prescribe rules relating to the circumstances under which loan prepayments shall be permitted. Loan refinances shall not be allowed; (l) Default shall occur in accordance with the terms of the promissory note and security agreement. Furthermore, unless otherwise provided by the Committee, separation from service shall constitute a default requiring full repayment of the balance due on any outstanding loan within such period of time as the Committee shall determine. Foreclosure on the portion of the Account used as security through offset (to the extent of the security interest) shall not occur, however, until a distributable event occurs under the Plan; (m) Loan repayments shall be invested in accordance with the Participant's direction as to future contributions; and (n) If the Participant is married, a Plan loan made prior to May 1, 2000 shall also be conditioned upon the consent of the Participant's spouse to the loan and to the use of a portion of the Participant's vested Account as security for the loan. Such consent must be given within ninety (90) days in advance of the date the loan is made. The consent of the spouse must be witnessed by a Plan Representative or a Notary Public and must acknowledge the effect thereof. The Committee shall administer the loan program and may establish reasonable written procedures for the loan program, which shall be consistent with the foregoing (but which may set forth additional provisions and requirements), and which are hereby incorporated by reference. No loans shall be made in any manner which would constitute a prohibited transaction under Section 4975 of the Code. The administrative charges associated with the establishment and maintenance of Plan loans may be charged to the Account of the Participant as the Committee shall direct. Loans shall be processed by the Trustee. Section 12 ADMINISTRATION 12.01 (a) CNG shall be designated as Plan Administrator and a named fiduciary with respect to the Plan. CNG shall have the power, by action of the Compensation Committee of the Board of Directors, to designate an Administrative Committee (the "Committee") of not less than three persons. The Committee shall be a named fiduciary and shall have full power, authority, discretion and responsibility to direct, manage and administer the Plan, except to the extent that such power, authority and responsibility is committed to the Trustee under the Trust established pursuant to Section 13. (b) Any person appointed to be a member of the Committee shall signify his acceptance in writing to the Compensation Committee of the Board of Directors. Any member of the Committee may resign by delivering his written resignation to the Compensation Committee of the Board of Directors and such resignation shall become effective upon delivery or at any later date specified therein. The members of the Committee shall serve without compensation for services as such, but the Committee shall be paid or reimbursed for all its reasonable expenses in accordance with Section 12.06. (c) A majority of the members of the Committee at the time in office may do any act which the Plan authorizes or requires the Committee to do, and the action of such majority of the members expressed from time to time by a vote at a meeting, or in writing without a meeting, shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all the members at the time in office. (d) The Committee may, by a writing signed by a majority of its members, delegate to any member or members of the Committee or to any employee of the Company severally or jointly, the authority to perform any ministerial or routine act in connection with the administration of the Plan. The Committee may engage clerical assistance, and such legal, accounting, actuarial or other assistance as may be required, or hire employees to provide such assistance as they may require. 12.02 Subject to the limitations of the Plan, the Committee, as a named fiduciary, may make such rules and regulations as it deems necessary or proper for the administration of the Plan and the transaction of business thereunder; has the sole and absolute discretionary authority to interpret and construe the Plan (including, without limitation, by supplying omissions, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan) and decide on questions of fact, including, but not limited to, the eligibility of any person to receive benefits and the amount of such benefits; may authorize the payment of benefits in such manner and at such times as it may determine; may prescribe forms to be used for making various elections under the Plan, for designating beneficiaries or for changing or revoking such designations, for applying for benefits and for any other purposes of the Plan, which prescribed forms in all cases must be executed and filed with the Committee (unless the Committee shall otherwise determine); and may take such other action and make such determinations in accordance with the Plan as it deems appropriate in the exercise of its authority and fulfillment of its duties hereunder. Notwithstanding the above or any other provision of the Plan to the contrary, the Committee may establish procedures for the use of electronic media in communication and transactions between the Plan and Trust or the Committee and Participants, terminated Participants and Beneficiaries. Electronic media may include, but are not limited to, e-mail, the Internet, intranet systems and telephone response systems. 12.03 Any discretionary actions to be taken under this Plan by the Committee with respect to the classification of the Employees or benefits shall be uniform in their nature and applicable to all Employees similarly situated. With respect to employment with CNG or an Affiliate, leaves of absence and other similar matters, the Committee shall administer the Plan in accordance with the applicable personnel records and regular personnel policies at the time in effect. 12.04 The Committee shall: (a) maintain the records of Participants' Accounts; (b) notify the Participants at least once each year of the balance in their Accounts; (c)iii give to the Participant's such other information concerning the Plan and their rights thereunder as may be required by law; (d) notify each Participant, three months prior to his Normal Retirement Date, or anticipated actual retirement, if known, of the options which may be available to such Participant; (e) direct the Trustee to make such payments as may be required to retired, disabled or terminated Participants, or to the Beneficiaries of deceased Participants; (f) select investment funds pursuant to Section 7.02 hereof, and perform the duties assigned to the Administrator under the Trust Agreement referred to in Section 13. (g) establish written procedures for determining the qualified status of domestic relations orders and for administering distributions pursuant thereto. 12.05 The Committee shall prepare and submit to the Compensation Committee of the Board of Directors of CNG an annual report showing in reasonable detail the assets and liabilities of the Trust Fund and giving a brief account of the operation of the Plan for such year. 12.06 Reasonable expenses of administering the Plan and Trust shall be paid from the Trust Fund unless paid by the Company. The Company shall pay record-keeping expenses for overall Plan transactions; however, expenses relating to distributions or other processing relating directly to a particular Participant may be charged to that Participant' s Account. 12.07 Notwithstanding any provision of the Plan to the contrary, during any conversion period relating to a merger or spin off of all or part of the Plan or a change in Trustee, recordkeeper or investment fund options under the Plan, in accordance with procedures established by the Committee, the Committee may temporarily suspend, in whole or in part, certain provisions of the Plan, which may include, but are not limited to, a Participant's right to change his contribution election, a Participant's right to change his investment election and a Participant's right to borrow or withdraw from his Account or obtain a distribution from his Account. 12.08 Notwithstanding any provision of the Plan to the contrary, during a period (the "Transition Period") as determined by the Committee beginning prior to and ending after the date of the consummation of the merger of CTG Resources, Inc. with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG Resources, Inc., Energy East Corporation and Oak Merger Co., all contributions, loan repayments and other additions directed for investment in Common Stock Fund under the Plan and dividends paid on Common Stock held under the Plan will be invested in the Putnam Stable Value Fund. No changes of investment fund elections for existing Account balances may be made to or from the Common Stock Fund during the Transition Period, and no new loans or withdrawals may be made under Section 11 of the Plan or distributions under Section 10 of the Plan during the Transition Period from the portion of a Participant's Account balance held in the Common Stock Fund. Section 13 TRUST AGREEMENT 13.01 CNG, by trust agreement with a corporation having trust powers, has established or will establish a Trust of which such corporation with trust powers will be the Trustee for the purpose of holding, safe-keeping, investing and reinvesting the Trust Fund. The authority, duties, rights and obligations of the Trustee, as well as the authority of the Company, CNG, the Compensation Committee, and the Committee relating to the Trust Fund, are or shall be set forth in the Trust Agreement. Section 14 FIDUCIARY RESPONSIBILITIES 14.01 The duties and responsibilities of the Trustee from time to time serving hereunder shall be those set forth in the Trust Agreement. 14.02 The Committee shall have sole and exclusive responsibility and authority for those matters committed to it in Section 12 and under the Trust Agreement, except to the extent that it may have delegated any such responsibilities in writing pursuant to procedures specified in Section 12, in which case the Committee shall thereafter be responsible only to periodically review the actions of the fiduciary so designated. 14.03 CNG, acting by the Compensation Committee of its Board of Directors, shall have the sole and exclusive responsibility and authority to: (a) appoint a Trustee and remove any person so appointed; (b) appoint and remove the members of the Committee; (c) prior to May 1, 2000 direct the Trustee as to the voting of unvoted shares of Common Stock pursuant to the Trust Agreement; and (d) generally supervise and periodically report to the Board of Directors on the operation of the Plan. 14.04 The Board of Directors shall have sole and exclusive responsibility and authority to: (a)iii suspend Company contributions to be made under the Plan; (b)iii appoint and remove the members of the Compensation Committee of the Board of Directors; and (c) amend and terminate the Plan. 14.05 CNG, under the direction of the Compensation Committee of the Board of Directors, shall have sole and exclusive responsibility and authority for all matters of Plan management and administration not herein expressly committed to another. 14.06 Each fiduciary or person named herein or identified pursuant to procedures provided in the Plan as having any fiduciary responsibility for the maintenance and administration of the Plan or management of any part of the assets of the Fund shall have sole and exclusive authority and responsibility in the area or areas committed to it. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. Except as herein expressly provided to the contrary, all fiduciary duties and responsibilities hereunder shall be several only, and exclusively committed as above set forth, and there shall be no joint fiduciary responsibility or liability. 14.06 No fiduciary or person named herein or identified pursuant to procedures provided in the Plan as having any fiduciary responsibility under the Plan shall have any responsibility or authority in any area of the maintenance and administration of the Plan and the management of its assets other than that responsibility and authority expressly delegated to such fiduciary or other person. 14.07 No such fiduciary or other person guarantees the Trust Fund in any manner against investment loss or depreciation of asset value, nor guarantees the sufficiency of the assets in the Trust Fund to provide the benefits accrued under the Plan at any given time. Section 15 TERMINATION OR AMENDMENT OF PLAN 15.01 While CNG intends to establish a permanent Plan hereby, it nonetheless reserves the right to terminate, partially or completely, the Plan, or to suspend contributions (consistent with applicable laws) to the Plan or to amend the Plan in any particular. CNG is hereby irrevocably constituted the agent for all other employers who have adopted this Plan for the purpose of such termination or amendment. Any such employer may terminate this Plan with respect to its own employees. In the event of any such action, the following provisions shall apply: (a) In case of a complete termination, all Participants' Accounts shall be fully vested. The Participants' Accounts may be paid in full or may be retained by the Trustee and paid at Normal Retirement Date or the earlier termination of employment, depending upon the election of the Committee after consultation with the Participant at the time of such termination of employment. (b) In case of a partial termination, the Accounts of those Participants with respect to whom termination has occurred shall be fully vested. The fully vested Accounts of Participants with respect to which termination has occurred may be paid in full or may be retained by the Trustee and paid at Normal Retirement Date or upon earlier termination of employment depending upon the election of the Committee and subject to the requirements of law. (c) The Company reserves the right to suspend its contributions in any year. Any such suspension shall not terminate the Trust as to funds then held by the Trustee hereunder or operate to accelerate any distributions to or for the benefit of Participants or their Beneficiaries. No such suspension shall be deemed to be a "discontinuance" of further contributions. If, however, such a suspension does in fact ripen into a "discontinuance", then the proportionate interest of each Participant in the Trust Fund shall thereupon automatically be wholly vested in him notwithstanding any provision of the Plan to the contrary. Discontinuance on the part of the Company of further contributions to the Trust shall not, in the absence of formal action by the Company effecting termination, terminate the Trust as to the funds then held by the Trustee, or operate to accelerate any payments or distributions to Participants or to their Beneficiaries. Upon discontinuance, the then proportionate interest of each Participant in the Trust Fund shall thereupon automatically be wholly vested in him notwithstanding any provision of the Plan to the contrary. Distribution shall continue to be made in accordance with the applicable provisions of Section 10, and the Trustee shall continue to administer the Trust in accordance with the Trust Agreement. (d) Notwithstanding the foregoing, distribution of a Participant's Pre-Tax Account on account of Plan termination, sale of substantially all of the assets of a trade or business, or sale of a subsidiary, must meet the requirements of Sections 401(k) (2) (B) and 401(k) (10) of the Code. (e) No amendment of the Plan shall deprive any Participant or Beneficiary of any vested interest (unless required in order to comply with any federal law or regulation) nor cause any of the assets in the Trust to revert to or be applied for the benefit of the Company nor shall any amendment be made which will cause the Plan to lose its qualified status under the Internal Revenue Code. Any amendment may be effective retroactively. (f) Notwithstanding any other provision of the Plan to the contrary, in the event that Connecticut Natural Gas Corporation, CTG Resources, Inc., The Energy Network, Inc., The Hartford Steam Company, or any affiliate of any such corporations, shall acquire any other trade or business (or portion thereof) through asset or stock acquisition, merger, or similar transaction, and if in connection with or pursuant to the terms of any such transaction it is necessary or appropriate for this Plan to be amended for any reason (such as, for example, in order to provide prior service credit for vesting purposes), then any such amendment may be made by the President of Connecticut Natural Gas Corporation. The Board of Directors hereby delegates to the President the authority to make any such amendment or amendments to the Plan for such purpose, without further action by the Board. Any such amendment may take the form of an amendment to one or more provisions of the Plan; one or more schedules or appendices to be attached to the Plan and form a part of the Plan; a combination of the foregoing; or such other form as the President determines to be appropriate. The Board of Directors may terminate this delegation of authority at any time. 15.02 If CNG is judicially declared bankrupt or insolvent, or if it makes a general assignment for the benefit of creditors, or if its corporate existence shall cease or its business be substantially terminated, without provision being made by its successor, if any, for the continuation of the Plan, the Plan will completely terminate. 15.03 Contributions by the Company are paid to the Trust on the condition that the same qualify for deduction under Section 404 of the Code. Any such contribution for which deduction is disallowed (to the extent disallowed), reduced by any loss attributable thereto (if any) while held in Trust, shall be returned to the Company within one year after the disallowance of the deduction, but not thereafter. Furthermore, if any contribution by the Company is made under a mistake of fact, such contribution in excess of the amount that would have been contributed had no mistake of fact occurred, reduced by any loss attributable thereto (if any) while held in Trust, shall be returned to the Company within one year after the payment of the contribution, but not thereafter. 15.04 Except as provided for in Section 15.03, under no circumstances shall any of the assets of the Trust revert to or be applied for the benefit of the Company; provided that reasonable expenses of administering the Plan and Trust may be charged to the Trust Fund. Section 16 GENERAL PROVISIONS 16.01 None of a Participant's Benefits in a Plan shall be subject to the claims of any creditor of such Participant or his Beneficiary, nor shall any Participant or his Beneficiary have the right to anticipate, alienate, or assign any Benefits under the Plan. Any attempted assignment or alienation, voluntary or involuntary, shall be absolutely void and of no effect. This Section 16.01 shall not apply to (i) the creation, assignment, or recognition of a right to any benefit payable with respect to a domestic relations order which is determined to be a qualified domestic relations order, as defined in Section 414(p) of the Code or (ii) on or after August 5, 1997, any judgment, order, decree or settlement agreement within the meaning of Section 401(a)(13)(C) of the Code. 16.02 In the event of any merger or consolidation of the Plan with, or a transfer of the assets and liabilities of the Plan to, any other plan, each Participant shall immediately following the effectiveness of such merger, consolidation or transfer, be entitled to receive Benefits (if the successor plan were then terminated) which are equal to or greater than the Benefits he would have been entitled to receive immediately prior to the effectiveness of such merger, consolidation or transfer (if the Plan had then been terminated). 16.03 This Plan is established by CNG and shall at all times be operated for the exclusive benefit of the Participants, terminated Participants and Beneficiaries of deceased Participants and to defray reasonable expenses of the Plan and Trust and, except as provided in Section 15, at no time shall any of the assets of the Fund revert to or be applied for the benefit of the Company. 16.04 Any person claiming a benefit or interest in the Plan agrees to perform any and all acts including the signing of required papers, and the taking of necessary physical examinations in order to carry out the Plan. Each Participant, including retired and terminated Participants, and Beneficiary entitled to receive benefits, must keep the Committee informed of his mailing address on a current basis. If any mailing properly addressed to a Participant or Beneficiary at the last address give to the Committee is returned by the postal authorities for want of satisfactory address, the Committee may withhold further mailings of informational materials or benefits until a proper address is provided. The terms of the Plan and the decisions of the Committee relative to the Plan made in a uniform non-discriminatory fashion shall be binding on all Participants and Beneficiaries and the heirs, executors and administrators of the person claiming a benefit or interest in the Plan. 16.05 This Plan shall not be construed as a modification of any employment relationship between any Participant and the Company nor shall it confer upon Participants any right to be continued in the employ of the Company. 16.06 Notwithstanding any provision of the Plan to the contrary, effective October 13, 1996, with regard to an Employee who after serving in the uniformed services is reemployed on or after December 12, 1994, within the time required by USERRA, contributions shall be made and benefits shall be provided under the Plan with respect to his qualified military service (as defined in Section 2.11(b)(iii)) in accordance with Section 414(u) of the Code. Section 17 TOP-HEAVY PLAN REQUIREMENTS 17.01 If the Plan is or becomes Top-Heavy in any Plan Year, the provisions of this Article will supersede any conflicting provision in the Plan. 17.02 Top-Heavy Definitions. (a) Key Employee: Any Employee or former Employee (and the beneficiaries of such Employee) who at any time during the determination period was (1) an officer of CNG or an Affiliate if such individual's annual compensation exceeds 50% of the dollar limitation under Section 415(b) (1) (A) of the Code; (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in CNG or an Affiliate if such individual's compensation exceeds 100% of the dollar limitation under Section 415(c) (1) (A) of the Code; (3) a 5% owner of CNG or an Affiliate; or (4) a 1% owner of CNG or an Affiliate who has an annual compensation of more than $150,000. For purposes of the preceding sentence, annual compensation means compensation as defined in Section 415(c) (3) of the Code, but including amounts contributed by the Company pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Sections 125, 402(a) (8), 402(h) or 403(b) of the Code. The determination period is the Plan Year containing the Determination Date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i) (1) of the Code and the regulations thereunder. (b) Top-Heavy Plan: This Plan is Top-Heavy if any of the following conditions exists: (1) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans (but not part of a Permissive Aggregation Group) and the Top-Heavy Ratio for the Group of Plans exceeds 60%. (3) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of Plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (c) Top-Heavy Ratio: (1) If CNG or an Affiliate maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and CNG and its Affiliates have not maintained any defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with Section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Section 416 of the Code and the regulations thereunder. (2) If CNG or an Affiliate maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and CNG or an Affiliate maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with (1) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants, as of the Determination Dates(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service at any time during the 5-year period ending on the Determination Date will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by CNG and Affiliates, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b) (1) (C) of the Code. (d) Permissive Aggregation Group: The Required Aggregation Group of plans plus any other plan or plans of CNG or Affiliates which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Section 401(a) (4) and 410 of the Code. (e) Required Aggregation Group: (1) Each qualified plan of CNG and Affiliates in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (2) any other qualified plan of CNG or Affiliates which enables a plan described in (1) to meet the requirements of Sections 401(a) (4) or 410 of the Code. (f) Determination Date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the plan, the last day of that year. (g) Valuation Date: The date as of which account balances or accrued benefits are valued for purposes of calculating the Top-Heavy Ratio, which shall be December 31. (h) Present Value: Present value shall be based on the interest and mortality rates used in the Pension Plan. 17.03 Minimum Allocation. (a) Except as otherwise provided in (c) and (d) below, the Company shall contribute on behalf of any Participant who is not a Key Employee three (3%) percent of such Participant's compensation. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive any contribution for any reason. This minimum contribution may not be considered to be satisfied by salary reduction contributions or matching contributions. Any such contributions shall be added to the Company Matching Account. (b) For purposes of computing the minimum allocation, compensation will mean total compensation as defined in Section 6.11(c). Compensation as used in this Section shall be subject to the limitation prescribed under Section 401(a) (17) of the Code. (c) The provision in (a) above shall not apply to any Participant who was not employed by the Company on the last day of the Plan Year or who is included in a unit of employees covered by a collective bargaining agreement between employee representatives and the Company if there is evidence that retirement benefits have been the subject of good faith bargaining betweent such employee representatives and the Company. (d) The provision in (a) above shall not apply to any Participant to the extent the Participant is entitled to minimum top-heavy benefits under the CNG Pension Plan. IN WITNESS WHEREOF, the Company executes this Plan Restatement as of the 25th day of April, 2000.   WITNESS:   CONNECTICUT NATURAL GAS CORPORATION             S/ Jeffrey A. Hall                                By S/ Jean S. McCarthy                               Vice President, Human Resources  

ASSET PURCHASE AGREEMENT dated as of October 17, 2000 by and among Lake Mead Station, Inc., a Nevada corporation ("Purchaser"), Station Casinos, Inc., a Nevada corporation ("STN"), Ameristar Casino Las Vegas, Inc., a Nevada corporation (the "Company"), and Ameristar Casinos, Inc., a Nevada corporation ("Parent") with respect to the assets of the Company <page>TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience only. Page No. ASSET PURCHASE AGREEMENT * ARTICLE I SALE OF ASSETS AND CLOSING * 1.01    Assets * 1.02    Liabilities * 1.03    Purchase Price; Allocation * 1.04    Closing * 1.05    Determination of Surplus or Deficiency; Post-Closing Adjustment * 1.06    Prorations * 1.07    Further Assurances; Post-Closing Cooperation * 1.08    Third-Party Consents * 1.09    Insurance Proceeds * ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PARENT * 2.01    Corporate Existence * 2.02    Authority * 2.03    No Conflicts * 2.04    Governmental Approvals and Filings * 2.05    Financial Statements and Condition * 2.06    Taxes * 2.07    Legal Proceedings * 2.08    Compliance With Laws and Orders * 2.09    Benefit Plans; ERISA; Labor Matters * 2.10    Real Property * 2.11    Tangible Personal Property * 2.12    Contracts * 2.13    Licenses * 2.14    Affiliate Transactions * 2.15    Environmental Matters * 2.16    Labor Matters * 2.17    Brokers * 2.18    Absence of Certain Changes * 2.19    Sufficiency of and Title to the Assets * 2.20    Insurance * ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER AND STN * 3.01    Existence * 3.02    Authority * 3.03    No Conflicts * 3.04    Governmental Approvals and Filings * 3.05    Legal Proceedings * <page>3.06    Brokers * 3.07    Financing * 3.08    Purchaser's Gaming Licenses * ARTICLE IV COVENANTS OF THE COMPANY AND PARENT * 4.01    Regulatory and Other Approvals * 4.02    HSR Filings * 4.03    Investigation by Purchaser * 4.04    Conduct of Business * 4.05    Certain Restrictions * 4.06    Transition Period. * 4.07    No Acquisition Negotiation * 4.08    Fulfillment of Conditions * 4.09    Noncompetition * 4.10    Title Insurance * 4.11    Delivery of Disclosure Schedule and Diligence Materials * 4.12    No Solicitation * ARTICLE V COVENANTS OF PURCHASER * 5.01    Regulatory and Other Approvals * 5.02    HSR Filings * 5.03    Investigation by the Company * 5.04    No Solicitation * 5.05    Collection of Gaming Chips and Tokens * 5.06    Baggage * 5.07    Safe Deposits * 5.08    Valet Parking * 5.09    Fulfillment of Conditions * 5.10    Return of Books and Records * 5.11    Parent's Gaming Compliance Program * ARTICLE VI CONDITIONS TO OBLIGATIONS OF PURCHASER * 6.01    Representations and Warranties * 6.02    Performance * 6.03    Officers' Certificates * 6.04    Orders and Laws * 6.05    Regulatory Consents and Approvals * 6.06    Deliveries * 6.07    Required Consents * 6.08    Title Insurance * 6.09    Absence of Material Adverse Effect * 6.10    Cure of Open Diligence Matters * ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE COMPANY * 7.01    Representations and Warranties * 7.02    Performance * 7.03    Officers' Certificates * 7.04    Orders and Laws * 7.05    Regulatory Consents and Approvals * <page>7.06    Deliveries * 7.07    Required Consents * ARTICLE VIII TAX MATTERS AND POST-CLOSING TAXES * 8.01    Transfer Taxes and Transfer Fees * 8.02    Tax Indemnification * 8.03    Tax Cooperation * 8.04    Notification of Proceedings; Control * 8.05    Gaming Fees and Taxes * ARTICLE IX EMPLOYEE BENEFITS MATTERS * 9.01    Offer of Employment * 9.02    Welfare Plans -- Claims Incurred; Pre-Existing Conditions * 9.03    Vacation * 9.04    Service Credit * 9.05    Company's Benefit Plans * 9.06    COBRA Matters * ARTICLE X SURVIVAL; NO OTHER REPRESENTATIONS * 10.01    Survival of Representations, Warranties, Covenants and Agreements * 10.02    No Other Representations * ARTICLE XI INDEMNIFICATION * 11.01    Other Indemnification * 11.02    Method of Asserting Claim * 11.03    Exclusivity * ARTICLE XII TERMINATION * 12.01    Termination * 12.02    Effect of Termination * ARTICLE XIII DEFINITIONS * 13.01    Defined Terms * 13.02    Construction of Certain Terms and Phrases * ARTICLE XIV MISCELLANEOUS * 14.01    Notices * 14.02    Entire Agreement * 14.03    Expenses * 14.04    Public Announcements * 14.05    Waiver * 14.06    Amendment * 14.07    Confidentiality * 14.08    No Third Party Beneficiary * 14.09    No Assignment; Binding Effect * 14.10    Headings * 14.11    Invalid Provisions * 14.12    Consent to Jurisdiction and Venue * 14.13    Governing Law * <page>14.14    Attorney's Fees * 14.15    Time of the Essence * 14.16    Counterparts * ARTICLE XV GUARANTEES * 15.01    Guarantee of the Company's Obligations * 15.02    Guarantee of Purchaser's Obligations * <page>SCHEDULES Section 1.01(a)(i) Owned Real Property Section 1.01(a)(ii)(A) Real Property Leases Section 1.01(a)(ii)(B) Real Property Leases Section 1.01(a)(v)(A) Personal Property Leases Section 1.01(a)(v)(B) Personal Property Leases Section 1.01(a)(vi) Business Contracts Section 1.01(a)(viii) Business Licenses Section 1.01(a)(ix) Vehicles Section 1.01(a)(xiii) Transferred Intellectual Property Section 2.03 Conflicts Section 2.04 Governmental Approvals Section 2.05(a) Financial Statements Section 2.05(b) Changes in Condition Section 2.06(a) Tax Liens Section 2.06(b) Compliance with Tax Laws Section 2.07 Legal Proceedings Section 2.08 Compliance with Laws Section 2.09(a) Benefit Plans Section 2.09(d) Benefit Accrual Section 2.09(e) Collective Bargaining Agreements Section 2.09(f) Terminated Employees Section 2.10(a) Real Property Section 2.10(b) Liens Section 2.12(a) Contracts Section 2.12(b) Contract Violations Section 2.13 Licenses Section 2.15 Environmental Matters Section 2.18 Certain Changes Section 3.04 Purchaser's Governmental Approvals Section 6.07 Required Consents (Purchaser) Section 7.07 Required Consents (Parent/Company)   EXHIBITS Exhibit A General Assignment and Bill of Sale Exhibit B Assumption Agreement Exhibit C Officer's Certificate of the Company Exhibit D Secretary's Certificate of the Company Exhibit E Officer's Certificate of Purchaser Exhibit F Secretary's Certificate of Purchaser Exhibit G Intentionally Omitted Exhibit H Net Current Assets Calculation Exhibit I Diligence Assumptions <page>ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT dated as of October 17, 2000 (the "Effective Date") is made and entered into by and among Lake Mead Station, Inc., a Nevada corporation ("Purchaser"), Station Casinos, Inc., a Nevada corporation ("STN "), Ameristar Casino Las Vegas, Inc., a Nevada corporation (the "Company"), and Ameristar Casinos, Inc., a Nevada corporation ("Parent"). Capitalized terms not otherwise defined herein have the meanings set forth in Section 13.01. WHEREAS, the Company owns and operates that certain hotel and casino facility known as "The Reserve" located in Henderson, Nevada (the "Business"); and WHEREAS, the Company desires to enter into an agreement to sell, transfer and assign to Purchaser, and Purchaser desires to enter into an agreement to purchase and acquire from the Company, certain of the assets of the Company relating to the operation of the Business, and in connection therewith, Purchaser has agreed to assume certain of the liabilities of the Company relating to the Business, all on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SALE OF ASSETS AND CLOSING 1. Assets . Assets Transferred . On the terms and subject to the conditions set forth in this Agreement, the Company will sell, transfer, convey, assign and deliver to Purchaser, and Purchaser will purchase and pay for, at the Closing, all of the Company's right, title and interest in, and to all of the properties, assets and rights of every nature, kind and description, tangible and intangible (including goodwill), whether real, personal or mixed, whether accrued, contingent or otherwise, and whether now existing or hereafter acquired (other than the Excluded Assets) used primarily in connection with the Business, except as otherwise provided in Section 1.01(b) , as the same shall exist on the Closing Date including but not limited to such properties, assets and rights in the following categories (collectively with any proceeds and awards referred to in Section 1.09 , the " Assets "): Real Property . The real property described in Section 1.01(a)(i) of the Disclosure Schedule , and all of the rights arising out of the ownership thereof or appurtenant thereto (the " Owned Real Property "), together with all buildings, structures, facilities, fixtures and other improvements thereto (the " Improvements ") and all transferable licenses, permits, approvals and qualifications relating to any Real Property issued to the Company by any Governmental or Regulatory Authority; <page>Real Property Leases and Agreements . Subject to Section 1.08, (A) the leases, subleases and licenses of real property and related guarantees described in Section 1.01(a)(ii)(A) of the Disclosure Schedule as to which the Company is the lessor, sublessor or licensor together with any agreements for use or occupancy of hotel rooms, banquet facilities or meeting rooms, and (B) the leases, subleases and licenses described in Section 1.01(a)(ii)(B) of the Disclosure Schedule as to which the Company is the lessee, sublessee or licensee (including the land and buildings, improvements and structures and all appurtenances belonging thereto) (such real property, the " Leased Real Property "; and, together with the Owned Real Property, the " Real Property "); and all other rights, subleases, licenses, permits, deposits and profits appurtenant to or related to such leases, subleases and licenses described in this Section 1.01(a)(ii ) (the leases and agreements described in subclauses (A) and (B) and all of the Company's interest (including the land and buildings, improvements and structures located thereon and all appurtenances belonging thereto) in those certain subleases and licenses as to which the Company is the lessee, sublessee or licensee as described in Section 1.01(a)(ii)(B) of the Disclosure Schedule, the " Real Property Leases "); Accounts Receivable . All accounts receivable of the Company existing on the Closing Date and calculated as set forth on the schedule attached hereto as Exhibit H (the " Accounts Receivable "); Tangible Personal Property . All furniture, fixtures, equipment, machinery, consumables, inventory, merchandise, liquor, food, supplies, spare and replacement parts and other tangible personal property (including, without limitation, all Gaming Devices and all plans, designs and drawings for future expansion of the Business) used primarily in the conduct of the Business (the " Tangible Personal Property "); Personal Property Leases . Subject to Section 1.08 , (A) the leases or subleases of Tangible Personal Property described in Section 1.01(a)(v)(A) of the Disclosure Schedule as to which the Company is the lessor or sublessor and (B) the leases of Tangible Personal Property described in Section 1.01(a)(v)(B) of the Disclosure Schedule as to which the Company is the lessee or sublessee, together with any options to purchase the underlying property (the leases and subleases described in subclauses (A) and (B) , the " Personal Property Leases "); Business Contracts . Subject to Section 1.08 , all Contracts (other than the Real Property Leases and the Personal Property Leases) to which the Company is a party, the terms of which permit assignment of the Company's interest therein or with respect to which all necessary consents to assignment of the Company's interest therein have been obtained prior to the Closing, and which are utilized primarily in the conduct of the Business, including, without limitation, Contracts described in Section 1.01(a)(vi) of the Disclosure Schedule and Contracts relating to suppliers, sales representatives, distributors, purchase orders, marketing arrangements and manufacturing arrangements (the " Business Contracts "); <page>Prepaid Expenses . All prepaid expenses of the Company existing on the Closing Date and calculated as set forth on the schedule attached hereto as Exhibit H (the " Prepaid Expenses "); Licenses . To the extent transfer is permitted under applicable Laws and pursuant to the terms of such Licenses and subject to Section 1.08 , Licenses (including applications therefor) issued primarily in connection with the conduct of the Business, including, without limitation, the Licenses listed in Section 1.01(a)(viii) of the Disclosure Schedule (the " Business Licenses "); Vehicles . All motor vehicles owned or leased by the Company and used primarily in the conduct of the Business, all of which are listed in Section 1.01(a)(ix) of the Disclosure Schedule (the " Vehicles "); Security Deposits . All security deposits deposited by or on behalf of the Company as lessee or sublessee under the Personal Property Leases existing on the Closing Date and calculated as set forth on the schedule attached hereto as Exhibit H (the " Lessee Security Deposits "); Other Rights . All third party guarantees, warranties, indemnities and similar rights in favor of the Company with respect to any Asset, other than claims and recoveries under litigation of the Company against third parties arising out of or relating to events or conditions existing or occurring prior to the Transfer Time; Hotel and Entertainment Reservations . All security deposits or payments made to the Company prior to the Transfer Time with regard to any hotel and entertainment reservations for events following the Transfer Time; Intellectual Property . All of the Company's licensed products or processes, patents, copyrights, trademarks, service marks, service names, designs, know-how, processes, trade secrets, inventions, and other proprietary data (including, without limitation, all customer lists) used exclusively in the Business or exclusively in connection with the Assets (other than the trade names and logos described in Section 1.01(b)(viii) ) (the " Transferred Intellectual Property "), which Transferred Intellectual Property is listed in Section 1.01(a)(xiii) of the Disclosure Schedule ; and Books and Records . All Books and Records used primarily in the conduct of the Business or otherwise relating primarily to the Assets (including, without limitation, customer lists and customer data bases relating primarily to the Business (the " Business Customer Lists "), all Books and Records required by the Commission to be maintained at the Business, other than the Excluded Books and Records (the " Business Books and Records "). To the extent any of the Business Books and Records are items susceptible to duplication and are either (x) used in connection with any of the Company's or its Affiliates' businesses other than the Business or (y) are required by Law to be retained by the Company or its Affiliates, the Company may deliver photostatic copies or other reproductions from which, in <page>the case of Business Books and Records referred to in clause (x), information solely concerning the Company's businesses other than the Business has been deleted. Subject to the terms and conditions hereof, at the Closing, the Assets shall be transferred or otherwise conveyed to Purchaser free and clear of all Liabilities, obligations, liens and encumbrances excepting only Assumed Liabilities and Permitted Liens which shall be payable by Purchaser only to the extent they are Assumed Liabilities. Excluded Assets . Notwithstanding anything in this Agreement to the contrary, the following assets and properties of the Company (the " Excluded Assets ") shall be excluded from and shall not constitute Assets: Cash . All cash (including checks received prior to the Transfer Time, whether or not deposited or cleared prior to the Transfer Time) including, without limitation, cage cash, slot fill, drop boxes, valet register, commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents; Insurance . Subject to Section 1.09 , life insurance policies of officers and other employees of the Company and all other insurance policies relating to the operation of the Business; Employee Benefit Plans . All assets owned or held by or under any Benefit Plans including assets held in trust or insurance contracts for the benefit of Benefit Plan participants or beneficiaries; Tax Refunds . All refunds or credits, if any, of Taxes due to or from the Company by reason of its ownership of the Assets or operation of the Business to the extent attributable to any time or period ending at or prior to the Transfer Time; Excluded Books and Records . The minute books, stock transfer books and corporate seal of the Company and any other Books and Records relating primarily to the Excluded Assets or the Retained Liabilities except for the Business Customer Lists and such Books and Records required by the Commission to be maintained at the Business (the " Excluded Books and Records "); Litigation Claims . All rights (including indemnification) and claims and recoveries under litigation of the Company against third parties (other than rights, claims and recoveries acquired by Purchaser pursuant to Section  1.01(a)(xi) ), arising out of or relating to events prior to the Transfer Time; Excluded Obligations . The rights of the Company in, to and under all Contracts of any nature, the obligations of the Company under which expressly are not assumed by Purchaser pursuant to Section 1.02(b) ; Trade Names and Logos . All of the Company's right, title and interest in, to and under the names "Ameristar", "Ameristar Casinos, Inc." and "Ameristar Casino <page>Las Vegas, Inc.," including any derivative names and related marks, designs or logos, except for the Transferred Intellectual Property; Gaming Chips and Tokens . All of the Company's gaming chips and tokens, including, without limitation, all (A) Gaming Device tokens not currently in circulation and (B) "reserve" chips, if any, not currently in circulation, except that at Purchaser's written election made at any time prior to the Closing Date (which election shall be subject to the prior approval of the Commission), such chips and tokens may be acquired by Purchaser at the Closing without further consideration; Intellectual Property . All trade names, marks, designs, logos, domain names and web sites other than the Transferred Intellectual Property; Rights under this Agreement . The Company's rights under this Agreement; Levy Purchase Agreement . The Company's rights under that certain Purchase Agreement (the " Levy Purchase Agreement ") that may be entered into between the Company and Levy Realty Trust, Kenneth R. Gragson, Trustee with respect to the 10.52 acres of vacant land to be purchased thereunder (and all related agreements) and, following the closing under the Levy Purchase Agreement, such land (the " Land " and collectively, the " Levy Agreements and Land "); provided , however , that in the event that Purchaser notifies the Company in writing within four (4) days after the Effective Date that Purchaser desires for the Levy Agreements and Land to be an Asset, then prior to the Closing the Company shall purchase the Land for a price not to exceed $1,833,005 pursuant to the Levy Purchase Agreement and the Land shall constitute an Asset and the Purchase Price shall be increased in an amount equal to the amount actually paid by the Company pursuant to the Levy Purchase Agreement; Signs . All of the Company's signs containing any trade name, mark, design or logo described in clause (viii) or (x) above, which Purchaser shall, at Purchaser's sole cost and expense and using reasonable care, not later than promptly following the expiration of any period that Purchaser is permitted to use such names, marks, designs or logos pursuant hereto, remove from the Real Property and Improvements thereto and place in a reasonably accessible location on the Real Property for prompt retrieval by the Company, together with all of the Company's right, title and interest therein, and as promptly as practicable, notify the Company and Parent that such signs have been removed and as to the location of such signs; provided , however , that other than as expressly provided herein, Purchaser shall have no liability to the Company arising out of or resulting from Purchaser's performance of its removal, storage or other obligations with respect to such signs; and Excluded Contracts . The Management and Administrative Services Agreement between the Company and Parent and that certain Vending Equipment Location Agreement dated March 26, 1996 between C.T.S. Enterprises and The Reserve Hotel and Casino, as amended. <page>Excluded Slot Machines . The 134 slot machines that, on the Effective Date, are not being used in the operation of the Business and are in storage. 2. Liabilities . Assumed Liabilities . In connection with the sale, transfer, conveyance, assignment and delivery of the Assets pursuant to this Agreement, on the terms and subject to the conditions set forth in this Agreement, Purchaser shall assume as of the Transfer Time and shall pay, perform and discharge when due the following Liabilities of the Company, in each case to the extent arising out of or relating to the Business or the Assets (x) in the case of items listed in subsections (i), (iii) and (iv) below, as the same shall accrue after the Transfer Time and (y) in the case of items listed in subsections (ii) and (v) through (ix) below, as the same shall exist at the Transfer Time (collectively, the " Assumed Liabilities "), and no other Liabilities: Real Property Lease Obligations . Subject to the provisions of Section 1.08 , all obligations of the Company under the Real Property Leases; Accounts Payable . All obligations of the Company with respect to accounts payable outstanding on the Closing Date and calculated as set forth on the Schedule attached hereto as Exhibit H , but excluding any Liability owed by the Company to any Affiliate of the Company (" Accounts Payable "); Personal Property Lease Obligations . Subject to the provisions of Section 1.08 , all obligations of the Company under the Personal Property Leases; Obligations under Contracts and Licenses . Subject to the provisions of Section 1.08 , all obligations of the Company under the Business Contracts and Business Licenses that constitute Assets; Accrued Expenses . All obligations of the Company with respect to accrued expenses outstanding on the Closing Date and calculated as set forth on Exhibit H attached hereto (" Accrued Expenses "); Returned Goods . All obligations of the Company for replacement of, or refund for, damaged, defective or returned goods, to the extent such goods are subject to full return privileges from the supplier thereof; Security Deposits . All outstanding obligations of the Company on the Closing Date with respect to any security deposit held by the Company as lessor or sublessor under the Real Property Leases or Personal Property Leases calculated as set forth on Exhibit H attached hereto (the " Lessor Security Deposits "); Progressive Meters . All outstanding obligations of the Company on the Closing Date with respect to any progressive meter on any Gaming Device calculated as set forth on Exhibit H attached hereto; <page>Reservations . All obligations of the Company with respect to hotel room and entertainment reservations; and Post-Closing Liabilities . All Liabilities of the Business (other than Retained Liabilities) to the extent (A) resulting from events or conditions occurring following the Transfer Time or (B) arising out of the Assets and occurring after the Transfer Time. Retained Liabilities . All Liabilities of the Company other than Assumed Liabilities (the " Retained Liabilities ") shall be retained and paid, performed and discharged when due by the Company and Parent ( provided , that the Company shall have the ability to contest, in good faith, any such claim of liability asserted in respect thereof by any Person other than Purchaser and its Affiliates, so long as such contest does not result in a Lien upon any of the Assets): i. except to the extent any such liability is reflected on the Closing Date Balance Sheet as a current liability of the Business, any loss or liability of the Company of any nature or description, whether liquidated or contingent, to the extent (a) resulting from events or conditions which occurred or existed prior to the Transfer Time or (b) arising out of or relating to the Excluded Assets (including those items identified as Retained Liabilities in Section 1.08); ii. any loss or liability relating to current or former employees of the Business (and their eligible dependents and beneficiaries), including with respect to employment or Benefit Plans, which accrued on or prior to the Transfer Time, except to the extent that such liability is reflected on the Closing Balance Sheet as a current liability of the Business; iii. all Liabilities with respect to gaming chips and tokens issued by the Company (but not progressive meters), except as provided otherwise herein; iv. all Liabilities related to Benefit Plans, except to the extent that such liability is reflected on the Closing Balance Sheet as a current liability of the Business; v. all Indebtedness (other than current accounts payable or accrued expenses of the Company incurred or accrued in the ordinary course of business, but only to the extent that the accrual for such payables and expenses has been properly reflected on the Closing Balance Sheet and other than to the extent arising following the Transfer Time under Contracts that constitute Assets); vi. any Liability, whether currently in existence or arising hereafter, owed by the Company to any of its Affiliates; vii. all Liabilities related to any fines or penalties imposed against the Company (or with respect to the Business or any Asset) by any Governmental or Regulatory Authority (including, without limitation, the Commission) prior to the Transfer Time; and viii. <page>all other Liabilities of the Company other than the Assumed Liabilities. 3. Purchase Price; Allocation . Purchase Price . Subject to the adjustments set forth in Section 1.05 , the aggregate purchase price for the Assets shall be Seventy Million Dollars ($70,000,000) (the " Purchase Price ") plus the amount of any Surplus or minus the amount of any Deficiency, in each case, as determined in accordance with Section 1.05 . Upon Closing, the Purchase Price shall be payable in immediately available United States funds at the Closing in the manner provided in Section 1.04 . Allocation of Purchase Price . Purchaser and the Company shall negotiate in good faith prior to the Closing Date and determine the allocation of the consideration paid by Purchaser for the Assets and the covenant not to compete contained in Section 4.09 hereof. Purchaser and the Company each agrees (i) that any such allocation shall be consistent with the requirements of Section 1060 of the Code and the regulations thereunder, (ii) to complete jointly and to file separately Form 8594 with its Federal income Tax Return consistent with such allocation for the tax year in which the Closing Date occurs and (iii) that no party will take a position on any income, transfer or gains Tax Return, before any Governmental or Regulatory Authority charged with the collection of any such Tax or in any judicial proceeding, that is in any manner inconsistent with the terms of any such allocation without the consent of the other party. 4. Closing . The Closing will take place at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California, or at such other place as Purchaser and the Company mutually agree, at 10:00 A.M. local time and shall be deemed to occur at 11:59 P.M., local time, on the Closing Date (the "Transfer Time"). At the Closing, Purchaser will pay the Estimated Purchase Price by wire transfer of immediately available funds to such accounts as the Company may reasonably direct by written notice delivered to Purchaser at least two (2) Business Days before the Closing Date. Simultaneously, (a) the Company will assign and transfer to Purchaser all of its right, title and interest in and to the Assets (free and clear of all Liens, other than Permitted Liens) by delivery of (i) a General Assignment and Bill of Sale substantially in the form of Exhibit A hereto (the "General Assignment"), duly executed by the Company, (ii) Grant, Bargain and Sale Deeds in proper statutory form for recording and otherwise in form and substance reasonably satisfactory to Purchaser conveying title to the Real Property and (iii) such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance reasonably acceptable to Purchaser's counsel, as shall be effective to vest in Purchaser good title to the Assets (the General Assignment and the other instruments referred to in clauses (ii) and (iii) being collectively referred to herein as the "Assignment Instruments"), and (b) Purchaser will assume from the Company the due payment, performance and discharge of the Assumed Liabilities by delivery of (i) an Assumption Agreement substantially in the form of Exhibit B hereto (the " Assumption Agreement"), duly executed by Purchaser, and (ii) such other good and sufficient instruments of assumption, in form and substance reasonably acceptable to the Company's counsel, as shall be effective to cause Purchaser to assume the Assumed Liabilities as and to the extent provided in Section 1.02(a) (the Assumption Agreement and such other instruments referred to in clause (ii) being <page>collectively referred to herein as the "Assumption Instruments"). At the Closing, there shall also be delivered to the Company and Purchaser the opinions, certificates and other contracts, documents and instruments required to be delivered under Articles VI and VII. 5. Determination of Surplus or Deficiency; Post-Closing Adjustment . b. On or before the seventh (7th) Business Day preceding the Closing Date, the Company shall, and Parent shall cause the Company to, prepare and deliver to Purchaser an interim balance sheet (the "Estimated Closing Balance Sheet") of the Company as of the close of business on the final day of the calendar month immediately preceding the calendar month during which the Closing Date occurs (the "Test Month"), together with a statement of the Company's Net Current Assets as of such date calculated in a manner consistent with the calculation set forth on Exhibit H attached hereto; provided that if the Closing Date occurs within the first seven (7) Business Days of a calendar month, the Estimated Closing Balance Sheet shall be as of the close of business on the final day of the second calendar month immediately preceding the calendar month during which the Closing Date occurs (in such case, the "Test Month"). The Estimated Closing Balance Sheet shall be accompanied by a certificate of the Chief Financial Officer of the Company to the effect that the Estimated Closing Balance Sheet presents fairly, in accordance with GAAP and the accounting practices of the Company applied on a consistent basis, the financial condition of the Company as of the close of business on the last day of the Test Month. The amount of Net Current Assets set forth in the Estimated Closing Balance Sheet shall be final and binding for purposes of determining the amount of any Surplus or Deficiency used in calculating the Purchase Price (the "Estimated Purchase Price"), unless Purchaser delivers a good faith written objection to the calculation of Net Current Assets at least three (3) Business Days prior to the anticipated Closing Date (the "Objection Notice"). The Company shall make available to Purchaser and its representatives the books, records and workpapers used to prepare the Estimated Closing Balance Sheet. In the event of an Objection Notice, the Company and Purchaser shall negotiate in good faith during the period preceding the Closing Date to resolve the dispute. If the dispute is not resolved by the specified Closing Date, Purchaser shall pay an Estimated Purchase Price based upon the amount of any Deficiency or Surplus, as applicable, resulting from the calculation of Net Current Assets set forth in the Estimated Balance Sheet. c. As promptly as practicable after the Closing Date, but in no event more than sixty (60) days after the Closing Date (such date on which the Closing Balance Sheet is delivered, the "Closing Financial Statements Delivery Date"), Purchaser will prepare and deliver to the Company and Parent a balance sheet of the Company as of the close of business on the Closing Date (the "Closing Balance Sheet") and a calculation of Net Current Assets, in a manner consistent with the calculation set forth on Exhibit H attached hereto, from such Closing Balance Sheet. The Closing Balance Sheet shall be accompanied by a certificate of the Chief Financial Officer of Purchaser to the effect that the Closing Balance Sheet presents fairly, in accordance with GAAP and the accounting practices of the Company applied on a consistent basis, the financial condition of the Company as of the close of business on the Closing Date and that the Net Current Assets calculation was made in accordance with the terms of this Agreement. d. <page>The Company and a firm of independent public accountants designated by the Company (the "Company's Accountant") will be entitled to reasonable access during normal business hours to the relevant records, personnel and working papers of the Purchaser to aid in their review of the Closing Balance Sheet and the calculation of Net Current Assets therefrom. The Closing Balance Sheet and the calculation of Net Current Assets therefrom shall be deemed to be accepted by the Company and shall be conclusive for the purposes of the adjustment described in Section 1.05(d) and (e) hereof except to the extent, if any, that the Company or Company's Accountant shall have delivered, within thirty (30) days after the Closing Financial Statements Delivery Date, a written notice to Purchaser setting forth objections thereto, specifying in reasonable detail any such objection (it being understood that any amounts not disputed as provided herein shall be paid promptly). If a change proposed by the Company is disputed by Purchaser, then Purchaser and the Company shall negotiate in good faith to resolve such dispute. If, after a period of thirty (30) days following the date on which the Company gives Purchaser notice of any such proposed change, any such proposed change still remains disputed, then Purchaser and the Company hereby agree that the Las Vegas, Nevada office of PriceWaterhouseCoopers LLP (the "Accounting Firm") shall resolve any remaining disputes. The Accounting Firm shall act as an arbitrator to make a determination with respect to the issues that are disputed by the parties, based on presentations by the Company and Purchaser, and by independent review of the Accounting Firm if deemed necessary in the sole discretion of the Accounting Firm, which determination shall be limited to only those issues still in dispute. The decision of the Accounting Firm shall be final and binding and shall be in accordance with the provisions of this Section 1.05(c). The fees and expenses of the Accounting Firm, if any, shall be paid equally by Purchaser and the Company. The date on which the Net Current Assets is finally determined pursuant to this Section 1.05(c) is referred to hereinafter as the "Determination Date." e. If the amount of Net Current Assets used to determine the Estimated Purchase Price pursuant to Section 1.05(a) above is greater than the amount set forth in the Closing Balance Sheet, the Company shall pay to Purchaser, as an adjustment to the Estimated Purchase Price, an aggregate amount equal to such excess. Any payments required to be made by the Company pursuant to this Section 1.05(d) shall be made within ten (10) days of the Determination Date by wire transfer of immediately available funds to an account designated by Purchaser. f. If the amount of Net Current Assets used to determine the Estimated Purchase Price pursuant to Section 1.05(a) above is less than the amount set forth in the Closing Balance Sheet, Purchaser shall pay to the Company, as an adjustment to the Estimated Purchase Price, an amount equal to such difference. Any payments required to be made by Purchaser pursuant to this Section 1.05(e) shall be made within ten (10) days of the Determination Date by wire transfer of immediately available funds to an account designated by the Company. 6. Prorations . The following prorations relating to the Assets and the ownership and operation of the Business will be made as of the Transfer Time, with the Company liable to the extent such items relate to any time period prior to the Transfer Time and are Retained Liabilities and Purchaser liable to the extent such items relate to periods beginning with and subsequent to the Transfer Time or are Assumed Liabilities: b. <page>Real estate taxes and assessments on or with respect to the Real Property provided that proration with respect to Leased Real Property shall be based upon the amounts payable by the Company in respect to such taxes under the Real Property Leases. c. Rents, additional rents, taxes and other items payable by or to the Company under the Real Property Leases and Personal Property Leases. d. The amount of rents, taxes and charges for sewer, water, telephone, electricity and other utilities relating to the Real Property. e. All other items normally adjusted in connection with similar transactions; provided that receipts of the Company with respect to hotel room rentals on the Closing Date shall be retained by the Company. Except as otherwise agreed by the parties or with respect to amounts to adjustments to the Purchase Price made pursuant to Section 1.05, the net amount of all such prorations will be settled and paid on the Closing Date. If the Closing shall occur before a real estate tax rate is fixed, the apportionment of taxes shall be based upon the tax rate for the preceding year applied to the latest assessed valuation. 7. Further Assurances; Post-Closing Cooperation . b. Subject to the terms and conditions of this Agreement, at any time or from time to time after the Closing, at Purchaser's request and without further consideration, the Company shall execute and deliver to Purchaser such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Purchaser, and to confirm Purchaser's title to, all of the Assets (including, without limitation, the delivery to Purchaser of fully executed Uniform Commercial Code amendment or termination statements relating to the Assets as Purchaser shall request), and, to the full extent permitted by Law, to put Purchaser in actual possession and operating control of the Business and the Assets and to assist Purchaser in exercising all rights with respect thereto, and otherwise to cause the Company to fulfill its obligations under this Agreement. c. Following the Closing, the Company and Purchaser will afford the other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to the Business in its possession with respect to periods prior to the Closing and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required by the requesting party in connection with (i) the preparation of Tax Returns, (ii) the determination or enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority including without limitation the Commission, (iv) the determination or enforcement of the rights and obligations of any party to this Agreement and (v) in connection with any actual or threatened Action or Proceeding. Further, the Company and Purchaser agree for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such <page>books, records and other data to the other party and such other party shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made. d. If, in order properly to prepare its Tax Returns, other documents or reports required to be filed with Governmental or Regulatory Authorities or its financial statements or to fulfill its obligations hereunder, it is necessary that the Company or Purchaser be furnished with additional information, documents or records relating to the Business not referred to in paragraph (b) above, and such information, documents or records are in the possession or control of the other party, such other party shall use its commercially reasonable efforts to furnish or make available such information, documents or records (or copies thereof) at the recipient's request, cost and expense. e. Notwithstanding anything to the contrary contained in this Section, if the Company and Purchaser are in an adversarial relationship in litigation or arbitration, the furnishing of information, documents or records in accordance with paragraphs (b) and (c) of this Section shall be subject to applicable rules relating to discovery. 8. Third-Party Consents . To the extent that any Real Property Lease, Personal Property Lease, Business Contract or Business License is not assignable without the consent of another party, this Agreement shall not constitute an assignment or an attempted assignment thereof if such assignment or attempted assignment would constitute a breach thereof or a default thereunder. The Company and Purchaser shall use commercially reasonable efforts to obtain the consent of such other party to the assignment of any such Real Property Lease, Personal Property Lease, Business Contract or Business License to Purchaser in all cases in which such consent is required for such assignment, provided, however, that in the event any such consent, other than any required consent of the Commission or any consent that is listed in Section 6.07 of the Disclosure Schedule (each, a "Required Consent"), is not obtained on or prior to the Closing Date, such event shall not cause the Closing to be delayed or constitute a default by the Company of any obligation hereunder or result in a reduction of the Purchase Price. If any such consent, other than a Required Consent, shall not be obtained, the Company shall cooperate with Purchaser in any reasonable arrangement designed to provide for Purchaser the benefits intended to be assigned to Purchaser under the relevant Real Property Lease, Personal Property Lease, Business Contract or Business License, including enforcement at the cost and for the account of Purchaser of any and all rights of the Company against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise, provided that if Purchaser does not receive the benefits intended to be assigned to Purchaser pursuant to a Real Property Lease, Personal Property Lease, Business Contract or Business License because a consent is not obtained and an arrangement transferring such benefit is not entered into, such Real Property Lease, Personal Property Lease, Business Contract or Business License, as applicable, shall constitute an Excluded Asset and the obligations pursuant thereto shall constitute a Retained Liability. 9. Insurance Proceeds . If any of the Assets is destroyed or damaged or taken in condemnation following the Effective Date, the insurance proceeds or condemnation award with respect thereto shall be an Asset. At the Closing, the Company shall pay or credit to Purchaser any such insurance proceeds or condemnation awards received by it on or prior to the <page>Closing (along with the amount of any deductible or retention withheld therefrom) and shall assign to or assert for the benefit of Purchaser all of its rights against any insurance companies, Governmental or Regulatory Authorities and others with respect to such damage, destruction or condemnation. As and to the extent that there is available insurance under policies maintained by the Company and its Affiliates, predecessors and successors in respect of any Assumed Liability, except for any such insurance proceeds with respect to which the insured is directly or indirectly self-insured or has agreed to indemnify the insurer, the Company shall cause such insurance to be applied toward the payment of such Assumed Liability. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PARENT The Company and Parent hereby jointly and severally represent and warrant to Purchaser as follows as of the Effective Date and as of the Closing Date, except, to the extent any such representation or warranty is made as of a specified date earlier than the Closing Date, such earlier date: 1. Corporate Existence . b. The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Nevada, and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its Assets and enter into and perform this Agreement and consummate the transactions contemplated hereby. Subsidiaries . The Company does not have any subsidiaries or any other equity investment in any entity, nor does it own any other securities with respect to any entity. 2. Authority . The execution and delivery by the Company of this Agreement, and the performance by the Company and Parent of their obligations hereunder, have been duly and validly authorized by the Board of Directors and the stockholder of the Company and the Board of Directors of Parent, no other action on the part of the Company or Parent or their stockholders being necessary. This Agreement has been duly and validly executed and delivered by the Company and Parent and constitutes a legal, valid and binding obligation of the Company and Parent enforceable against the Company and Parent in accordance with its terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (b) is subject to general principles of equity. 3. No Conflicts . Except as set forth in Section 2.03 of the Disclosure Schedule, the execution, delivery and performance by the Company of this Agreement do not and the consummation of the transactions contemplated hereby will not: b. conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or bylaws (or other comparable charter documents) of the Company; c. <page>subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Section 2.04 of the Disclosure Schedule, conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to the Company or any of the Assets (other than such conflicts, violations or breaches (i) which could not in the aggregate reasonably be expected to materially and adversely affect the validity or enforceability of this Agreement or to have a Material Adverse Effect or (ii) as would occur solely as a result of the identity or the legal or regulatory status of Purchaser or any of its Affiliates); or d. except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or to materially and adversely affect the ability of (i) the Company to consummate the transactions contemplated hereby or to perform its obligations hereunder or (ii) Purchaser to operate the Business after the Transfer Time in a manner substantially consistent with the Company's past practice, (A) conflict with or result in a violation or breach of, (B) constitute (with or without notice or lapse of time or both) a default under, (C) require the Company to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (D) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, or (v) result in the creation or imposition of any Lien upon the Company or any of the Assets under, any Contract or License to which the Company is a party or by which any of its Assets is bound. 4. Governmental Approvals and Filings . Except as disclosed in Section 2.04 of the Disclosure Schedule, no consent, approval, action, order or authorization of, or registration, declaration or filing with or notice to any Governmental or Regulatory Authority on the part of the Company is required in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except (a) where the failure to obtain any such consent, approval or action, to make any such filing or to give any such notice could not reasonably be expected to materially and adversely affect the ability of the Company to consummate the transactions contemplated by this Agreement or to perform its obligations hereunder, or to have a Material Adverse Effect, and (b) those as would be required solely as a result of the identity or the legal or regulatory status of Purchaser or any of its Affiliates. 5. Financial Statements and Condition . b. Prior to the execution of this Agreement, the Company has delivered to Purchaser true and complete copies of (i) the unaudited balance sheet and the related statements of operations, stockholder's equity and cash flows of the Company for the fiscal year ended December 31, 1999 and (ii) the unaudited balance sheets of the Company as of March 31, 2000 and June 30, 2000 and the related unaudited statement of operations for the portions of the fiscal year then ended. Except as set forth in the notes thereto and as disclosed in Section 2.05(a) of the Disclosure Schedule, all such financial statements were prepared in accordance with GAAP and fairly present in all material respects the financial condition and results of operations of the Company as of the respective dates thereof and for the respective periods covered thereby. c. <page>Except for the execution and delivery of this Agreement and the transactions to take place pursuant hereto on or prior to the Closing Date and except as disclosed in Section 2.05(b) of the Disclosure Schedule, during the period beginning on the Financial Statement Date and ending on the Effective Date there has not been any change with respect to the Business or the Assets that could reasonably be expected to have a Material Adverse Effect. 6. Taxes . Tax Liens . Except as set forth in Section 2.06(a) of the Disclosure Schedule , there are no Tax Liens upon the assets of the Company except liens for Taxes not yet due. Compliance with Tax Laws . Except as set forth in Section 2.06(b) of the Disclosure Schedule , the Company has complied (and, with respect to all amounts due with respect to periods through and including the Closing Date, will comply) with all applicable laws, rules, and regulations relating to the filing of Tax Returns and the payment and withholding of Taxes (including, without limitation, withholding and reporting requirements under Code Secs. 1441 through 1464, 3401 through 3406, 6041 and 6049 and similar provisions under any other laws) and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all required amounts. 7. Legal Proceedings . Except as disclosed in Section 2.07 of the Disclosure Schedule, there are no Orders outstanding and no Actions or Proceedings pending or, to the Knowledge of the Company, threatened against, relating to or affecting the Company or any of its Assets which could reasonably be expected individually or in the aggregate to have a Material Adverse Effect, or which seek to enjoin, rescind or otherwise prevent the consummation of the transactions contemplated hereby. 8. Compliance With Laws and Orders . To the Knowledge of the Company, except as disclosed in Section 2.08 of the Disclosure Schedule or in the filings of Parent with the Securities and Exchange Commission, the Company is not in violation of or in default under any Law or Order applicable to the Company or any of its Assets the effect of which, individually or in the aggregate with other such violations and defaults, could reasonably be expected to have a Material Adverse Effect. 9. Benefit Plans; ERISA; Labor Matters . b. Section 2.09(a) of the Disclosure Schedule contains a true and complete list of each Benefit Plan and "employee benefit plan" (within the meaning of section 3(3) of ERISA, including, without limitation, multiemployer plans within the meaning of ERISA section 3(37)), stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transaction contemplated by this Agreement or otherwise), whether formal or informal, oral or written, legally binding or not, under which any employee or former employee of the Company has any present or future right to benefits or under which the Company has any <page>present or future liability. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans". c. With respect to each Company Plan, the Company has delivered to Purchaser a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof. d. No Lien has arisen on the Assets by reason of Section 302 of ERISA, Section 412 of the Code or Title IV of ERISA. e. Except as set forth in Section 2.09(d) of the Disclosure Schedule, no individual shall accrue or receive additional benefits, service or accelerated rights to payments of benefits under any Benefit Plan, as defined in Section 280G of the Code, or become entitled to severance, termination allowance or similar payments as a direct result of the transactions contemplated by this Agreement. f. There are no controversies pending or, to the Knowledge of the Company, threatened between the Company and any of its employees which controversies would have a Material Adverse Effect. The Company is not a party to any collective bargaining agreement or other labor union Contract applicable to persons employed by the Company except as disclosed in Section 2.09(e) of the Disclosure Schedule. The Company has no knowledge of any strikes, slowdowns, work stoppages, lockouts or threats thereof by or with respect to any of the employees of the Company. Section 2.09(f) of the Disclosure Schedule lists the number of employees terminated by the Company at each site of employment of the Business in the 90-day period ending on the date hereof, and the date of such termination, with respect to each such termination which would be required to be taken into account in determining whether a "plant closing" or "mass layoff" subject to the Worker Adjustment and Retraining Notification Act (the " WARN ") could occur based on subsequent terminations; provided that this sentence shall not apply with respect to any site of employment at which sufficient employees have not been employed at any time in such 90-day period for terminations of employment at such site to be subject to WARN. 10. Real Property . b. Section 2.10(a) of the Disclosure Schedule contains a list of (i) each parcel of real property currently owned by the Company and (ii) each parcel of real property leased by the Company. c. The Company has good and marketable title to each parcel of real property described in clause (i) of paragraph (a) above free and clear of Liens, except for Permitted Liens or as disclosed in Section 2.10(b) of the Disclosure Schedule and has a valid and subsisting leasehold estate in the real properties referred to in clause (ii) of paragraph (a) above free and clear of Liens, except for Permitted Liens or as disclosed in Section 2.10(b) of the Disclosure Schedule. To the Knowledge of the Company, all of the Real Property Leases are valid, binding, and enforceable in accordance with their terms, and are in full force and effect as of the date hereof. To the Knowledge of the Company, except as disclosed in Section 2.10(b) of the <page>Disclosure Schedule there are no existing material defaults by the Company beyond any applicable grace periods under such leases and the Company has not received any notice of default under any of such leases. d. Without limiting the generality of the foregoing, as to leasehold estates under the Real Property Leases, the Company warrants that it has quiet and peaceful possession of each of the properties leased by it. e. To the Knowledge of the Company, the Real Property is not subject to any deferred or rollback taxes on account of any change in zoning or land use classification and, to the Knowledge of the Company, there are no pending assessments affecting the Real Property. f. Except as could not be reasonably expected to have a Material Adverse Effect, all water, sewer, gas, electric, telephone and drainage facilities and all other utilities required by law or for the present normal use and operation of the Business are all connected and operating pursuant to valid permits, are adequate to service the Business, and such facilities are connected by means of one or more public or private easements extending from a property line to one or more public streets, public rights-of-way or utility facilities. g. There are no pending or, to the Knowledge of the Company, threatened condemnation, eminent domain or similar proceedings affecting the Real Property or any portion thereof. h. The Company is not a "foreign person" within the meaning of Section 1445 et seq. of the Internal Revenue Code of 1986, as amended. i. The mechanical equipment located in any improvements located on the Real Property, including but not limited to air conditioning and heating systems and the electrical and plumbing systems, are in sufficient condition to permit the operation of the Business as it is currently conducted. 11. Tangible Personal Property . The Company is in possession of and has good title to, or has valid leasehold interests in or valid rights under Contract to use, all tangible personal property used in and individually or in the aggregate with other such property material to the Business or Condition of the Company, except for such tangible personal property sold, consumed or otherwise disposed of in the ordinary course of business since the Financial Statement Date. All tangible Assets, taken as a whole, are in sufficient condition to permit the operation of the Business as it is currently conducted. 12. Contracts . Section 2.12(a) of the Disclosure Schedule (with paragraph references corresponding to those set forth below) contains a true and complete list of each of the following Contracts that constitute Assets as of the Effective Date: i. <page>all Contracts (excluding Benefit Plans) providing for a commitment of employment or consultation services for a specified term and payments at any one time or in any one year in excess of One Hundred Thousand Dollars ($100,000); ii. all Contracts with any Person containing any provision or covenant prohibiting or materially limiting the ability of the Company to engage in any business activity or compete with any Person; iii. all Contracts relating to Indebtedness of the Company included as an Assumed Liability; iv. all Contracts (other than this Agreement) providing for (A) the future disposition or acquisition of any assets or properties individually or in the aggregate material to the Business, other than dispositions or acquisitions in the ordinary course of business, and (B) any merger or other business combination; v. all Contracts between the Company, on the one hand, and any Affiliate of the Company, on the other hand and which is included as an Assumed Liability; vi. all Contracts (other than this Agreement) that limit or contain restrictions on the ability of the Company to incur Indebtedness or incur or suffer to exist any Lien, to purchase or sell any Assets, to change the lines of business in which it participates or engages or to engage in any merger or other business combination and which are included as Assumed Liabilities; vii. all other Contracts that (A) involve the payment, pursuant to the terms of any such Contract, by or to the Company of more than One Hundred Thousand Dollars ($100,000) annually or (B) cannot be terminated within ninety (90) days after giving notice of termination without resulting in any material cost or penalty to the Company; and viii. all Real Property Leases. b. As of the Effective Date, each Contract required to be disclosed in Section 2.12(a) of the Disclosure Schedule, true and complete copies of which have been delivered to Purchaser, is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, of the Company and, to the Knowledge of the Company, of each other party thereto; and except as disclosed in Section 2.12(b) of the Disclosure Schedule neither the Company nor, to the Knowledge of the Company, any other party to such Contract is in violation or breach of or default under any such Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Contract) as of the Effective Date, the effect of which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 13. Licenses . As of the Effective Date, the Company has all Licenses required for the conduct of the Business as presently conducted (other than Licenses, the absence of which could not reasonably be expected to have a Material Adverse Effect). Except as set forth <page>on Section 2.13 of the Disclosure Schedule, each such License is valid, binding and in full force and effect as of the Effective Date. Except as set forth on Section 2.13 of the Disclosure Schedule, to the Knowledge of the Company, as of the Effective Date the Company is not in default (or with the giving of notice or lapse of time or both, would be in default) under any such License in any respect that could reasonably be expected to have a Material Adverse Effect. The Licenses listed in Section 2.13 of the Disclosure Schedule are not transferable. 14. Affiliate Transactions . There is no Liability between the Company, on the one hand, and any officer, director or Affiliate of the Company, on the other, that will constitute an Assumed Liability. 15. Environmental Matters . Except as disclosed in Section 2.15 of the Disclosure Schedule or as could not be reasonably expected to have a Material Adverse Effect, to the Knowledge of the Company: b. the Company holds and is in compliance with all Licenses which are required under applicable Environmental Laws for the Company to own and operate the Business (the "Environmental Permits") and will use commercially reasonable efforts to provide copies of such Environmental Permits to Purchaser and to facilitate the transfer of those Environmental Permits which are transferable to Purchaser; c. the Company and all real property owned, operated or leased by the Company are in compliance with applicable Environmental Laws; d. the Company has not been notified by any Governmental or Regulatory Authority or third party of any pending or threatened claim arising under Environmental Laws (an "Environmental Claim") against the Business or the Company in connection with the Business; e. the Company has not been notified by any Governmental or Regulatory Authority or third party of any pending claim that either the Business or the Company in connection with the Business may be a potential responsible party for environmental contamination or any Release of Hazardous Material, nor has the Company been notified that any site or facility now or previously owned or leased by the Company is listed or proposed for listing on the NPL or any similar state or local list of sites requiring investigation or clean-up; f. the Company in connection with the Business has not entered into or agreed to any consent decree or order with respect to or affecting the Assets relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Material under any Environmental Law; g. there are no aboveground or underground storage tanks located on, in or under any properties currently or formerly owned, operated or leased by the Company in connection with the Business or any predecessor of the Business or the Company in connection with the Business; h. <page>no Releases of Hazardous Material have occurred at, from, in, on, to or under any property currently or formerly owned, operated or leased by the Company in connection with the Business or any predecessor of the Business or the Company, and no Hazardous Material is present in, on or about or is migrating to or from any such property that could give rise to an Environmental Claim by a Governmental or Regulatory Authority or third party against the Business or the Company; i. neither the Company in connection with the Business, nor any predecessors thereof, has transported or arranged for the treatment, storage, handling, disposal or transportation of any Hazardous Substance to any location that could result in an Environmental Claim against or liability to the Business or the Company; j. there is no amount of asbestos, ureaformaldehyde material, polychlorinated biphenyl containing equipment or lead paint containing materials in, at or on any property owned, leased or operated by the Company in connection with the Business; and k. there have been no environmental investigations, studies, audits or tests with respect to any property currently or formerly owned, leased or operated by the Company in connection with the Business thereof which have not been delivered to Purchaser prior to execution of this Agreement. 16. Labor Matters . To the Knowledge of the Company, the Company is in compliance in all material respects with all Laws respecting employment and employment practices, terms and conditions of employment and wages and hours. 17. Brokers . Except for Deutsche Bank Securities Inc., whose fees, commissions and expenses are the sole responsibility of the Company, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Company directly with Purchaser without the intervention of any other Person on behalf of the Company in such manner as to give rise to any valid claim by any Person against Purchaser for a finder's fee, brokerage commission or similar payment. 18. Absence of Certain Changes . Except as set forth in Section 2.18 of the Disclosure Schedule, since the Financial Statement Date, the Business has been conducted in the ordinary course, and there has not been: b. any event, occurrence, state of circumstances or facts or change in the Company, the Assets or the Business that has had or that may be reasonably expected to have, either alone or together, a Material Adverse Effect; c. any change by the Company in its accounting principles, methods or practices other than changes required pursuant to GAAP or in the manner it keeps its books and records or any change by the Company of its current practices with regards to sales, receivables, payables or accrued expenses; d. the entering into of any Contract or other arrangement between the Company and any officer, director, stockholder or Affiliate of the Company; or e. <page>any (i) single commitment for capital expenditures that has not been performed prior to the Effective Date in excess of $1,000,000 for additions to property, plant, equipment or intangible capital assets, (ii)  commitments for capital expenditures that has not been performed prior to the Effective Date in an aggregate amount in excess of $5,000,000 for additions to property, plant, equipment or intangible capital assets or capital expenditures, (iii) sale, assignment, transfer, lease or other disposition of or agreement to sell, assign, transfer, lease or otherwise dispose of any asset or property outside the ordinary course of business having a value of $2,000,000 in the aggregate. 19. Sufficiency of and Title to the Assets . Upon consummation of the transactions contemplated by this Agreement, the Company will have sold, assigned, transferred and conveyed to Purchaser, free and clear of all Liens, other than Permitted Liens, all of the Assets, which constitute all of the properties and assets now held or employed by the Company primarily in connection with the Business (other than the Excluded Assets). 20. Insurance . As of the Effective Date, the assets, properties and operations of the Business are insured under various policies of insurance, all of which are described in Section 2.20 of the Disclosure Schedule, which discloses for each policy the type of coverage and the amounts of coverage. As of the Effective Date, all such policies are in full force and effect, no notice of cancellation has been received, and there is no existing material default, or event which the giving of notice or lapse of time or both, would constitute a material default, by any insured thereunder. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND STN Purchaser and STN hereby, jointly and severally, represent and warrant to the Company as follows as of the Effective Time and as of the Closing Date, except, to the extent any such representation or warranty is made as of a specified date earlier than the Closing Date, such earlier date: 1. Existence . Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Nevada. STN is a corporation duly organized, validly existing and in good standing under the Laws of the State of Nevada. Each of Purchaser and STN has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. 2. Authority . The execution and delivery by Purchaser and STN of this Agreement, and the performance by Purchaser and STN of their respective obligations hereunder, have been duly and validly authorized by the respective boards of directors of Purchaser and STN, no other corporate action on the part of Purchaser or STN or their respective shareholders being necessary. This Agreement has been duly and validly executed and delivered by each of Purchaser and STN and constitutes a legal, valid and binding obligation of each of Purchaser and STN enforceable against each of them in accordance with its terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, <page>moratorium or other similar laws relating to creditors' rights generally and (b) is subject to general principles of equity. 3. No Conflicts . The execution and delivery by each of Purchaser and STN of this Agreement do not and the consummation of the transactions contemplated hereby will not: b. conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation (or other comparable corporate charter document) of Purchaser or STN, as applicable; c. subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Section 3.04 of the Disclosure Schedule, conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to Purchaser or STN or any of the Assets (other than such conflicts, violations or breaches which could not in the aggregate reasonably be expected to adversely affect the validity or enforceability of this Agreement); or d. except as could not, individually or in the aggregate, reasonably be expected to adversely affect the ability of Purchaser or STN to consummate the transactions contemplated hereby or to perform its obligations hereunder, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Purchaser or STN to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon Purchaser or STN or any of their respective assets or properties under, any Contract or License to which Purchaser or STN is a party or by which any of their respective assets and properties is bound. 4. Governmental Approvals and Filings . Except as disclosed in Section 3.04 of the Disclosure Schedule, no consent, approval, action, order or authorization of, or registration, declaration or filing with or notice to any Governmental or Regulatory Authority on the part of Purchaser or STN is required in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except where the failure to obtain any such consent, approval or action, to make any such filing or to give any such notice could not reasonably be expected to adversely affect the ability of Purchaser or STN to consummate the transactions contemplated by this Agreement or to perform its obligations hereunder. 5. Legal Proceedings . There are no Orders outstanding and no Actions or Proceedings pending or, to the Knowledge of Purchaser or STN, as applicable, threatened against, relating to or affecting Purchaser or STN, as the case may be, which could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 6. Brokers . Except for Wasserstein Perella & Co., whose fees, commissions and expenses are the sole responsibility of Purchaser and/or STN, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Purchaser and <page>STN without the intervention of any Person on behalf of Purchaser or STN in such manner as to give rise to any valid claim by any Person against the Company for a finder's fee, brokerage commission or similar payment. 7. Financing . As of the Effective Date, Purchaser has sufficient cash and/or available credit facilities (and has provided the Company with evidence thereof) to pay the Purchase Price and to make all other necessary payments of fees and expenses in connection with the transactions contemplated by this Agreement. 8. Purchaser's Gaming Licenses . STN and its directors and executive officers are currently licensed or hold findings of suitability to conduct gaming activities in the State of Nevada. COVENANTS OF THE COMPANY AND PARENT The Company and Parent covenant and agree with Purchaser that, at all times from and after the Effective Date until the Closing, and in the case of Sections 4.06 and 4.09 for the period set forth therein, Parent and the Company will, and Parent will cause the Company to, comply with all covenants and provisions of this Article IV, except to the extent Purchaser may otherwise consent in writing. 1. Regulatory and Other Approvals . The Company will, as promptly as reasonably practicable (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals, actions, orders or authorizations of, or make all registrations, declarations or filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of the Company to consummate the transactions contemplated hereby (including, without limitation, the Required Consents), (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) provide reasonable cooperation to Purchaser in connection with the performance of its obligations under Sections 5.01 and 5.02 below. The Company will provide, or cause to be provided, notification to Purchaser when any such consent, approval, action, order, authorization, registration, declaration, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Purchaser of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 2. HSR Filings . In addition to and not in limitation of the Company's covenants contained in Section 4.01 above, the Company will (a) take promptly all actions necessary to make the filings required of the Company or its Affiliates under the HSR Act, (b) comply at the earliest practicable date with any request for additional information received by the Company or its Affiliates from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act and (c) cooperate with Purchaser in <page>connection with Purchaser's filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general. 3. Investigation by Purchaser . The Company will (a) provide Purchaser and its officers, employees, counsel, accountants, financial advisors, consultants and other representatives (together, "Representatives") with full access, upon reasonable prior notice and during normal business hours, to all officers, employees, agents and accountants of the Company and its Assets and Books and Records, but only to the extent that such access does not unreasonably interfere with the business operations of the Company and (b) furnish Purchaser and such other Persons with all such information and data (including, without limitation, copies of Contracts, Benefit Plans and other Books and Records) concerning the business and operations of the Company as Purchaser or any of such other Persons reasonably may request in connection with such investigation, except to the extent that furnishing any such information or data would violate any Law, Order, Contract or License applicable to the Company or by which any of its Assets is bound. 4. Conduct of Business . Subject to Section 4.05 below, the Company will conduct business only in the ordinary course consistent with past practice and shall: b. take all actions to be in compliance with, and to maintain the effectiveness of, all Licenses; c. preserve the goodwill of those of its suppliers, customers and distributors having material business relationships with the Business, unless such failure to preserve such goodwill would not be commercially unreasonable; d. maintain policies of insurances with substantially the same insurance coverage as exists as of the Effective Date against loss or damage to the Assets; e. use commercially reasonable efforts to maintain the Assets, in the aggregate, in a condition comparable to their current condition, reasonable wear, tear and depreciation excepted, and except for Assets disposed of, sold or consumed in the ordinary course of business in accordance with Section 4.05(a) below; and f. unless precluded by law, notify Purchaser in writing if to the Knowledge of the Company there is any event, condition or circumstance, or group of actions, events, conditions or circumstances, that could reasonably be expected to have a Material Adverse Effect, provided that nothing contained herein shall be deemed to require the Company to disclose any information that is privileged. 5. Certain Restrictions . The Company shall not: b. other than in the ordinary course of business, acquire, lease, dispose of or otherwise transfer, any Assets; c. <page>engage with any Person in any merger or other business combination; d. amend or modify in any material respect or terminate any material Contract that could be reasonably expected to have a Material Adverse Effect; e. make any material changes in the Company's staffing levels that could be reasonably expected to have a Material Adverse Effect; f. without Purchaser's prior written approval, which approval shall not be unreasonably withheld, materially increase the salary, bonus or other compensation of any of the Company's current employees that are department heads of the Business, other than pursuant to bonus plans that have been approved prior to the Effective Date, increases pursuant to employment agreements entered into prior to the Effective Date and increases consistent with past practices in an amount not to exceed five percent (5%) of the applicable employee's most recent annual salary and bonus; g. enter into any Contract to do or engage in any of items listed in clauses (a) through (e) above; h. except as expressly permitted elsewhere in this Agreement, enter into or commit or propose to enter into any Contract obligating the Company to make payments thereunder in excess of $100,000 in any twelve-month period that cannot be cancelled upon thirty days notice; or i. amend its articles of incorporation or bylaws in any manner that would have an adverse effect on the transactions contemplated hereby. 6. Transition Period. b. Each of the Company and Parent will, beginning at the Effective Date and for a period of twelve (12) months after the Transfer Time, upon reasonable request from Purchaser and the sole cost and expense of Purchaser, promptly provide Purchaser any and all information regarding the Assets and the Business, including but not limited to financial, accounting, tax and related data, reasonably necessary for the preparation by Purchaser of applications, reports and filings with any Governmental or Regulatory Authority. c. Each of the Company and Parent will, following the Effective Date and at the sole cost and expense of Purchaser, provide reasonable assistance to Purchaser with respect to the transfer of the Assets, including, without limitation, the transition and integration of payroll and benefit processing, accounting systems and other similar administrative systems and software systems constituting Assets. In addition, the Company and Parent will reasonably cooperate with Purchaser with respect to any permitted transfer of any rating experience with respect to unemployment and workers' compensation, and such other processes and procedures with respect to the operation of the Business as Purchaser may reasonably request. 7. No Acquisition Negotiation . From and after the Effective Date, neither the Company nor Parent shall, directly or indirectly, through any officer, director, employee, financial advisor, representative or agent of such party (i) solicit, initiate, or encourage (including by way of furnishing information) or take any other action to facilitate knowingly any inquiries <page>or proposals that constitute, or could reasonably be expected to lead to, a proposal or offer for a merger, consolidation, business combination, sale of substantial assets, sale of shares of capital stock (including, without limitation, by way of a tender or exchange offer) or similar transaction involving the Company or the Business, other than the transactions contemplated by this Agreement (an "Acquisition Proposal"), (ii) engage in negotiations or discussions with any person (or group of persons) other than Purchaser or its affiliates (a "Third Party") concerning, or provide any non-public information to any person or entity relating to, any Acquisition Proposal, (iii) continue any prior discussions or negotiations with any Third Party concerning any Acquisition Proposal or (iv) accept, or enter into any agreement concerning, any Acquisition Proposal with any Third Party or consummate any Acquisition Proposal other than as contemplated by this Agreement. 8. Fulfillment of Conditions . The Company (a) will execute and deliver at the Closing each certificate, document and instrument that the Company is hereby required to execute and deliver as a condition to Closing, (b) will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith (i) to satisfy each condition to the obligations of Purchaser contained in this Agreement and (ii) to consummate all of the transactions contemplated by this Agreement, and (c) will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any obligation of the Company or Purchaser contained in this Agreement. 9. Noncompetition . Term . The Company and Parent hereby covenant with Purchaser that from the Closing Date until the date that is three (3) years following the Closing Date, none of the Company, Parent or their respective subsidiaries shall (except as otherwise specifically permitted herein), directly or indirectly, for their own account, or as a partner, member, advisor or agent of any partnership or joint venture, or as a trustee, officer, director, shareholder, advisor or agent of any corporation, trust, or other business organization or entity, own, manage, join, participate in, encourage, support, finance, be engaged in, have an interest in, give financial assistance or advice to, permit Parent's name to be used in connection with or be concerned in any way in the ownership, management, operation or control of any Gaming Business within a twenty-five (25) mile radius of the location of the Business (excluding any Gaming Business within (A) the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South), or (B) Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South)) other than a Currently Existing Gaming Operation (as such operations may be expanded from time to time) provided that (i) such entity is acquired by or becomes affiliated with Parent or its subsidiaries as a result of a transaction between an entity that has assets other than such Currently Existing Gaming Operation (the " Competing Group ") and Parent or such subsidiary and (ii) either (A) EBITDA of such operation for the immediately preceding four fiscal quarters shall not be greater than 30% of the consolidated EBITDA of the Competing Group for the immediately preceding four fiscal quarters or (B) Parent or the Competing Group pays Purchaser an amount equal to $10 million no later than ten (10) Business Days following consummation of the transaction between Parent <page>and the Competing Group. For purposes of this Agreement, "Currently Existing Gaming Operation" shall mean a gaming operation that is owned or operated by third parties prior to the acquisition of ownership or commencement of operations thereof by the Company, Parent or their Affiliates, and "Gaming Business" shall mean the operation of an establishment engaged in unrestricted gaming, as such term is defined by the Commission as of the date hereof. Each of the Company and Parent also hereby covenants that it shall not, for a period of eighteen (18) months after the Closing Date, solicit or encourage any employee (other than a Retained Employee), agent, consultant or independent contractor of Purchaser to terminate or curtail his or her relationship with Purchaser. Remedies . The parties agree that the remedy of the Purchaser at law for any actual or threatened breach of this Section 4.09 by the Company or Parent would be inadequate and that, in the event of such actual or threatened breach, in addition to any other remedy available to it, Purchaser shall be entitled to specific performance hereof, injunctive relief, or both, by temporary or permanent injunction or other appropriate judicial remedy, writ or order. The remedies provided for in this Section 4.09 are non-exclusive and are in addition to each other and to any other remedy available elsewhere in this Agreement or available generally at law or in equity. Divisibility . If any portion of this Section 4.09 is held to be unreasonable, arbitrary or against public policy, provisions of this Section 4.09 shall be considered divisible both as to time and as to geographical areas; and each month of each year of the specified period shall be deemed to be a separate period of time. In the event any court determines the specified time period or geographical area to be unreasonable, arbitrary or against public policy, the lesser time period or geographical area which is determined to be reasonable, non-arbitrary and not against public policy may be enforced. Notwithstanding the foregoing, the Company and Parent agree to honor the terms of this Section 4.09 for the time periods and areas specified herein and not to contest the enforceability of such periods or areas. Permitted Ownership . Notwithstanding any language to the contrary contained in this Section 4.09 , it shall be permissible for the Company and Parent to own stock or securities of any company which may be deemed competitive with Purchaser providing such shares or securities held by the Company or Parent are issued by a company listed on a national securities exchange or the NASDAQ Automated Quotation System and represent less than a five percent (5%) interest in such company. 10. Title Insurance b. . c. On the Closing Date, the Company shall, at the Company's expense (except as provided hereinafter), cause to be issued and delivered to Purchaser a policy of title insurance (the "Title Policy") with respect to the Real Property and conforming to the following specifications: i. The form of the policy will be ALTA Owner's Policy Form B 1970 (amended 10/17/70) or the current approved form for the jurisdiction in which the Real <page>Property is located, with an endorsement deleting any exclusion or exception for creditors' rights; ii. The Title Policy will be issued by First American Title Insurance Company (the "Title Company"); iii. The insured will be Purchaser; iv. The Title Policy shall be in an amount equal to that portion of the Purchase Price allocated to the Real Property; v. The Title Policy will be dated concurrent with or subsequent to the Closing; vi. There will be no exceptions to coverage other than the Permitted Liens. Without limiting the generality of the foregoing provisions hereof, the Title Policy shall not contain any exceptions with respect to: A. Rights or claims of parties in possession other than tenants, as tenants only, under the leases and subleases described in Sections 1.01(a)(ii)(A) and 1.01(a)(ii)(B) of the Disclosure Schedule; B. Encroachments, overlaps, boundary line disputes or any other matters which would be disclosed by an accurate survey and inspection; C. Easements or claims of easements not shown by the public records; D. Any lien, or right to a lien, for services, labor or materials heretofore or hereafter furnished; and E. Any other exceptions which may be designated or included as standard exceptions in the area where the Real Property is located; vii. The Title Policy, at Purchaser's request and expense, shall contain a zoning endorsement in the form of ALTA Form 3.1 showing the zoning classification of the Real Property and confirming that the current use of the Real Property is in conformance with the applicable zoning laws and use restrictions; viii. The Title Policy, at Purchaser's request, will contain an assignment endorsement whereby the insurer agrees to consent to the assignment of the policy to, and to issue without charge an endorsement to the policy to show as an insured under the policy, any of the following: (i) any successor to Purchaser, by dissolution, liquidation, merger, consolidation or reorganization; (ii) any stockholder of Purchaser to whom the Real Property, or any part thereof, is distributed; and (iii) any Affiliate of Purchaser, including any entity controlled by, in control of or under common control with Purchaser and to whom an interest in the Real Property, or any part thereof, is transferred by Purchaser. In the event that the Real Property, or any part thereof, consists of more than <page>one parcel, the Title Policy shall, at Purchaser's request, contain an affirmative statement of insurance to the effect that all parcels of land constituting the Real Property, or such part thereof, are contiguous. The policy also shall contain such other affirmative statements of insurance and endorsements (for example, but not by way of limitation, an "access endorsement") as Purchaser may reasonably require; and ix. The fee or premium for any endorsements to the Title Policy whether identified in this Section 4.10 or otherwise requested by Purchaser, shall be for the account of and paid by Purchaser. (b) The Company shall within ten (10) days after the date hereof deliver to Purchaser (i) a current commitment from the Title Company setting forth the basis upon which the Title Company is willing to insure title to the Real Property (the " Title Commitment"), and all documents referenced in Schedule B thereto, and (ii) a copy of each survey (the "Survey") of each parcel of the Real Property in the Company's possession, which Purchaser acknowledges and agrees shall be delivered without any representation or warranty of any kind as to the accuracy or completeness thereof by the Company or Parent. The cost of any survey work performed or ordered by the Company prior to the date hereof shall be paid for by the Company. If Purchaser requires any revisions or updates to the Survey delivered by the Company or requires a new survey, all such work shall be at the cost and expense of Purchaser. If the Title Commitment or the Survey discloses any liens, easements, restrictions, reservations or other defects or any other matters objectionable to Purchaser ("Title Objections"), other than Permitted Liens, Purchaser shall advise the Company of the same in writing within ten (10) days after last receipt by Purchaser of the Title Commitment (with all documents referred to in Schedule B thereto) and the Survey (as revised or updated as may be required by Purchaser within 30 days after receipt of the Title Commitment and Survey). Matters not objected to by Purchaser within said period shall be deemed to be additional Permitted Liens. As to any Title Objections, the Company may, but shall not be obligated to, remedy such matters as are susceptible of being remedied and shall, within ten (10) days after Purchaser gives the Company notice of its Title Objections, deliver written notice to Purchaser of those Title Objections which it shall remedy and those which it shall not remedy. Unless Purchaser elects to terminate this Agreement in accordance with clause 4.10(b)(y) below, the Company shall, as a condition to Purchaser's obligation to close hereunder, deliver to Purchaser a Title Commitment and Survey revised to reflect that any Title Objections which the Company has committed to remedy have been remedied to Purchaser's reasonable satisfaction. If the Company elects not to remedy any Title Objection, Purchaser shall have the option, which it shall exercise in writing within ten (10) days of its receipt of the written notice from the Company, of (x) consummating the transaction contemplated hereby and accepting such title as the Company holds, without change in or to the terms hereof, unless such matters are encumbrances or liens for an ascertainable amount, in which case the Company shall pay the amount thereof to Purchaser in cash at the Closing, or (y) terminating this Agreement and receiving a refund of all monies deposited hereunder. If Purchaser fails to deliver the written notice required in the immediately preceding sentence within the period prescribed thereby, such failure shall be deemed an irrevocable election by Purchaser to proceed to close the purchase and sale contemplated by this Agreement in accordance with clause 4.10(b)(x) above. 11. <page>Delivery of Disclosure Schedule and Diligence Materials . Within five (5) Business Days following the Effective Date (the "Delivery Period"), the Company shall deliver an initial draft of the Disclosure Schedule (including without limitation Section 6.07 of the Disclosure Schedule) and copies of all documents referenced therein to Purchaser, provided, however, that to the extent that the Company fails to deliver the Disclosure Schedule (or any material portion thereof or any document referenced therein) prior to the expiration of the Delivery Period, such failure shall not constitute a breach of this Agreement for the purposes of Section 12.01 unless the Company thereafter fails to deliver the Disclosure Schedule (or any material portion thereof or document referenced therein not previously provided to Purchaser) within three (3) Business Days following the expiration of the Delivery Period. In addition, the Company shall also deliver to Purchaser any other agreements or documents relating to the Business or the Levy Agreements and Land reasonably requested by Purchaser. 12. No Solicitation . For a period of twelve (12) months following the Closing Date, Parent, the Company and their respective Affiliates shall refrain from, either alone or in conjunction with any other Person, directly or indirectly, soliciting for hire any employee of Purchaser or any Affiliate of Purchaser; provided, however, that the Company shall not be prohibited from soliciting for employment any Person whose employment with Purchaser or any of its Affiliates terminated prior to such solicitation or any Retained Employee. COVENANTS OF PURCHASER Purchaser covenants and agrees with the Company that, at all times from and after the date hereof until the Closing and, in the case of Sections 5.04, 5.05, 5.06, 5.07, 5.08 and 5.10 below, thereafter, Purchaser will comply with all covenants and provisions of this Article V, except to the extent the Company may otherwise consent in writing. 1. Regulatory and Other Approvals . Purchaser will as promptly as practicable (a) take all steps necessary or desirable to obtain all consents, approvals, actions, Licenses, orders or authorizations of, or make all registrations, declarations or filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of Purchaser to consummate the transactions contemplated hereby and will diligently and in good faith strive to obtain the same including, without limitation, making all necessary filings under the HSR Act with the Federal Trade Commission and the Department of Justice no later than three (3) Business Days following the expiration of the Diligence Period and making all necessary filings with the Commission no later than five (5) Business Days following the expiration of the Diligence Period, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as such Governmental or Regulatory Authorities or other Persons may request in connection therewith and (c) provide cooperation to the Company in connection with the performance of their obligations under Sections 4.01 and 4.02 above. The parties acknowledge and agree that so long as Purchaser complies with clauses (a) and (b) of the foregoing sentence, any failure or refusal by the Commission to approve the transactions contemplated by this Agreement shall not be deemed to be a breach of the obligations of Purchaser or Parent hereunder; provided that nothing contained <page>herein shall limit the obligations of Purchaser to comply with any other covenant or agreement contained in this Agreement or shall relieve Purchaser from liability for any breach of a representation or warranty contained in this Agreement. Purchaser will provide prompt written notification to the Company when any such consent, approval, action, order, authorization, registration, declaration, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise the Company of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 2. HSR Filings . In addition to and without limiting Purchaser's covenants contained in Section 5.01 above, Purchaser will (a) take promptly all actions necessary to make the filings required of Purchaser or its Affiliates under the HSR Act and in any event no later than three (3) Business Days following the expiration of the Diligence Period, (b) comply at the earliest practicable date with any request for additional information received by Purchaser or its Affiliates from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act and (c) cooperate with the Company in connection with the Company's filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general. Purchaser shall pay the filing fee, if any, required under the HSR Act. 3. Investigation by the Company . Purchaser will provide the Company and their respective Representatives with such documentation, data and other information as the Company may reasonably request in order to verify Purchaser's representations and warranties set forth in Section 3.07 above, but only to the extent that furnishing any such documentation, data or information would not violate any Law, Order, Contract or License applicable to Purchaser. 4. No Solicitation . Purchaser will, for a period of eighteen (18) months following the Closing Date, except as expressly permitted or required by Article IX of this Agreement, refrain from, either alone or in conjunction with any other Person, directly or indirectly, through its present of future Affiliates, soliciting for hire any employee of the Company or any Affiliate of the Company; provided, however, that Purchaser shall not be prohibited from soliciting for employment any Person whose employment with the Company or any of its Affiliates terminated prior to such solicitation. 5. Collection of Gaming Chips and Tokens . Purchaser shall redeem, in its capacity as the Company's agent if Purchaser has not elected to acquire such chips and tokens pursuant to Section 1.01(b)(ix) hereof, any gaming chips or tokens (from any series in use as of or prior to the Transfer Time) of the Company relating to the use and operation of the Business, which are presented by patrons of the Business or Purchaser for payment within the applicable Nevada statutory time periods for such redemptions. The Company's gaming chips and tokens redeemed by Purchaser shall be reimbursed, at Purchaser's election, as often as weekly for the first 30 Business Days following the Closing Date, and thereafter as often as monthly, by the Company, upon delivery by Purchaser to the Company of such gaming chips and tokens being <page>redeemed. The Company agrees to make arrangements for the additional redemption of its gaming chips and tokens as may be required by Nevada law. 6. Baggage . At the Transfer Time, an authorized representative of the Company shall perform the following functions for all baggage, trunks and other property that was checked and placed in the care of the Company: (i) seal all pieces of baggage with tape: (ii) prepare an inventory ("Inventoried Baggage") of such items indicating the check number applicable thereto; and (iii) deliver the Inventoried Baggage to an authorized representative of Purchaser and secure a receipt for the Inventoried Baggage. Thereafter, Purchaser shall be responsible for such Inventoried Baggage, provided that the Company shall be liable to the owners of such Inventoried Baggage with respect to any missing or damaged contents of such Inventoried Baggage and such liability shall be a Retained Liability for the purposes of this Agreement to the extent that Purchaser is able to prove that such contents were missing or damaged prior to the Transfer Time. 7. Safe Deposits . Safe deposit boxes in use by customers at the Transfer Time will be sealed in a reasonable manner mutually agreeable to Purchaser and the Company. At the Transfer Time, Purchaser and the Company shall designate in writing their initial safe deposit representatives. Representatives of Purchaser are to be present when a seal is broken. The Company will have no further responsibility for seals broken without the presence of the Company's representative. Purchaser will have no responsibility for loss or theft from a safe deposit box whose seal was broken in the presence of the Company representative. The Company will make a representative available within one (1) hour after Purchaser notifies a person or persons whom the Company will from time to time designate. All safe deposit keys, combinations and records shall be delivered at the Transfer Time to Purchaser. 8. Valet Parking . At the Transfer Time, an authorized representative of the Company shall perform the following functions for all motor vehicles that were checked and placed in the care of the Company: (i) mark all motor vehicles with a sticker or tape; (ii) prepare a report with respect to any damages to such vehicles; (iii) prepare an inventory of such vehicles ("Inventoried Vehicles") indicating the check number applicable thereto; and (iv) transfer control of the Inventoried Vehicles to an authorized representative of Purchaser and secure a receipt for the Inventoried Vehicles. Thereafter, Purchaser shall be responsible for the Inventoried Vehicles, provided that the Company shall be liable to the owners of such Inventoried Vehicles with respect to any damages occurring as a result of actions taken by the Company and its employees prior to the Transfer Time (including, without limitation, damages (as a result of actions taken by the Company and its employees) set forth in the damage report) or items missing from or damaged in such Inventoried Vehicles and such liability shall be a Retained Liability for the purposes of this Agreement, to the extent that Purchaser is able to prove that such items were missing or damaged prior to the Transfer Time. 9. Fulfillment of Conditions . Purchaser (a) will execute and deliver at the Closing each certificate, document and instruments that Purchaser is hereby required to execute and deliver as a condition to the Closing, (b) will as promptly as practicable affirmatively take all steps necessary or desirable and proceed diligently and in good faith (i) to satisfy each other condition to the obligations of the Company contained in this Agreement and (ii) to consummate <page>all of the transactions contemplated in this Agreement, and (c) will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any obligation of the Company or Purchaser contained in this Agreement. 10. Return of Books and Records . Following the Closing Date, upon the request of the Company, Purchaser shall return to the Company all Books and Records relating to the Company that are not used primarily in the conduct of the Business, including, without limitation, the Books and Records relating to the businesses of Parent or its Affiliates (other than the Company). 11. Parent's Gaming Compliance Program . Purchaser, STN and their respective executive officers, directors and principal stockholders shall fully cooperate with any background investigation with respect to each of them required to be conducted by Parent pursuant to its Gaming Compliance Program to the extent required by the Commission. CONDITIONS TO OBLIGATIONS OF PURCHASER The obligations of Purchaser hereunder to purchase the Assets are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Purchaser in its sole discretion): 1. Representations and Warranties . The representations and warranties made by the Company and Parent in this Agreement shall be true and correct, in all respects, on and as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except in each case as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; provided, however, that for the purposes of determining the accuracy of such representations and warranties, all "Material Adverse Effect" qualifications and other materiality qualifications, and any similar qualifications, contained in such representations and warranties shall be disregarded. 2. Performance . The Company and Parent shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by the Company, as the case may be, at or before the Closing, except in each case as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 3. Officers' Certificates . The Company and Parent shall have delivered to Purchaser a certificate, dated the Closing Date and executed in the name and on behalf of the Company by an executive officer of the Company and on behalf of the Parent by an executive officer of the Parent, substantially in the form and to the effect of Exhibit C hereto, and certificates, dated the Closing Date and executed by the Secretary of the Company and the Secretary of Parent, substantially in the form and to the effect of Exhibit D hereto. 4. <page>Orders and Laws . There shall not be in effect at the time of Closing any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 5. Regulatory Consents and Approvals . All consents, approvals, actions, Licenses, orders or authorizations of, all registrations, declarations or filings with and all notices to any Governmental or Regulatory Authority necessary to permit Purchaser and the Company to perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby shall have been duly obtained, made or given and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR Act, shall have occurred, except for such consents, approvals, actions, orders or authorizations the failure of which to obtain could not be reasonably expected to have a Material Adverse Effect. 6. Deliveries . The Company shall have delivered to Purchaser the General Assignment and other Assignment Instruments. 7. Required Consents . The third party consents listed in Section 6.07 of the Disclosure Schedule shall have been obtained and shall not have been revoked. 8. Title Insurance . Purchaser shall have received a title policy on substantially the same terms as the title commitment described in Section 4.10 hereof. 9. Absence of Material Adverse Effect . Since the date hereof, there shall not have occurred any Material Adverse Effect or any events or series of events that constitute a Material Adverse Effect. 10. Cure of Open Diligence Matters . The Company shall have cured all Open Diligence Matters to the reasonable satisfaction of Purchaser. CONDITIONS TO OBLIGATIONS OF THE COMPANY The obligations of the Company hereunder to sell the Assets are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by the Company in its sole discretion): 1. Representations and Warranties . The representations and warranties made by Purchaser in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except in each case as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; provided, however, that for the purposes of determining the accuracy of such representations and warranties, all "Material Adverse Effect" <page>qualifications and other materiality qualifications, and any similar qualifications, contained in such representations and warranties shall be disregarded. 2. Performance . Purchaser shall have performed and complied with, in all material respects, the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Purchaser at or before the Closing. 3. Officers' Certificates . Purchaser and STN shall have delivered to the Company a certificate, dated the Closing Date and executed in the name and on behalf of Purchaser and STN by an executive officer of Purchaser and STN, substantially in the form and to the effect of Exhibit E hereto, and a certificate, dated the Closing Date and executed by the Secretary of Purchaser and STN, substantially in the form and to the effect of Exhibit F hereto. 4. Orders and Laws . There shall not be in effect at the time of Closing any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 5. Regulatory Consents and Approvals . All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit the Company and Purchaser to materially perform their obligations under this Agreement and to consummate the transactions contemplated hereby, shall have been duly obtained, made or given, shall be in full force and effect and shall be in form and substance satisfactory to the Company and not subject to any material condition or contingency and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR Act, shall have occurred. 6. Deliveries . Purchaser shall have delivered the Assumption Agreement and other Assumption Instruments. 7. Required Consents . The third party consents listed in Section 7.07 of the Disclosure Schedule shall have been obtained and shall not have been revoked. TAX MATTERS AND POST-CLOSING TAXES 1. Transfer Taxes and Transfer Fees . The Company shall pay all sales, use, transfer, real property transfer, recording, stock transfer and other similar taxes and fees (other than Taxes of Purchaser and its Affiliates based upon or measured by net income or gains) ("Transfer Taxe s") arising out of or in connection with the transactions effected pursuant to this Agreement, and shall indemnify, defend, and hold harmless Purchaser and its Affiliates with respect to such Transfer Taxes. The Company and Purchaser shall equally share the costs of Gaming Device transfer fees. The Company shall file all necessary documentation and Tax Returns with respect to such Transfer Taxes. 2. <page>Tax Indemnification . b. Subject to Section 1.06, after the Closing Date, the Company and Parent will indemnify and hold harmless Purchaser from and against any and all claims, actions, causes of action, liabilities, losses, damages, and reasonable out-of-pocket expenses and costs resulting from, arising out of or relating to any Taxes of, or with respect to, the Company (including, without limitation, any Tax liability that arises solely by reason of Company being severally liable for any Tax of any federal or state or local consolidated or combined group of which it is a member pursuant to Treasury Regulation Sec. 1.1502-6 or any analogous state or local Tax provision) or with respect to the income, assets or operation of the Business or the Assets for all taxable periods ending on or before the Closing Date and that portion of any taxable period including and ending on the Closing Date that ends on or after the Closing Date (determined as if the relevant period ended on the Closing Date) in excess of the amount of such Taxes shown as Accrued Expenses on the Closing Balance Sheet. c. Purchaser will be responsible for and indemnify and hold the Company harmless against any all liabilities with respect to Taxes relating to the Assets for all taxable periods beginning on the Closing Date and ending after the Closing Date other than to the extent such Taxes relate to or result from a breach of a representation set forth in Section 2.06, and other than Taxes for which the Company is responsible pursuant to Sections 1.06, 8.01 and 8.02(a) above. d. For purposes of clarification, the obligations of the Company, Parent and Purchaser pursuant to this Section 8.02 shall not be subject to the limits contained in Section 11.01(c)(i) hereof. 3. Tax Cooperation . b. The parties agree that a portion of the Purchase Price shall be withheld in escrow pending the Company's compliance with NRS 360.525(1) and 612.695(2), it being acknowledged and agreed that the Company shall reasonably determine the amount to be withheld in order to comply with such provisions of the NRS and it being further acknowledged and agreed that no such withholding shall be necessary if, prior to Closing, the Company obtains clearance certificates from the applicable Governmental or Regulatory Authority sufficient to absolve Purchaser from liability under such provisions of the NRS. c. After the Closing Date, the Company and Parent will cooperate with Purchaser, and Purchaser will cooperate with the Company and Parent, in the preparation of all Tax Returns and will provide (or cause to be provided) any records and other information the other so requests, and will provide access to, and the cooperation of its auditors. The Company and Parent will cooperate with Purchaser and Purchaser will cooperate with the Company and Parent in connection with any Tax investigation, audit or other proceeding. d. At Purchaser's request, Parent and the Company will cooperate with Purchaser in structuring the transaction contemplated by this Agreement so as to enable the Purchaser to qualify such transaction as part of a "like-kind exchange" as to Purchaser of <page>property being sold by Purchaser including permitting Purchaser to assign this agreement to an intermediary selected by Purchaser. 4. Notification of Proceedings; Control b. . The Company shall have the right to control any audit or examination relating to Taxes by any taxing authority, initiate any claim for refund, file any amended return, contest, resolve and defend against any assessment, notice of deficiency or other adjustment or proposed adjustment relating or with respect to any Taxes of any company for which the Company is responsible pursuant to Section 8.02 and shall be entitled to all refunds with respect to such taxes. 5. Gaming Fees and Taxes . Pursuant to the provisions of NRS 463.3455, the Company shall retain responsibility for the payment of any fees or taxes due pursuant to any subsequent deficiency determinations made under Chapter 463 of NRS which encompass any period of time before the Transfer Time. EMPLOYEE BENEFITS MATTERS 1. Offer of Employment . b. The parties hereto intend that there shall be continuity of employment with respect to all of the employees of the Business other than those employees of the Business that the Company or any of its Affiliates decide to retain in their employ and/or relocate (the "Retained Employees") (a list of such Retained Employees to be provided to Purchaser prior to the expiration of the Diligence Period). Purchaser shall offer employment at will, commencing on the Closing Date, to all employees (other than the Retained Employees), including those on vacation, leave of absence or disability, who were employed by the Business immediately prior to Closing, on substantially the same terms in the aggregate (including salary, fringe benefits, job responsibility and location but excluding employee stock ownership and incentive plans) as those provided to similar employees by Purchaser (or its Affiliates) immediately prior to Closing to the extent permitted under applicable law. Those persons who accept Purchaser's offer of employment and commence working with Purchaser on the Closing Date shall hereafter be referred to as "Transferred Employees." The parties hereto agree that nothing in this Agreement shall limit Purchaser's ability after the Closing Date to modify or terminate (i) the employment of any Transferred Employee or (ii) any benefit policy, plan or program offered to or covering any Transferred Employee. c. Prior to, or in connection with, the Closing, Purchaser shall take no action to cause the Company or the Business to terminate the employment of any employee of the Business (other than in connection with the retention or relocation of any Retained Employee), and neither the Company nor the Business shall be under any obligation to terminate any employee of the Business prior to or on the Closing Date. Purchaser shall be liable for any amounts to which any Transferred Employee may become entitled pursuant to any employment or severance contract as a result of, or in connection with, the sale of the Business hereunder. <page>Purchaser agrees that it will not take any action which would give rise to liability under WARN or any similar state, local or federal Law or regulation. 2. Welfare Plans -- Claims Incurred; Pre-Existing Conditions . b. Notwithstanding any provision of this Agreement to the contrary, the Company shall retain responsibility for and continue to pay all medical, life insurance, disability and other welfare plan expenses and benefits for each Transferred Employee with respect to claims incurred by such Transferred Employees or their covered dependents prior to the Closing Date. Notwithstanding any provision of this Agreement to the contrary, expenses and benefits with respect to claims incurred by Transferred Employees or their covered dependents on or after the Closing Date shall be the responsibility of Purchaser. For purposes of this paragraph, a claim is deemed incurred when the services that are the subject of the claim are performed; in the case of life insurance, when the death occurs, in the case of long-term disability benefits, when the disability occurs and, in the case of a hospital stay, when the employee first enters the hospital. c. With respect to any welfare benefit plans (as defined in Section 3(1) of ERISA) maintained by Purchaser for the benefit of Transferred Employees on and after the Closing Date, Purchaser shall (i) use commercially reasonable efforts to cause there to be waived any pre-existing condition limitations (other than those limitations existing under the Company's welfare benefit plans) and (ii) give effect, in determining any deductible and maximum out-of-pocket limitations, to claims incurred and amounts paid by, and amounts reimbursed to, such employees with respect to similar plans maintained by the Company (and its Affiliates) for their benefit immediately prior to the Closing Date. 3. Vacation . With respect to any accrued but unused vacation time to which any Transferred Employee is entitled pursuant to the vacation policy applicable to such employee immediately prior to the Closing Date (the "Vacation Policy"), Purchaser shall allow such Transferred Employee to use such accrued vacation, subject to the terms and conditions of Purchaser's vacation policy; provided, however, that if Purchaser deems it necessary to disallow such employee from taking such accrued vacation, Purchaser shall be liable for and pay in cash to each such Transferred Employee an amount equal to such vacation time in accordance with terms of the Vacation Policy; provided, further, that Purchaser shall be liable for and pay in cash an amount equal to any remaining accrued vacation time to any Transferred Employee whose employment terminates for any reason prior to the close of business on the last calendar day of the year during which the Closing Date occurs. 4. Service Credit . Purchaser will provide. for the purposes of eligibility and vesting (but not for benefit accrual) each Transferred Employee with credit for all service with the Company and its Affiliates to the extent possible under each employee benefit plan, program, or arrangement of Purchaser or its Affiliates in which such employee is eligible to participate; provided, however, that in no event shall any employee be entitled to any credit to the extent that it would result in a duplication of benefits with respect to the same period of service. 5. Company's Benefit Plans . Except as provided in this Agreement, the parties hereto agree that Purchaser shall not assume any Benefit Plan and the Company shall <page>retain and be responsible for any cost, expense, liability, damage or obligation relating to any Benefit Plan, whether arising before, on or after the Closing Date. COBRA Matters . The Company agrees to provide and be fully responsible for the continuation coverage required by Section 4980B of the Code and Sections 601 through 608 of ERISA ("COBRA") for all employees and former employees of the Company and their covered beneficiaries who incurred or will incur a qualifying event prior to the Closing Date, or will incur a qualifying event as a result of the consummation of the transactions contemplated herein, and who are entitled to COBRA coverage as a result thereof. SURVIVAL; NO OTHER REPRESENTATIONS 1. Survival of Representations, Warranties, Covenants and Agreements . Except for (i) this Article X, and Sections 2.06, 5.05, 5.06, 5.07, 5.08 and 5.10 above, Articles VIII and IX above, Sections 14.03, 14.04 and 14.07 below and the Company's agreements and covenants with respect to Retained Liabilities, which shall survive and remain enforceable indefinitely, (ii) Sections 4.06, 4.11 and 5.04 which shall survive for the period set forth therein, and (iii) Sections 2.10 and 2.15 which shall survive and remain enforceable for a period of five (5) years following the Closing Date, the representations, warranties, agreements and covenants contained in this Agreement shall survive the Closing for a period of eighteen (18) months following the Closing Date, after which time there shall be no liability in respect thereof on the part of either party or its officers, directors, employees, agents and Affiliates. 2. No Other Representations . Notwithstanding anything to the contrary contained in this Agreement, but subject to Section 10.01 above, it is the explicit intent of each party hereto that the Company and Purchaser are making no representation or warranty whatsoever, express or implied, except those representations and warranties contained in Article II above and in any certificate delivered pursuant to Section 6.03 above. It is understood that, except to the extent otherwise expressly provided herein, Purchaser takes the Assets "as is" and "where is." In particular, but without limiting the generality of the foregoing, the Company and Parent make no representation or warranty to Purchaser with respect to any financial projection or forecast relating to the Company. With respect to any projection or forecast delivered by or on behalf of the Company to Purchaser, Purchaser acknowledges that (i) there are uncertainties inherent in attempting to make such projections and forecasts, (ii) it is familiar with such uncertainties, (iii) it is taking full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts furnished to it and (iv) it shall have no claim against the Company or Parent with respect thereto. <page> INDEMNIFICATION 1. Other Indemnification . b. Subject to paragraph (c) of this Section and the other Sections of this Article XI, the Company and Parent shall jointly and severally indemnify the Purchaser Indemnified Parties in respect of, and hold it harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any breach of representation or warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of the Company or Parent contained in this Agreement or (ii) a Retained Liability; c. Subject to the other Sections of this Article XI, Purchaser shall indemnify the Company Indemnified Parties in respect of, and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any breach of representation or warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Purchaser contained in this Agreement or (ii) an Assumed Liability; d. Notwithstanding anything to the contrary contained in this Agreement, no amounts of indemnity shall be payable as a result of any claim in respect of a Loss arising under paragraph (a)(i) or (b)(i), as applicable, of Section 11.01 (other than a claim based on fraud or willful misconduct or for or with respect breaches of Section 2.06 hereof or claims under Article VIII hereof): i. unless, until and then only to the extent that the Purchaser Indemnified Parties or the Company Indemnified Parties, as applicable, have suffered, incurred, sustained or become subject to Losses referred to in such paragraph in excess of one hundred thousand dollars ($100,000) in the aggregate; ii. unless and to the extent that the Purchaser Indemnified Parties or the Company Indemnified Parties, as applicable, have not received payments in respect of claims made under Section 11.01(a)(i) of this Agreement or Section  11.01(b)(i) of this Agreement, respectively, in excess of Five Million Dollars ($5,000,000) in the aggregate; iii. unless the Indemnified Party has given the Indemnifying Party a Claim Notice or Indemnity Notice, as applicable, with respect to such claim, setting forth in reasonable detail the specific facts and circumstances pertaining thereto, (A) as soon as practical following the time at which the Indemnified Party discovered or reasonably should have discovered such claim (except to the extent the Indemnifying Party is not prejudiced by any delay in the delivery of such notice) and (B) in any event prior to the applicable Cut-off Date; or iv. <page>to the extent that the Indemnified Party had a reasonable opportunity, but failed, in good faith to mitigate such Loss, including, without limitation, to the failure to use commercially reasonable efforts to recover under a policy of insurance or under a contractual right of set off or indemnity. 2. Method of Asserting Claim . All claims for indemnification by any Indemnified Party under Section 11.01 will be asserted and resolved as follows: b. In the event any claim or demand in respect of which an Indemnified Party might seek indemnity under Section 11.01 is asserted against or sought to be collected from such Indemnified Party by a Person other than the Company, Parent, STN, Purchaser or any Affiliate of the Company or of Purchaser (a "Third Party Claim"), the Indemnified Party shall deliver a Claim Notice with reasonable promptness to the Indemnifying Party. The Indemnifying Party will notify the Indemnified Party as soon as practicable within the Dispute Period whether the Indemnifying Party disputes its liability to the Indemnified Party under Section 11.01 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim, provided that failure to give such notice shall not relieve the Indemnifying Party of its obligations hereunder except to the extent it shall have been prejudiced by such failure. (i) If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 11.02(a), then the Indemnifying Party will have the right to defend, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party. The Indemnifying Party will have full control of such defense and proceedings, including that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, reasonably cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, or, if appropriate and related to the Third Party Claim in question, in making any counterclaim against the Person asserting the Third Party Claim, or any cross-complaint against any Person (other than the Indemnified Party or any of its Affiliates); provided that the Indemnified Party may participate in such settlement or defense through counsel chosen by such Indemnified Party and paid at its own expense; and provided further that, if in the opinion of counsel for such Indemnified Party, there is a reasonable likelihood of a conflict of interest between the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be responsible for reasonable fees and expenses of one counsel to such Indemnifying Party in connection with such defense. Notwithstanding the foregoing, the Indemnified Party may retain or take over the control of the defense or settlement of any Third Party Claim the defense of which the Indemnifying Party has elected to control if the Indemnified Party irrevocably waives its right to indemnity under Section 11.01 with respect to such Third Party Claim. <page> (ii) If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 11.02(a), then the Indemnified Party will have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted by the Indemnified Party to a final conclusion or will be settled at the discretion of the Indemnified Party (with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including (except as provided in the immediately preceding sentence) any settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, cooperate with the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting, or, if appropriate and related to the Third Party Claim in question, in making any counterclaim against the Person asserting the Third Party Claim, or any cross-complaint against any Person (other than the Indemnifying Party or any of its Affiliates). Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party will reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may retain separate counsel to represent it in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifying Party will bear its own costs and expenses with respect to such participation. (iii) If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability to the Indemnified Party with respect to the Third Party Claim under Section 11.02 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability to the Indemnified Party with respect to such Third Party Claim, the Loss arising from such Third Party Claim will be conclusively deemed a liability of the Indemnifying Party under Section 11.01 and the Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on demand following the final determination thereof. If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by arbitration in accordance with paragraph (c) of this Section 11.02. c. In the event any Indemnified Party should have a claim under Section 11.02 against any Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable promptness to the Indemnifying Party. If the Indemnifying Party notifies the Indemnified Party that it does not <page>dispute the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim described in such Indemnity Notice, the Loss arising from the claim specified in such Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Section 11.01 and the Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on demand following the final determination thereof. If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by arbitration in accordance with paragraph (c) of this Section 11.02. d. Any dispute submitted to arbitration pursuant to this Section 11.02 shall be finally and conclusively determined by the decision of a panel of three arbitrators (hereinafter sometimes called the "Board of Arbitration") selected as herein provided. Each of the Indemnified Party and the Indemnifying Party shall select one (1) member and the third member shall be selected by mutual agreement of the other members, or if the other members fail to reach agreement on a third member within twenty (20) days after their selection, such third member shall thereafter be selected by the American Arbitration Association (the "AAA") upon application made to it jointly by the Indemnified Party and the Indemnifying Party for a third member possessing expertise or experience appropriate to the dispute. Within 120 days of the selection of the Board of Arbitration, the Indemnified Party and the Indemnifying Party shall meet in Las Vegas, Nevada with such Board of Arbitration at a place and time designated by such Board of Arbitration after consultation with such parties and present their respective positions on the dispute. The arbitration proceeding shall be held in accordance with the rules for commercial arbitration of the AAA in effect on the date of the initial request for appointment of the Board of Arbitration, that gave rise to the dispute to be arbitrated (as such rules are modified by the terms of this Agreement or may be further modified by mutual agreement of the parties). Each party shall have no longer than five (5) days to present its position, the entire proceedings before the Board of Arbitration shall be no more than ten consecutive days, and the decision of the Board of Arbitration shall be made in writing no more than thirty (30) days following the end of the proceeding. Such an award shall be a final and binding determination of the dispute and shall be fully enforceable as an arbitration decision in any court having jurisdiction and venue over such parties. The prevailing party (as determined by the Board of Arbitration) shall in addition be awarded by the Board of Arbitration such party's own attorneys' fees and expenses in connection with such proceeding. The non-prevailing party (as determined by the Arbitrator) shall pay the Board of Arbitration's fees and expenses. e. In the event of any claim for indemnity under Section 11.02(a), Purchaser agrees to give the Company and its Representatives reasonable access to the Books and Records and employees of the Company in connection with the matters for which indemnification is sought to the extent the Company reasonably deems necessary in connection with its rights and obligations under this Article XI. 3. Exclusivity . After the Closing, to the extent permitted by Law, the indemnities set forth in Article VIII and this Article XI shall be the exclusive remedies of Purchaser, Parent and the Company and their respective officers, directors, employees, agents <page>and Affiliates for any misrepresentation, breach of warranty or nonfulfillment or failure to be performed of any covenant or agreement contained in this Agreement, and the parties shall not be entitled to a rescission of this Agreement or to any further indemnification rights or claims of any nature whatsoever in respect thereof, all of which the parties hereto hereby waive; provided, however, that no party hereto shall be deemed to have waived any rights, claims, causes of action or remedies if and to the extent such rights, claims, causes of action or remedies may not be waived under applicable law or actual fraud or intentional misrepresentation is proven on the part of a party by another party hereto. TERMINATION 1. Termination . This Agreement may be terminated, and the transactions contemplated hereby may be abandoned: b. at any time before the Closing, by mutual written agreement of the Company and Purchaser; c. at any time before the Closing without liability to the terminating party, by the Company or Purchaser, in the event that any Order or Law becomes effective restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement upon notification of the non-terminating party by the terminating party and the terminating party is not then in material breach of this Agreement; d. at any time before the Closing, by the Company or Purchaser in the event of a material breach of this Agreement by the non-terminating party if such non-terminating party fails to cure such non-compliance or breach within ten (10) Business Days following notification thereof by the terminating party; e. at any time during the period commencing on the Effective Date and ending on the 14th day after substantially all of the diligence materials relating to the Business and the Assets reasonably requested by Purchaser shall have been delivered to Purchaser (such period, the "Diligence Period"), by Purchaser, without liability, (i) in the event that (x) Purchaser, in the course of its investigation of the Assets, discovers or otherwise becomes aware of any information that could reasonably be expected to have a Material Adverse Effect, (y) any assumption set forth on Exhibit I is not true as of the last day of the Diligence Period (or, if applicable, the date specified in such assumption) and the Company has not elected to cure such matter in accordance with the terms of the following proviso; provided that Purchaser shall deliver written notice to the Company specifying any matter that is not consistent with such assumptions and, in the case of any matter that is susceptible of cure prior to the anticipated Closing Date, the Company shall have the right, but not the obligation, to cure such matter prior to the Closing Date by notifying Purchaser of such intention to cure such matter (collectively, the "Open Diligence Matters") prior to the expiration of the Diligence Period (at which time the Company shall become obligated to so cure such Open Diligence Matters no later than the Closing Date) and the cure of all Open Diligence Matters to the reasonable satisfaction of <page>Purchaser shall be a condition to the obligations of Purchaser to consummate the transactions contemplated hereby, or (z) the Company's standard of operating the Business materially and adversely differs from the average standard of operations employed by other owner-operators of similarly situated casino hotels serving the Las Vegas locals market (i.e., excluding the Las Vegas Strip and Las Vegas Downtown areas), or (ii) in accordance with the definition of "Disclosure Schedule"; f. at any time, without liability to the terminating party, upon notification to the non-terminating party by the terminating party if the Missouri Agreements have been terminated or have expired without consummating the transactions contemplated thereby, and such termination or expiration of the Missouri Agreements is not caused by a breach of the Missouri Agreements by the terminating party or any of its Affiliates. 2. Effect of Termination . If this Agreement is validly terminated pursuant to the provisions of Section 12.01 above, this Agreement will forthwith become null and void, and, except as set forth in the following sentence, there will be no liability or obligation on the part of Parent, the Company, Purchaser or STN (or any of their respective officers, directors, employees, agents or other representatives or Affiliates), except that the provisions of Sections 14.02, 14.03, 14.04 and 14.07 below will continue to apply following any such termination. Notwithstanding any other provision in this Agreement to the contrary, upon any termination of this Agreement by the Company pursuant to Section 12.01(c), the non-terminating party shall remain liable to the terminating party for any and all willful breaches of this Agreement and the terminating party may seek such remedies, including damages and attorneys' fees, as are provided in this Agreement or as are otherwise available at Law or in equity. DEFINITIONS 1. Defined Terms . As used in this Agreement, the following defined terms have the meanings indicated below: "AAA" has the meaning ascribed to it in Section 11.02(c). "Accounting Firm" has the meaning ascribed to it in Section 1.05(c). "Accounts Payable" has the meaning ascribed to it in Section 1.02(a). "Accounts Receivable" has the meaning ascribed to it in Section 1.01(b). "Accrued Expenses" has the meaning ascribed to it in Section 1.02(a). "Acquisition Proposal" has the meaning ascribed to it in Section 4.07. "Actions or Proceedings" means any action, suit, proceeding, arbitration or Governmental or Regulatory Authority investigation. <page>"Affiliate" means any Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of another Person shall be deemed to control that Person. "Agreement" means this Asset Purchase Agreement and the Exhibits, the Disclosure Schedule and the Schedules hereto and the certificates delivered in accordance with Sections 6.03 and 7.03, as the same shall be amended from time to time. "Assets" has the meaning ascribed to it in Section 1.01(a). "Assignment Instruments" has the meaning ascribed to it in Section 1.04. "Assumed Liabilities" has the meaning ascribed to it in Section 1.02(a). "Assumption Agreement" has the meaning ascribed to it in Section 1.04. "Assumption Instruments" has the meaning ascribed to it in Section 1.04. "Benefit Plan" means any Plan established by the Company, or any predecessor or Affiliate of any of the foregoing, existing at the Closing Date or at any time since December 31, 1997, to which the Company contributes or has contributed, or under which any employee, former employee or director of the Company or any dependent or beneficiary thereof is covered, is eligible for coverage or has benefit rights. "Board of Arbitration" has the meaning ascribed to it in Section 11.02(c). "Books and Records" means all files, documents, instruments, papers, books and records relating primarily to the Business or Condition of the Company, including, without limitation, financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans, environmental studies, audits, plans, surveys, designs, models and specifications. "Business" has the meaning ascribed to it in the forepart of this Agreement. "Business Books and Records" has the meaning ascribed to it in Section 1.01(a). "Business Contracts" has the meaning ascribed to it in Section 1.01(a). "Business Customer Lists" has the meaning ascribed to it in Section 1.01(a). <page>"Business Day" means a day other than Saturday, Sunday or any day on which banks located in the States of location of the Company's principal executive offices are authorized or obligated to close. "Business Licenses" has the meaning ascribed to it in Section 1.01(a). "Business or Condition of the Company" means the business, financial condition or results of operations of the Company. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the rules and regulations promulgated thereunder. "Claim Notice" means written notification pursuant to Section 11.02(a) of a Third Party Claim as to which indemnity under Section 11.01 is sought by an Indemnified Party, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim against the Indemnifying Party under Section 11.01, together with the amount or, if not then reasonably determinable, the estimated amount, determined in good faith, of the Loss arising from such Third Party Claim. "Closing" means the closing of the transactions contemplated by Section 1.04. "Closing Balance Sheet" has the meaning ascribed to it in Section 1.05(b). "Closing Date" means (a) the second Business Day after the day on which the last of the conditions described in Articles VI and VII hereof above has been obtained, made or given or has expired, as applicable; provided, however, that in the event that the transactions contemplated by the Missouri Agreements have not been consummated, either party may extend the Closing Date (by providing written notice to the other party) such that the Closing will occur not more than 15 days after the consummation of the transactions contemplated by the Missouri Agreements; or (b) such other date as Purchaser and the Company mutually agree upon in writing; "Closing Financial Statements Delivery Date" has the meaning ascribed to it in Section 1.05(b). "COBRA" has the meaning ascribed to it in Section 9.06. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Commission" means the Nevada Gaming Commission and the Nevada Gaming Control Board, as applicable. "Common Stock" means the common stock, no par value, of the Company. "Company" has the meaning ascribed to it in the forepart of this Agreement. <page>"Company Indemnified Parties" means Parent, the Company and their respective officers, directors, employees, agents and Affiliates. "Company Plans" has the meaning ascribed to it in Section 2.09(a). "Company's Accountant" has the meaning ascribed to it in Section 1.05(c). "Competing Group" has the meaning ascribed to it in Section 4.09(a). "Contract" means any agreement, lease, license, evidence of Indebtedness, mortgage, indenture, security agreement or other contract. "Currently Existing Gaming Operation" has the meaning ascribed to it in Section 4.09(a). "Cut-off Date" means, with respect to any representation, warranty, covenant or agreement contained in this Agreement, the date on which such representation, warranty, covenant or agreement ceases to survive as provided in Section 10.01 , as applicable. "Deficiency" means the amount, if any, by which Net Current Asses as determined in accordance with Section 1.05 is a negative number. "Determination Date" has the meaning ascribed to it in Section 1.05(c). "Diligence Period" has the meaning ascribed to it in Section 12.01(d). "Disclosure Schedule" means the record delivered to Purchaser by the Company as provided herein, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by the Company pursuant to this Agreement, as said record may be amended, supplemented or modified by the Company at any time prior to the Closing without any liability to the Company; provided, however, that Purchaser shall have the right until the expiration of the Diligence Period with respect to the initial delivery of the Disclosure Schedule and for five (5) Business Days after any amendment, supplement or modification of the Disclosure Schedule to terminate the Agreement based upon such amendment, supplement or modification of the Disclosure Schedule if such amendment, supplement or modification of the Disclosure Schedule reveals a matter which would have a Material Adverse Effect. Reference herein to the Disclosure Schedule shall mean and refer not only to the record itself, but to all items, documents, agreements and instruments referenced therein and to the content of each such item, document, agreement and instrument. Likewise, reference herein to a certain Section of the Disclosure Schedule shall refer not only to that portion of the Disclosure Schedule, but to the items, documents, agreements and instruments referenced in that Section and the contents of each such item, document, agreement and instrument. Further, matters disclosed for the purpose of one Section of the Disclosure Schedule shall constitute disclosure of such matters for the purposes of all other Sections of the Disclosure Schedule. The duplication or cross-referencing of any disclosures made in the Disclosure Schedule shall not, in any instance or in the aggregate, effect a waiver of the foregoing sentence. <page>"Dispute Period" means the period ending sixty (60) days following receipt by an Indemnifying Party of either a Claim Notice or an Indemnity Notice. "EBITDA" means, with respect to any Person for any period, the earnings before interest, taxes, depreciation and amortization of such Person for such period. "Effective Date" has the meaning ascribed to it in the forepart of this Agreement. "Environmental Claim" has the meaning ascribed to it in Section 2.15(c). "Environmental Law" means any federal, state, or local law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, award, authorization, or other legally binding and enforceable requirement by any Governmental or Regulatory Authority relating to any environmental, health or safety matters. "Environmental Permits" has the meaning ascribed to it in Section 2.15(a). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "Estimated Closing Balance Sheet" has the meaning ascribed to it in Section 1.05(a). "Estimated Purchase Price" has the meaning ascribed to it in Section 1.05(a). "Excluded Assets" has the meaning ascribed to it in Section 1.01(b). "Excluded Books and Records" has the meaning ascribed to it in Section 1.01(b). "Financial Statement Date" means December 31, 1999. "Financial Statements" means the combined financial statements of the Company delivered to Purchaser pursuant to Section 2.05. "GAAP" means generally accepted accounting principles, consistently applied throughout the specified period and in the immediately prior comparable period. "Gaming Business" has the meaning ascribed to it in Section 4.09(a). "Gaming Devices" means any gaming devices, associated equipment and slot tracking systems (as such terms are defined in NRS Chapter 463) that is an asset or property of the Company and is not an Excluded Asset. "General Assignment" has the meaning ascribed to it in Section 1.04. "Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, administrative or other agency, commission, gaming authority, licensing board, <page>official or other authority or instrumentality of the United States or any state, county, city or other political subdivision. "Hazardous Material" means any chemical, or other material, or substance regulated under any Environmental Law including, without limitation, any which are defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "infectious waste," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," or "toxic pollutants" or words of similar import under any Environmental Law. "HSR Act" means Section 7A of the Clayton Act (Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules and regulations promulgated thereunder. "Improvements" has the meaning ascribed to it in Section 1.01(a). "Indebtedness" of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person. "Indemnified Party" means any Person claiming indemnification under any provision of Article XI. "Indemnifying Party" means any Person against whom a claim for indemnification is being asserted under any provision of Article XI. "Indemnity Notice" means written notification pursuant to Section 11.02(b) of a claim for indemnity under Article XI by an Indemnified Party, specifying the nature of and basis for such claim, together with the amount or, if not then reasonably determinable, the estimated amount, determined in good faith, of the Loss arising from such claim. "Inventoried Baggage" has the meaning ascribed to it in Section 5.06. "Inventoried Vehicles" has the meaning ascribed to it in Section 5.08. "Knowledge of the Company" means the actual knowledge of the directors and executive officers of Parent or the Company and the General Manager of the Business. "Knowledge of Purchaser" means the actual knowledge of the members, directors and officers of Purchaser and its Affiliates. "Land" has the meaning ascribed to it in Section 1.01(b). <page>"Laws" means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States or any state, county, city or other political subdivision or of any Governmental or Regulatory Authority. "Leased Real Property" has the meaning ascribed to it in Section 1.01(a). "Lessee Security Deposits" has the meaning ascribed to it in Section 1.01(a). "Lessor Security Deposits" has the meaning ascribed to it in Section 1.02(a). "Levy Agreements and Land" has the meaning ascribed to it in Section 1.01(b). "Levy Purchase Agreement" has the meaning ascribed to it in Section 1.01(b). "Liabilities" means all Indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due). "Licenses" means all licenses, permits, certificates of authority, findings of suitability, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority. "Liens" means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing. "Loss" or "Losses" means any and all damages, fines, penalties, deficiencies, losses and expenses (including without limitation interest, court costs, reasonable fees of attorneys, accountants and other experts or other reasonable expenses of litigation or other proceedings or of any claim, default or assessment). "Mark" has the meaning ascribed to it in Section 4.06(b). "Material Adverse Effect" means any event or circumstance that has or will have, or could reasonably be expected to have, a material adverse effect on the Business or Condition of the Company after the Closing Date, it being understood that in no event shall any of the following shall be deemed by itself or by themselves, either individually or in the aggregate, to constitute a Material Adverse Effect: (a) a failure by the Company to meet internal earnings, revenue or other projections or earnings, revenue or other predictions of any analyst or (b) any event, circumstance or market condition occurring as a general economic or financial conditions or other developments which are not unique to the Company but also is applicable to the gaming industry generally, or the Nevada gaming industry in particular. "Missouri Agreements" means, collectively, (i) that certain agreement dated as of October 17, 2000 by and among Ameristar Casino Kansas City, Inc, a Missouri corporation, Parent, Kansas City Station Corporation, a Missouri corporation, and STN, and (ii) that certain agreement dated as of October 17, 2000 by and among Ameristar Casino St. Charles, Inc., a <page>Missouri corporation, Parent, St. Charles Riverfront Station, Inc., a Missouri corporation, and STN. "Net Current Assets" means for any date of determination the net current assets of such Person at such date of determination calculated as set forth on Exhibit H attached hereto. "NPL" means the National Priorities List under CERCLA. "NRS" means the Nevada Revised Statutes. "Objection Notice" has the meaning ascribed to it in Section 1.05(a). "Open Diligence Matters" has the meaning ascribed to it in Section 12.01(d). "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final). "Owned Real Property" has the meaning ascribed to it in Section 1.01(a). "Parent" has the meaning ascribed to it in the forepart of this Agreement. "Permitted Lien" means (i) any Lien for Taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of Law with respect to a Liability that is not yet due or delinquent and (iii) any minor imperfection of title, easements of public record or similar Liens which individually or in the aggregate with other such Liens would not have a Material Adverse Effect. "Person" means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority. "Personal Property Leases" has the meaning ascribed to it in Section 1.01(a). "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workers' compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA. "Prepaid Expenses" has the meaning ascribed to it in Section 1.01(a). "Purchase Price" has the meaning ascribed to it in Section 1.03(a). "Purchaser" has the meaning ascribed to it in the forepart of this Agreement. <page>"Purchaser Indemnified Parties" means Purchaser and its officers, directors, employees, agents and Affiliates. "Real Property" has the meaning ascribed to it in Section 1.01(a). "Real Property Leases" has the meaning ascribed to it in Section 1.01(a). "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment. "Representatives" has the meaning ascribed to it in Section 4.03. "Required Consents" has the meaning ascribed to it in Section 1.08. "Resolution Period" means the period ending ninety (90) days following receipt by an Indemnified Party of a written notice from an Indemnifying Party stating that it disputes all or any portion of a claim set forth in a Claim Notice or an Indemnity Notice. "Retained Employees" has the meaning ascribed to it in Section 9.01(a). "Retained Liabilities" has the meaning ascribed to it in Section 1.02(b). "STN" means Station Casinos, Inc., a Nevada corporation. "Surplus" means the amount, if any, by which Net Current Assets as determined in accordance with Section 1.05 is a positive number. "Tangible Personal Property" has the meaning ascribed to it in Section 1.01(a). "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Taxes" means (i) any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and any expenses incurred in connection with the determination, settlement or litigation of any Tax liability and (ii) any liability for payment of amounts described in clause (i) above as a result of any express or implied agreement to pay or indemnify another Person with respect to such amounts or any liability for such amounts, any joint and/or several liability for such amounts, and any such amounts for which a Person is liable by operation of Law (including but not limited to successor liability). "Test Month" has the meaning ascribed to it in Section 1.05(a). <page>"Third Party" has the meaning ascribed to it in Section 4.07. "Third Party Claim" has the meaning ascribed to it in Section 11.02(a). "Transfer Taxes" has the meaning ascribed to it in Section 8.01. "Transfer Time" has the meaning ascribed to it in Section 1.04. "Transferred Employees" has the meaning ascribed to it in Section 9.01(a). "Transferred Intellectual Property" has the meaning ascribed to it in Section 1.01(a)(xiii). "Vacation Policy" has the meaning ascribed to it in Section 9.03. "Vehicles" has the meaning ascribed to it in Section 1.01(a). "WARN" means the Worker Adjustment Retraining and Notification Act of 1988. 2. Construction of Certain Terms and Phrases . Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (iv) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; and (v) the phrase "ordinary course of business" refers to the business of the Company. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP. Any representation or warranty contained herein as to the enforceability of a Contract shall be subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or other similar law affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at Law). MISCELLANEOUS 1. Notices . All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally, by facsimile transmission, by registered or certified mail (postage prepaid, return receipt requested) or by overnight express courier to the parties at the following addresses or facsimile numbers: <page>If to Purchaser, to: Lake Mead Station, Inc., c/o Station Casinos, Inc. 2411 West Sahara Ave. Las Vegas, Nevada 89102 Facsimile No.: (702) 253-2926 Attn: Scott M Nielson, Esq. with a copy to: Milbank, Tweed, Hadley & McCloy LLP 601 South Figueroa, Suite 300 Los Angeles, California 90017 Facsimile No.: (213) 892-5063 Attn: Kenneth J. Baronsky, Esq. If to STN: Station Casinos, Inc. 2411 West Sahara Ave. Las Vegas, Nevada 89102 Facsimile No.: (702) 253-2926 Attn: Scott M Nielson, Esq. If to the Company or Parent, to: Ameristar Casinos, Inc. 3773 Howard Hughes Parkway Suite 490 South Las Vegas, Nevada 89109 Attention: Craig H. Neilsen, President & CEO Facsimile No. (702) 369-8860 with copies to: Gordon R. Kanofsky, Esq. Senior Vice President of Legal Affairs Ameristar Casinos, Inc. 16633 Ventura Boulevard, Suite 1050 Encino, CA 91436-1864 Facsimile No. (818) 995-7099 and <page> Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, CA 90071 Attention: Jonathan K. Layne, Esq. Facsimile No. (213) 229-6141 All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 14.01, be deemed given upon delivery, (b) if delivered by facsimile transmission to the facsimile number as provided in this Section 14.01, be deemed given upon receipt, and (c) if delivered by mail in the manner described above to the address as provided in this Section 14.01, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 14.01). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto. 2. Entire Agreement . This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. 3. Expenses . Whether or not the transactions contemplated hereby are consummated, Purchaser and the Company each shall pay the costs and expenses incurred by such party in connection with the negotiation, execution and closing of this Agreement and the transactions contemplated hereby. 4. Public Announcements . At all times at or before the Closing, the Company and Parent, on the one hand, and Purchaser and STN, on the other, will not issue or make any reports, statements or releases to the public or generally to the employees, customers, suppliers or other Persons to whom the Company sells goods or provides services or with whom the Company otherwise has significant business relationships with respect to this Agreement or the transactions contemplated hereby without the consent of the other, which consent shall not be unreasonably withheld. If either party is unable to obtain the approval of its public report, statement or release from the other party and such report, statement or release is, in the opinion of legal counsel to such party, required by Law in order to discharge such party's disclosure obligations, then such party may make or issue the legally required report, statement or release and promptly furnish the other party with a copy thereof. Purchaser and STN will obtain the Company's prior approval of any press release to be issued immediately following the execution of this Agreement or the Closing announcing this Agreement or the consummation of the transactions contemplated by this Agreement, which approval shall not be unreasonably withheld. The Company and Parent will obtain Purchaser's prior approval of any press release to be issued immediately following the execution of this Agreement or the Closing announcing this Agreement or the consummation of the transactions contemplated by this Agreement. 5. <page>Waiver . Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative. 6. Amendment . Except for amendments, supplements and modifications to the Disclosure Schedule by the Company prior to the Closing (which shall be made in accordance with the terms and provisions set forth in the definition of the term "Disclosure Schedule"), this Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of Purchaser, on the one hand, and the Company, on the other hand. 7. Confidentiality . Each party hereto will hold, and will use its best efforts to cause its Affiliates , and in the case of Purchaser, any Person who has provided, or who is considering providing, financing to Purchaser to finance all or any portion of the Purchase Price, and their respective Representatives to hold, in strict confidence from any Person (other than any such Affiliate, Person who has provided, or who is considering providing, financing or Representative), unless (i) compelled to disclose by judicial or administrative process (including, without limitation, in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's Representatives in connection with this Agreement or the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential; provided that following the Closing the foregoing restrictions will not apply to Purchaser's use of documents and information concerning the Business, the Assets or the Assumed Liabilities furnished by Seller hereunder. In the event the transactions contemplated hereby are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates, any Person who has provided, or who is considering providing, financing to such party and their respective Representatives to, promptly (and in no event later than five (5) Business Days after such request) redeliver or cause to be redelivered all copies of documents and information furnished by the other party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the party furnished such documents and information or its Representatives. 8. <page>No Third Party Beneficiary . The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity pursuant to Article XI hereof. 9. No Assignment; Binding Effect . Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that Purchaser may assign any or all of its rights, interests and obligations hereunder (including, without limitation, its rights under Article XI) to (i) a wholly-owned subsidiary, provided that any such subsidiary agrees in writing to be bound by all of the terms, conditions and provisions contained herein and Purchaser remains liable for its obligations under this Agreement, (ii) any post-Closing purchaser of the Business or a substantial part of the Assets or (iii) any financial institution or other entity providing purchase money or other financing to Purchaser from time to time as collateral security for such financing. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns. 10. Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 11. Invalid Provisions . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. 12. Consent to Jurisdiction and Venue . Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the District of Nevada or any court of the State of Nevada located in Clark County in any action, suit or proceeding arising out of or relating to this Agreement or any of the transactions contemplated hereby, and agrees that any such action, suit or proceeding shall be brought only in such court; provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section 14.12 and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of Nevada other than for such purpose. Each party hereby irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such action, suit or proceeding brought in such a court. Each party further irrevocably waives and agrees not to plead or claim that any such action, suit or proceeding brought in such a court has been brought in an inconvenient forum. 13. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Nevada applicable to a Contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. 14. <page>Attorney's Fees . In the event of a dispute between the parties hereto relating to this Agreement, the prevailing party to such dispute will be entitled to recover its reasonable attorneys fees and other costs and expenses relating to such dispute from the non-prevailing party. 15. Time of the Essence . Time is of the essence in performing covenants and agreements hereunder. 16. 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 one and the same instrument. GUARANTEES 1. Guarantee of the Company's Obligations . Parent hereby, to the fullest extent permitted by applicable law, irrevocably and unconditionally guarantees to Purchaser and its successors and assigns the prompt performance and payment in full when due of all obligations of the Company to Purchaser under this Agreement and hereby agrees to take all reasonably necessary action as the sole shareholder of the Company to cause the Company to perform its obligations hereunder. 2. Guarantee of Purchaser's Obligations . STN hereby, to the fullest extent permitted by applicable law, irrevocably and unconditionally guarantees to the Company and its successors and assigns the prompt performance and payment in full when due of all obligations of Purchaser to the Company under this Agreement and hereby agrees to take all reasonably necessary action as the sole shareholder of Purchaser to cause Purchaser to perform its obligations under this Agreement. <page>THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer or trustee, as applicable, of each party hereto as of the date first above written. "PURCHASER" LAKE MEAD STATION, INC., a Nevada corporation By: /s/ Glenn C. Christenson Name: Title: "STN" STATION CASINOS, INC., a Nevada corporation By: /s/ Glenn C. Christenson Name: Title: "THE COMPANY" AMERISTAR CASINO LAS VEGAS, INC., a Nevada corporation By: /s/ Thomas M. Steinbauer Name: Thomas M. Steinbauer Title: Vice President "PARENT" AMERISTAR CASINOS, INC., a Nevada corporation By: /s/ Thomas M. Steinbauer Name: Thomas M. Steinbauer Title: Senior Vice President and Chief Financial Officer

Exhibit 10.27 Amendment To C2B Technologies Incorporated 1997 Stock Plan The C2B Technologies Incorporated 1997 Stock Plan is hereby amended effective March 29, 2000 as follows (the “Plan”): A.   Section 12 is amended by adding the following definition: “Cause” means (i) any act of personal dishonesty taken by the Optionee in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Optionee, (ii) the conviction of a felony, (iii) a willful act by the Optionee that constitutes gross misconduct and that is injurious to the Company, (iv) for a period of not less than thirty (30) days following delivery to the Optionee of a written demand for performance from the Company that describes the basis for the Company’s belief that the Optionee has not substantially performed his duties, continued violations by the Optionee of the Optionee’s obligations to the Company that are demonstrably willful and deliberate on the Optionee’s part or (v) as otherwise provided in an option agreement. B.   Section 12 is amended by replacing, in its entirety, the following definition: “Change of Control” means the occurrence of any of the following:               (i)  Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting securities entitled to vote generally in the election of directors;               (ii)  Any action or event occurring within a two-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, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but 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);               (iii)  The consummation of 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 or the entity that controls such surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company, such surviving entity or entity that controls such surviving entity outstanding immediately after such merger or consolidation; or               (iv)  The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets. C.   Section 6.1(I) is amended by deleting the previous Section 6.1(I) and replacing it in its entirety as follows:               6.1(I)  Termination of Service (Except by Death). Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following:     If the Optionee is Terminated for any reason except death or Disability, then Optionee may exercise such Optionee’s Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. Notwithstanding the foregoing, if the Company or any successor thereto terminates the Optionee’s employment without Cause within twelve months following a Change of Control, the     -------------------------------------------------------------------------------- Optionee’s Options, and restricted stock acquired upon exercise of the Optionee’s Options or otherwise granted under the Plan shall become 100% vested and exercisable; provided, however, that no such acceleration shall occur in the event that it would preclude accounting for any business combination of the Company involving a Change of Control as a “pooling of interests.”     Notwithstanding any other provisions of the Plan or any Award Agreement, or other related agreement, in the event that any payment or benefit received or to be received by the Optionee (whether pursuant to the terms of the Plan, any Award Agreement or other related agreement, or other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) would be subject (in whole or part), to any excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the payment or benefit received or to be received by the Optionee (whether pursuant to the terms of the Plan, any Option Agreement, Restricted Stock Purchase Agreement or other related agreement) shall be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Optionee would be subject in respect of such unreduced Total Payments).        Unless the Company and the Optionee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Optionee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Optionee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.   

FIFTH AMENDMENT TO CONNECTICUT NATURAL GAS CORPORATION DEFERRED COMPENSATION PLAN The Connecticut Natural Gas Corporation Deferred Compensation Plan, as amended and restated effective as of March 1, 1999, as heretofore amended (the "Plan"), is hereby amended as follows effective as of April 25, 2000: 1. By adding a new Section 2.1A to the Plan after Section 2.1 as follows: "2.1A. "Affiliate" shall mean the parent of CNG, any entity in which CNG or parent of CNG directly or indirectly beneficially owns 50% or more of the voting securities, or any other entity that is included in a controlled group of corporations in which CNG is included as provided in Section 414(b) of the Code or is a trade or business under common control with CNG as provided in Section 414(c) of the Code. Following the consummation of the merger of CTG with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG, Energy East Corporation ("EEC") and Oak Merger Co., EEC will be the common parent of an "affiliated group" (the "EEC Group") within the meaning of Section 1504 of the Code of which CNG is a member and EEC will be an Affiliate of CNG. Anything to the contrary notwithstanding, the Plan shall be interpreted and administered at all times in accordance with the terms of the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as applicable to the EEC Group and those members thereof which are Affiliates." 2. By adding a new Section 2.5A to the Plan after Section 2.5 as follows: "2.5A. "Common Stock" shall mean (i) prior to the consummation of the merger of CTG with and into Oak Merger Co. pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, by and among CTG, Energy East Corporation and Oak Merger Co., the common stock of CTG Resources, Inc., and (ii) on and after the date of the consummation of such merger, the common stock of Energy East Corporation or its successor or successors." 3. By deleting the last sentence of Section 3.2 of the Plan and inserting in lieu thereof the following: "In addition, an employee who is otherwise eligible to participate shall cease participation if his employment with a Company is terminated for any reason; provided, however, that any such employee shall continue as a Participant until his Account has been fully distributed as provided in Article VI." 4. By deleting the phrase "the Company's Annual Executive Incentive Plan" or "Annual Executive Incentive Plan" where each appears in Section 4.1(d) of the Plan and inserting in lieu thereof the phrase "a Company's annual incentive plan". 5. By deleting Section 4.3 of the Plan and inserting in lieu thereof the following: "4.3. Cessation upon Termination of Employment. Any deferrals hereunder and matching contributions under Article V shall automatically cease upon termination of employment with the Company for any reason, and may not thereafter be resumed unless the employee again meets the eligibility requirement of Section 3.1." 6. By deleting the phrase "CTG Common Stock", "CTG common stock", "stock of CTG Resources, Inc. (or a successor corporation)", "CTG common stock (or its successor)" or similar phrases where each appears in the Plan and inserting in lieu thereof the phrase "Common Stock". 7. By deleting the last sentence of Section 6.2 of the Plan and inserting in lieu thereof the following: "Benefits shall commence upon retirement or other termination of employment with the Company and all of its Affiliates." 8. By deleting the phrase "CTG" where it appears in Section 6.9 of the Plan and inserting in lieu thereof the phrase "Energy East Corporation or its successor". 9. Except as hereinabove modified and amended, the Plan, as amended, shall remain in full force and effect. IN WITNESS WHEREOF, Connecticut Natural Gas Corporation hereby executes this Fifth Amendment as of the 25th day of April, 2000. Witness: CONNECTICUT NATURAL GAS CORPORATION S/ Jeffery A. Hall                                  S/ Jean S. McCarthy                                  Vice President, Human Resources

EXHIBIT 10.11 AMENDMENT NO. 3 TO REVOLVING CREDIT AGREEMENT       This Amendment No. 3 to Revolving Credit Agreement (“Amendment”) dated as of September 30, 2000 by and among the lenders signatories hereto (“Banks”), Comerica Bank as agent for the Banks (in such capacity, “Agent”), and Meadowbrook Insurance Group, Inc., a Michigan corporation (“Company”). RECITALS       A. Company and Banks entered into that certain Revolving Credit Agreement dated as of August 3, 1999, as amended by Amendment No. 1 dated as of March  , 2000 and by an Amendment dated July 28, 2000 (“Agreement”).       B. The parties desire to amend the Agreement.       NOW, THEREFORE, the parties agree that the Agreement is amended as follows:       1. The definition of “Revolving Credit Aggregate Commitment” set forth in Section 1 of the Agreement is amended to read in its entirety as follows:         “ ‘Revolving Credit Aggregate Commitment’ shall mean Forty Eight Million Dollars ($48,000,000) until April 30, 2001 and shall automatically be reduced to Thirty Three Million Dollars ($33,000,000) on April 30, 2001, subject to further reduction or termination under Section 2.8 or 9.2 hereof.”       2. Schedule 1.2 of the Agreement is deleted and attached Schedule 1.2 substituted therefor. On April 30, 2001 and provided that Company shall have made all payments required on such date under the Agreement as a result of the reduction in the Revolving Credit Aggregate Commitment then the Percentages set forth on Schedule 1.2 under the heading “Alternate Percentages” shall become the Percentages and the payment, if any, made by Company in connection with such reduction in the Revolving Credit Aggregate Commitment shall be made by the Agent to the Banks in a manner that reflects the Alternate Percentages of the Banks in the Indebtedness.       3. On the date of execution of this Amendment, the amount of the outstanding Advances shall be reallocated among the Banks to reflect the new Percentages and Comerica Bank shall pay to Bank One such principal amount as is required so that Bank One’s outstanding Advances do not exceed its Percentage of the Advances. Such payment shall be deemed to be an Advance by Comerica Bank to Company.       4. Company hereby represents and warrants that, after giving effect to the 1 -------------------------------------------------------------------------------- amendments contained herein, (a) execution, delivery and performance of this Amendment and any other documents and instruments required under this Amendment or the Agreement are within Company’s powers, have been duly authorized, are not in contravention of law or the terms of the Company’s Articles of Incorporation or Bylaws and do not require the consent or approval of any governmental body, agency, or authority; and this Amendment and any other documents and instruments required under this Amendment or the Agreement, will be valid and binding in accordance with their terms; (b) the representations and warranties of Company set forth in Sections 6.1 through 6.19 of the Agreement are true and correct in all material respects on and as of the date hereof with the same force and effect as if made on and as of the date hereof; (c) the representations and warranties of Company set forth in Section 6.20 of the Agreement are true and correct in all material respects as of the date hereof with respect to the most recent financial statements furnished to the Bank by Company in accordance with Section 7.1 of the Agreement; and (d) no Event of Default, or condition or event which, with the giving of notice or the running of time, or both, would constitute an Event of Default under the Agreement, has occurred and is continuing as of the date hereof.       5. This Amendment shall be effective upon (a) execution hereof by Company, Agent and the Banks and (b) execution by the Guarantors of the attached Acknowledgment.       6. This Amendment may be signed 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.     WITNESS the due execution hereof as of the day and year first above written.       COMERICA BANK, as Agent GROUP, INC. MEADOWBROOK  INSURANCE   By:_________________________________         Jon E. Sasinowski By:______________________________________   Its: Vice President         Its:_____________________________   BANKS: COMERICA BANK   By:_______________________________________          Jon E. Sasinowski 2 --------------------------------------------------------------------------------   Its: Vice President   BANK ONE   By:_________________________________   Its:_________________________________ ACKNOWLEDGMENT       The undersigned Guarantors acknowledge the foregoing Amendment No. 3 to Credit Agreement and further acknowledged that the Guaranty dated August 3, 1999 from the Guarantors in favor of the Agent and the Banks remains in full force and effect in accordance with its terms.       MEADOWBROOK, INC., a Michigan corporation   By:____________________________________   Its:____________________________________   MEADOWBROOK OF FLORIDA, INC., a Florida corporation   By:____________________________________   Its:____________________________________   ASSOCIATION SELF INSURANCE SERVICES, INC., an Alabama corporation   By:____________________________________   Its:____________________________________   CREST FINANCIAL CORPORATION, a Nevada corporation   By:____________________________________   Its:____________________________________ 3 -------------------------------------------------------------------------------- SCHEDULE 1.2 Percentages           Comerica Bank 69.44444 % Bank One 30.55556 % Alternate Percentages           Comerica Bank 70.70707 % Bank One 29.29293 % 4

EMPLOYMENT AGREEMENT      This Employment Agreement (the “Agreement”), is made and entered into this 27th day of June, 2000, by and between Credit Management Solutions, Inc., a Delaware corporation with principal offices located at 135 National Business Parkway, Annapolis Junction, Maryland 20701 (the “Company”), and Robert Vollono (the “Executive”). WITNESSETH      WHEREAS, the Company has a need for the Executive’s personal services in an executive capacity; and      WHEREAS, the Executive possesses the necessary strategic, financial, planning, operational and managerial skills necessary to fulfill those needs;      WHEREAS, the Executive and the Company desire to have a formal Employment Agreement to fully recognize the contributions of the Executive to the Company and to assure continuous harmonious performance of the affairs of the Company.      WHEREAS, the Executive and the Company entered into an Employment Agreement dated March 22, 2000, and whereas the parties wish to amend and replace that agreement with this Agreement, as set forth in Section 7(m) below.      NOW, THEREFORE, in consideration of the mutual promises, terms, provisions, and conditions contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:      1. Definitions. For purposes of this Agreement, the following capitalized terms shall have the following meanings:      a. “Affiliate” means any person or entity (i) that directly or indirectly owns more than fifty percent (50%) of the Voting Stock (as defined below) of the Company, or (ii) more than fifty percent (50%) of the Voting Stock of which is directly or indirectly owned by the Company, or (iii) more than fifty percent (50%) of the Voting Stock of which is directly or indirectly owned by another person or entity that directly or indirectly owns more than fifty percent (50%) of the Voting Stock of the Company.      b. “Change of Control” of a company means the occurrence of any of the following:        (i) any “person,” as such term is currently used in Section 13(d) of the Securities Exchange Act of 1934, becomes a “beneficial owner,” as such term is currently used in Rule 13d-3 promulgated under that Act of fifty percent (50%) or more of the Voting Stock of the company;        (ii) a majority of the Board of Directors of the company consists of individuals other than Incumbent Directors, which term means the members of the Board on the date hereof; provided that any individual becoming a director subsequent to such date whose election or nomination for election was supported by two-thirds of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director; --------------------------------------------------------------------------------        (iii) the Board of Directors of the company adopts any plan of liquidation providing for the distribution of all or substantially all of the company’s assets;        (iv) all or substantially all of the assets or business of the company are disposed of in any one or more transactions pursuant to a merger, consolidation or other transaction (unless the shareholders of the company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the company, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the company); provided, however, that this subsection (iv) shall not apply in the event of a merger or consolidation of the Company with an Affiliate; or        (v) the company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the company immediately prior to the combination hold, directly or indirectly, fifty percent (50%) or less of the Voting Stock of the combined company, (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by affiliates of such other company in exchange for securities of such other company); provided, however, that this subsection (v) shall not apply in the event of a combination of the Company with an Affiliate.      c. “Good Reason” means any of the following events:        (i) a reduction in annual Salary (as defined below);        (ii) a failure by the Company, or Affiliate by which the Executive is employed, to provide fringe benefits comparable to those offered to the Executive’s peer executives;        (iii) the failure of the Company, or Affiliate by which the Executive is employed, to obtain by operation of law or otherwise the assumption of its obligations to perform this Agreement from any successor to all or substantially all of the assets of the Company or such Affiliate; or        (iv) a relocation of the Executive’s worksite to a location which increases the distance from the Executive’s home to his worksite by more than fifty (50) miles. d.  “Good Reason Upon Change In Control” means any of the following events provided the event occurs either (i) less than eighteen (18) months after a Change in Control of the Company, or an Affiliate if the Executive is employed at that time by such Affiliate or the Company or (ii) during one-hundred and eighty (180) days or shorter time period between (x) the execution by Company (or such Affiliate) and a third party of a letter of intent or term sheet reflecting the terms of such Change in Control, or receipt by the Company (or such Affiliate) of a written offer from a third party reflecting such Change in Control, and (y) the effective date of such Change in Control:   (A) any of the events which constitute Good Reason under Section 1(c) above;   (B) a material diminution in the Executive’s duties or responsibilities; provided that a diminution shall not be deemed to have occurred solely because that Executive no longer has duties and responsibilities for a particular Affiliate as long as the Executive continues to have the same level, type and scope of duties and responsibilities as he had prior to the Change in Control; or --------------------------------------------------------------------------------   (C) the assignment to the Executive of duties that materially impair his ability to perform the duties normally assigned to a person of his title and position at a corporation of the size and nature of the Company or Affiliate by which the Executive is employed (as applicable).      e. “Voting Stock” means the issued and outstanding capital stock or other securities of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.      f. “Termination Without Cause Upon Change in Control” means termination of the Executive’s employment without “Cause” (as defined in Section 5(a) below) either (i) less than eighteen (18) months after a Change in Control of the Company or an Affiliate if the Executive is employed at that time by such Affiliate or the Company, (ii) during one-hundred and eighty (180) days or shorter time period between (x) the execution by Company (or such Affiliate) and a third party of a letter of intent or a term sheet reflecting the terms of such Change in Control, or receipt by the Company (or such Affiliate) of a written offer from a third party reflecting such Change in Control, and (y) the effective date of such Change in Control. 2. Position.      The Company hereby agrees to continue to employ the Executive to serve in the role of Chief Financial Officer of the Company and each of its Affiliates. The Company reserves the right to change the Executive’s title, duties and/or responsibilities, and to reassign the Executive to or from any Affiliate. The Executive accepts such employment upon the terms and conditions set forth herein, and further agrees to perform to the best of his abilities the duties generally associated with his position, as well as such other duties as may be reasonably assigned by the Board of Directors of the Company (the “Board”), the Chief Executive Officer or President of the Company, and, if the Executive is employed by an Affiliate, the Chief Executive Officer, President or Board of Directors of such Affiliate. The Executive shall perform his duties diligently and faithfully and shall devote his full business time and attention to such duties. Each party’s rights and obligations under this Section 2 are subject to Section 5 below. 3. Term of Employment and Renewal.      The term of the Executive’s employment under this Agreement (the “Term”) will commence on the date of this Agreement (the “Effective Date”) and continue until terminated in accordance with Section 5 below. 4. Compensation and Benefits.      (a) Salary. Commencing on the Effective Date, the Company agrees to pay the Executive a base salary at an annual rate of one hundred and seventy-five thousand Dollars ($175,000), payable in such installments as is the policy of the Company (the “Salary”), but no less frequently than monthly. Thereafter, the Company shall evaluate the Executive’s Salary from time to time and make adjustments, in its discretion, subject to the rights and obligations set forth in Section 5 below. --------------------------------------------------------------------------------      (b) Bonus. In its sole discretion, the Company may make the Executive eligible to receive bonuses based on criteria to be determined by the Company and issued to the Executive in writing, in which event the Executive shall be entitled to receive such bonuses in accordance with such criteria.      (c) Benefits. The Executive shall be entitled to participate in all employee benefit plans which the Company provides or may establish from time to time for the benefit of its employees, including, without limitation, group life, medical, surgical, dental and other health insurance, short and long-term disability, deferred compensation, profit-sharing and similar plans. The Executive shall also be entitled to one hundred eighty four (184) hours of paid leave per year of employment, plus sick leave in accordance with standard Company policy. Two-thirds of any unused portion of such paid leave shall be considered to be vacation and, therefore, shall be paid to the Executive upon his cessation of employment with the Company. The Company will provide term life insurance for the Executive with benefits equal to his annual Salary, up to a maximum of four hundred thousand dollars ($400,000). The Company may also purchase one or more “key man” insurance policies on the Executive’s life, each of which will be payable to and owned by the Company. The Company, in its sole discretion, may select the amount and type of key man life insurance purchased, and the Executive will have no interest in any such policy. The Executive will cooperate with the Company in securing this key man insurance, by submitting to all required medical examinations, supplying all information and executing all documents required in order for the Company to secure the insurance      (d) Stock Options. In the sole discretion of the Board, the Company may from time to time issue the Executive stock option grants under the Company’s stock option plan and a stock option agreement, in which event the Executive shall be entitled to such options in accordance with such plan and agreement(s), subject however to the provisions of this Agreement regarding stock options.      (e) Expenses. The Company shall pay or reimburse the Executive for all reasonable out-of-pocket expenses actually incurred by the Executive during the Term in performing services hereunder, provided that the Executive properly accounts for such expenses in accordance with the Company’s policies. The Company shall pay the Executive an automobile allowance of no less than five hundred dollars ($500) per month through normal payroll procedures, and such allowance shall be reported as income on the Executive’s year-end W-2 form. The Executive shall be responsible for submitting automobile expense reimbursement requests to the extent he wishes to convert any portion of the allowance to an expense reimbursement. The Company shall reimburse the Executive for cellular telephone expenses associated with business use. 5. Termination and Severance.      (a) Termination by the Company for Cause. Notwithstanding anything to the contrary in this Agreement, the Company may terminate the Executive’s employment for Cause at any time, upon written notice to the Executive setting forth in reasonable detail the nature of such Cause. For purposes of this Agreement, “Cause” is defined as (i) the Executive’s continued failure to perform his duties (other than due to physical incapacity or illness) after thirty (30) days’ written notice and opportunity to cure; (ii) the Executive’s conviction of any felony; (iii) the Executive’s material misrepresentation of his professional qualifications; (iv) willful or reckless conduct by the Executive injurious to the Company or any Affiliate; or (v) the Executive’s commission of fraud or malfeasance. Upon the termination for Cause of the Executive’s employment, the Company and its Affiliates shall have no further obligation or liability to the Executive other than for Salary earned prior to the date of termination and any accrued but unused vacation. --------------------------------------------------------------------------------      (b) Termination by the Company Without Cause. Notwithstanding anything to the contrary in this Agreement, the Executive’s employment hereunder may be terminated at any time without Cause by the Company upon fourteen (14) days’ written notice to the Executive, provided, however, that if the Company terminates the Executive’s employment without Cause the Company shall (i) pay the Executive on the effective date of termination all earned and unpaid Salary, earned and unpaid bonuses, and accrued and unused vacation; (ii) continue to pay the Executive the Salary and shall provide medical, life and disability coverage, under the same conditions as exist at the time of termination, for a six (6) month period beginning on the effective date of the termination; and (iii) notwithstanding anything to the contrary in any stock option agreement, any unvested stock options granted to the Executive shall accelerate and vest in full on the effective date of termination, and the Executive may exercise such options at any time up to two-hundred seventy (270) days after the effective date of termination of his employment. As a condition of receiving such benefits pursuant to this Agreement, the Executive shall execute and deliver to the Company prior to his receipt of such benefits a general release substantially in the form attached hereto as Exhibit A provided the Company executes such release and delivers an executed counterpart to the Executive. Notwithstanding anything to the contrary in this Section 5(b), if the termination constitutes a Termination Without Cause Upon Change in Control, then the Executive shall receive the benefits set forth in Section 5(d) below rather than as set forth in this Section 5(b).      (c) Termination by the Executive. Notwithstanding anything to the contrary in this Agreement, the Executive may terminate his employment hereunder upon thirty (30) days written notice to the Company provided that the Company may pay the Executive his Salary in lieu of any portion of such notice period. The Executive may also terminate his employment hereunder after giving the Company written notice no more than thirty (30) days after the occurrence of an event which constitutes Good Reason, in which event the Company shall (i) pay the Executive on the effective date of termination all earned and unpaid Salary, earned and unpaid bonuses, and accrued and unused vacation; (ii) continue to pay the Executive the Salary and shall provide medical, life and disability coverage, under the same conditions as exist at the time of termination, for a six (6) month period beginning on the effective date of the termination provided the Company executes such release and delivers an executed counterpart to the Executive; and (iii) notwithstanding anything to the contrary in any stock option agreement, any unvested stock options granted to the Executive shall accelerate and vest in full on the effective date of termination and the Executive may exercise such options at any time up to two-hundred seventy (270) days after the effective date of termination of his employment. As a condition of receiving such benefits pursuant to this Agreement, the Executive shall execute and deliver to the Company prior to his receipt of such benefits a general release substantially in the form attached hereto as Exhibit A provided the Company executes such release and delivers an executed counterpart to the Executive. Notwithstanding anything to the contrary in this Section 5(c), if the Executive terminates his employment for Good Reason Upon Change in Control, then the Executive shall receive the benefits set forth in Section 5(d) below rather than as set forth in this Section 5(c). --------------------------------------------------------------------------------      (d) Termination By Company or Executive After Change in Control. Notwithstanding anything to the contrary in this Agreement, in the event of a Termination Without Cause Upon Change in Control, or termination by the Executive for Good Reason Upon Change in Control, the Company shall provide the Executive the following benefits: (i) all earned and unpaid Salary and bonuses; (ii) all accrued and unused vacation; (iii) a lump sum payment equal to 2.99 times the Executive’s average annual cash compensation during the previous five (5) years (or, if the Executive has been employed by the Company for a shorter period, then the average during such shorter period); (iv) notwithstanding anything to the contrary in any stock option agreement, upon the Executive acknowledging in a signed writing the surrender of all his rights to vested and unvested stock options granted to him by the Company, a lump sum equal to the difference between the exercise price of such stock options and the higher of (x) the fair market value of the option shares on the effective date of the termination, or (y) the highest effective price paid for the Company’s common stock by any acquirer in connection with the Change in Control; (v) medical, life and disability coverage for a period of twelve (12) months after the effective date of the termination, or until the Executive receives comparable coverage from another employer, whichever occurs first; and (vi) all accrued retirement and deferred compensation plans vest in full. Items (i) through (iv) shall be paid to the Executive within twenty (20) days after the effective date of the termination. As a condition of receiving such benefits pursuant to this Agreement, the Executive shall execute and deliver to the Company prior to his receipt of such benefits a general release substantially in the form attached hereto as Exhibit A provided the Company executes such release and delivers an executed counterpart to the Executive.      (e) Death. In the event of the Executive’s death during the Term of this Agreement, the Executive’s employment hereunder shall immediately and automatically terminate, and the Company shall (i) pay the Executive’s estate or beneficiaries within a reasonable period after the effective date of termination all earned, unpaid Salary, all earned, unpaid bonuses and all accrued unused vacation; and (ii) notwithstanding anything to the contrary in any stock option agreement, any unvested stock options granted to the Executive shall accelerate and vest in full on the effective date of termination and the recipients of such benefits may exercise such options at any time up to two-hundred seventy (270) days after the effective date of termination of the Executives’ employment. As a condition of receiving such benefits pursuant to this Agreement, the recipient(s) of benefits under this subsection shall execute and deliver to the Company prior to receipt of such benefits a general release substantially in the form attached hereto as Exhibit A.       (e) Disability. Notwithstanding anything to the contrary in the Agreement, the Company may terminate the Executive’s employment hereunder, upon written notice to the Executive, in the event that the Executive becomes disabled during the Term through any condition of either a physical or psychological nature and, as a result, is, with or without reasonable accommodation, unable to perform the essential functions of the services contemplated hereunder for (a) a period of ninety (90) consecutive days, or (b) for shorter periods aggregating one hundred twenty (120) days during any twelve (12) month period during the Term. Any such termination shall become effective upon mailing or hand delivery of notice that the Company has elected its right to terminate under this subsection 5(f), and the Company shall (i) pay the Executive on the effective date of termination all earned, unpaid Salary; (ii) pay the Executive on the effective date of termination all earned, unpaid bonuses; (iii) pay the Executive on the effective date of termination all accrued unused vacation; (iv) continue to pay the Executive the Salary and shall provide medical, life and disability coverage, under the same conditions as exist at the time of termination, for a six (6) month period beginning on the effective date of the termination, and (v) notwithstanding anything to the contrary in any stock option agreement, any unvested stock options granted to the Executive shall accelerate and vest in full on the effective date of termination and the Executive may exercise such options at any time up to two-hundred seventy (270) days after the effective date of termination of his employment. As a condition of receiving such benefits pursuant to this Agreement, the Executive shall execute and deliver to the Company prior to his receipt of such benefits a general release substantially in the form attached hereto as Exhibit A provided the Company executes such release and delivers an executed counterpart to the Executive. --------------------------------------------------------------------------------      (f) Certain Events. Notwithstanding anything to the contrary in any stock option plan or agreement, in the event of a Change in Control of the Company, or Affiliate by which the Executive is employed, all unvested stock options in the Company granted to the Executive shall accelerate and vest in full upon the Change in Control. As a condition of the foregoing benefit, the Executive agrees that, if so requested by the Company, or such Affiliate, prior to the Change in Control, he shall continue to be employed by the Company or such Affiliate for a period of one (1) year, subject to all of the other terms and conditions of this Agreement, and if he fails to satisfy such obligation he shall pay to the Company as liquidated damages a sum equal to the difference between the exercise price of such stock options and the higher of (x) the fair market value of the option shares on the effective date of the Change in Control, or (y) the highest effective price paid for the Company’s common stock by any acquirer in connection with the Change in Control. As a further condition of the foregoing benefit, the Executive shall execute and deliver to the Company prior to his receipt of such benefit a general release of claims up to the date of the Change in Control, substantially in the form attached hereto as Exhibit A, provided the Company shall execute such release and deliver an executed counterpart to the Executive.      (g) Tax Deductability. If it is determined by the Company or the Internal Revenue Service that any payment or benefit received or deemed received by the Executive from the Company (pursuant to this Agreement or otherwise) is or will become subject to any excise tax under Section 4999 of the Internal Revenue Code, and, therefore, that the Company will not be entitled to a federal tax deduction in connection with such payments and benefits or any portion thereof, then such payments and/or benefits shall be reduced, in a form and amount agreed to by the parties in good faith, in the amount necessary to allow the Company a federal tax deduction in connection with all payments and benefits provided to the Executive. 6. Choice of Law.      The validity, interpretation and performance of this Agreement shall be governed by, and construed in accordance with, the internal law of Maryland, without giving effect to conflict of law principles. 7. Miscellaneous.      (a) Assignment; Delegation. The Executive acknowledges and agrees that the rights and obligations of the Company under this Agreement may be assigned by the Company to any successors in interest. The Executive further acknowledges and agrees that the Company may delegate performance of its obligations to any Affiliate provided that the Company shall retain liability for any breach of its obligations under this Agreement. The Executive further acknowledges and agrees that this Agreement is personal to the Executive and that the Executive may not assign or delegate any rights or obligations hereunder.      (b) Withholding. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and other payroll deductions in accordance with the Company’s policies applicable to employees of the Company at the Executive’s level.      (c) Entire Agreement. This Agreement, the Executive’s employee nondisclosure/noncompetition agreement with the Company, and any stock option agreement(s) between the parties, set forth the entire agreement between the parties on the subject matter contained herein and supersede any prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive’s employment.      (d) Amendments. Any attempted modification of this Agreement will not be effective unless signed by an officer of the Company and the Executive. --------------------------------------------------------------------------------      (e) Waiver of Breach. The Executive understands that a breach of any provision of this Agreement may only be waived by an officer of the Company. The waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.      (f) Severability. If any provision of this Agreement should, for any reason, be held invalid or unenforceable in any respect by a court of competent jurisdiction, then the remainder of this Agreement, and the application of such provision in circumstances other than those as to which it is so declared invalid or unenforceable, shall not be affected thereby, and each such provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.      (g) Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered (i) in hand by private messenger, or (ii) by a nationally known and reputable overnight mail service, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):   If to the Company:   135 National Business Parkway Annapolis Junction, MD 20701 Attn: CEO With a copy to General Counsel   If to Executive:   __________________________   __________________________   __________________________   __________________________      (h) Survival. The Executive and the Company agree that certain provisions of this Agreement shall survive the expiration or termination of this Agreement and the termination of the Executive’s employment with the Company. Such provisions shall be limited to those within this Agreement which, by their express and implied terms, obligate either party to perform beyond the termination of the Executive’s employment or termination of this Agreement.      (i) Arbitration of Disputes. Any controversy or claim arising out of this Agreement or any aspect of the Executive’s relationship with the Company including the cessation thereof shall be resolved by arbitration in accordance with the then existing Employment Dispute Resolution Rules of the American Arbitration Association, in Washington, D.C., and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The parties shall split equally the costs of arbitration, except that each party shall pay its own attorneys’ fees. The parties agree that the award of the arbitrator shall be final and binding. --------------------------------------------------------------------------------      (j) Rights of Other Individuals. This Agreement confers rights solely on the Executive and the Company. This Agreement is not a benefit plan and confers no rights on any individual or entity other than the undersigned.      (k) Headings. The parties acknowledge that the headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement.      (l) Advice of Counsel. The Executive and the Company hereby acknowledge that each party has had adequate opportunity to review this Agreement, to obtain the advice of counsel with respect to this Agreement, and to reflect upon and consider the terms and conditions of this Agreement. The parties further acknowledge that each party fully understands the terms of this Agreement and has voluntarily executed this Agreement. The Company shall pay the legal fees and costs incurred by the Executive in connection with the negotiation and preparation of this Agreement, upon the presentation of invoices in appropriate form.      (m) Amendment and Replacement. Effective June 30, 2000, this Agreement amends and replaces the Employment Agreement between the parties dated March 22, 2000.      IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the day and year set forth below. EXECUTIVE CREDIT MANAGEMENT SOLUTIONS, INC. __________________________________ By: ______________________________ __________________________________ SCOTT FREIMAN Title:_____________________________ Dated:________________________, 2000 Dated:________________________, 2000 -------------------------------------------------------------------------------- EXHIBIT A SEPARATION AGREEMENT AND GENERAL RELEASE      This Separation Agreement and General Release (“Agreement”) is made and entered into this ____ day of _____, _____, by and between Credit Management Solutions, Inc. (hereinafter the “Company” or “Employer”) and [EMPLOYEE NAME] (“Employee”) (hereinafter collectively referred to as the “Parties”), and is made and entered into with reference to the following facts. RECITALS      WHEREAS, Employee was hired by the Company on or about ________, as a ____________; and      WHEREAS, the Company and Employee have agreed to terminate their employment relationship effective ______, ____; and      WHEREAS, the Parties have entered into a written employment agreement, dated _________ (the “Employment Agreement”), under which Employee is entitled to certain severance benefits conditioned upon his/her execution of this Agreement; and      WHEREAS, the Parties each desire to resolve any potential disputes which exist or may exist arising out of Employee’s employment with the Company and/or the termination thereof.      NOW THEREFORE, in consideration of the covenants and promises contained herein, the Parties hereto agree as follows: AGREEMENT      1. Agreement By the Employee. In exchange for the payments described in paragraph 2 below, Employee agrees to the following: (a) that his/her employment with the Company is terminated effective _________, ____ (hereinafter the “Termination Date”); and (b) to be bound by the terms of this entire Agreement.      2. Agreement By the Company. In exchange for Employee’s agreement to be bound by the terms of this entire Agreement, including but not limited to the Release of Claims in paragraph 3, the Company agrees to provide Employee with a severance benefits as provided for in the Employment Agreement.      Employee acknowledges that, absent this Agreement, s/he has no legal, contractual or other entitlement to the consideration set forth in this paragraph and that the amount set forth in this paragraph constitute valid and sufficient consideration for Employee’s release of claims and other obligations set forth herein.      3. Release of Claims.      (a) Employee hereby expressly waives, release, acquits and forever discharges the Company and its divisions, subsidiaries, affiliates, parents, related entities, partners, officers, directors, shareholders, investors, executives, managers, employees, agents, attorneys, representatives, successors and assigns (hereinafter collectively referred to as “Releasees”), from any and all claims, demands, and causes of action which Employee has or claims to have, whether known or unknown, of whatever nature, which exist or may exist on Employee’s behalf from the beginning of time up to and including the date of this Agreement. As used in this paragraph 3, “claims,” “demands,” and “causes of action” include, but are not limited to, claims based on contract, whether express or implied, fraud, stock fraud, defamation, wrongful termination, estoppel, equity, tort, retaliation, intellectual property, personal injury, spoliation of evidence, emotional distress, public policy, wage and hour law, statute of common law, claims for severance pay, claims related to stock options and/or fringe benefits, claims for attorneys’ fees, vacation pay, debts accounts, compensatory damages, punitive or exemplary damages, liquidated damages, and any and all claims arising under any federal, state, or local statute, law, or ordinance prohibiting discrimination on account of race, color, sex, age, religion, sexual orientation, disability or national origin, including but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, the Family and Medical Leave Act or the Employee Retirement Income Security Act.      (b) The Company and its divisions, subsidiaries, affiliates, parents, related entities, hereby expressly waive, release, aquit and forever discharge Employee and his agents, attorneys, representatives, successors, heirs and assigns (hereinafter collectively referred to as “Employee Releasees”), from any and all claims, demands, and causes of action which Employee has or claims to have, whether known or unknown, of whatever nature, which exist or may exist on Employee’s behalf from the beginning of time up to and including the date of this Agreement. As used in this paragraph 3, “claims,” “demands,” and “causes of action” include, but are not limited to, claims based on contract, whether expressed or implied, fraud, stock fraud, defamation, wrongful termination, estoppel, equity, tort, retaliation, intellectual property, personal injury, spoliation of evidence, emotional distress, public policy, wage and hour law, statute or common law, claims for severance pay, claims related to stock options and/or fringe benefits, claims for attorneys’ fees, vacation pay, debts, accounts, compensatory damages, punitive or exemplary damages, liquidated damages, and any and all claims arising under any federal state, or local statute, law, or ordinance prohibiting discrimination on account of race, color, sex, age, religion, sexual orientation, disability or national origin, including but not limited to, the Age Discrimination in Employment Act Title VIII of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, the Family and Medical Leave Act or the Employee Retirement Income Security Act; provided, however, that, this release does not include any claim, demand or cause of action arising out of Executive’s malfeasance, fraud, embezzlement, intentional torts, breach of his duties under his employee nondisclosure/noncompetition agreement with the Company, violation of any other duties with respect to confidential or proprietary information or intellectual property (including without limitation patents, copyrights, trade secrets and trademarks), noncompetition, nonsolicitation or loyalty, or violation of the Company’s employee policies, including without limitation its Human Resources and securities trading policies. --------------------------------------------------------------------------------      4. Last Date of Employment. It is understood and agreed that Employee’s last date of employment with Employer is _________, ____.      5. Receipt of Wages and Other Compensation. Employee acknowledges and agrees that, prior to his/her execution of this Agreement, s/he has received payment for all wages, salary, bonuses, accrued vacation, and all other compensation owed to Employee by the Company.      6. Company Property/Proprietary Information. Employee agrees to continue to abide by the terms of the Company’s Proprietary Information Agreement the terms of which are incorporated herein by reference.      7. Acceptance of Agreement/[Revocation]. This Agreement was received by Employee on ______, ____. Employee may accept this Agreement by returning a signed original to the Company. This Agreement shall be withdrawn if not accepted in the above manner on or before _____.      8. Non-Admission of Liability. The Company denies any wrongdoing whatsoever in connection with its dealings with Employee, including but not limited to Employee’s employment and termination. It is expressly understood and agreed that nothing contained in this Agreement shall constitute or be treated as an admission of any wrongdoing or liability on the part of the Company or the Employee.      9. No Filing of Claims. Employee represents and warrants that s/he does not presently have on file, and further represents and warrants that s/he will not hereafter file, any claims, charges, grievances or complaints against any of the Releasees (defined above) in or with any administrative, state, federal or governmental entity, agency, board or court, or before any other tribunal or panel or arbitrators, public or private, based upon any actions or omissions by the Releasees occurring prior to the date of this Agreement.      10. Ownership of Claims. Employee represents and warrants that s/he is the sole and lawful owner of all rights, title and interest in and to all released matters, claims and demands referred to herein. Employee further represents and warrants that there has been no assignment or other transfer of any interest in any such matters, claims or demands which she may have against the Releasees.      11. Confidentiality. Employee understands and agrees that this Agreement, and the matters discussed in negotiating its terms, are entirely confidential. It is therefore expressly understood and agreed that Employee will not reveal, discuss, publish or in any way communicate any of the terms, amount or fact of this Agreement to any person, organization or other entity, with the exception of his/her immediate family members and professional representatives, unless required by subpoena or court order. Employee further agrees that s/he will not, at any time in the future, make any statements to any third parties that disparage any of the Releasees personally or professionally. --------------------------------------------------------------------------------      12. Tax Indemnification. It is understood and agreed that Employee is liable for all tax obligations, if any, with respect to the settlement payments provided for herein. Employee agrees to indemnify, defend and hold harmless Employer from any and all taxes, assessments, penalties, loss, costs, reasonable attorneys’ fees, expenses or interest payments that Employer may at any time incur by reason of any demand, proceeding, action or suit brought against Employer arising out of or in any manner related to any local, state or federal taxes allegedly due from Employee in connection with this Agreement; provided (a) Employer promptly notifies Employee of any such claim, demand or cause of action against the Company, and (b) keeps Employee fully informed of all material facts and events with respect to such proceedings (to the extent such information does not waive any privileges).      13. Maryland Law Applies. This Agreement, in all respects, shall be interpreted, enforced and governed by and under the laws of the State of Maryland. Any and all actions relating to this Agreement shall be filed and maintained in the federal and/or state courts located in the State of Maryland, and the parties consent to the jurisdiction of such courts. In any action arising out of this Agreement, or involving claims barred by this Agreement, the prevailing party shall be entitled to recover all costs of suit, including reasonable attorneys’ fees.      14. Successors and Assigns. The Parties expressly understand and agree that this Agreement, and all of its terms, shall be binding upon their representatives, heirs, executors, administrators, successors and assigns.      15. Consultation with Counsel. Employee acknowledges that s/he has been advised to consult with legal counsel of her choice prior to execution and delivery of this Agreement.      16. Integration. Except as otherwise specifically provided for, this Agreement constitutes an integrated, written contract, expressing the entire agreement between the Parties with respect to the subject matter hereof. In this regard, Employee represents and warrants that s/he is not relying on any promises or representations which do not appear written herein. Employee further understands and agrees that this Agreement can be amended or modified only by a written agreement, signed by all of the Parties hereto.      17. Counterparts. This Agreement may be executed in separate counterparts and by facsimile, and each such counterpart shall be deemed an original with the same effect as if all Parties had signed the same document.      18. Headings. The headings in each paragraph herein are for convenience of reference only and shall be of no legal effect in the interpretation of the terms hereof.      19. Severability. If any provision in this Agreement is held to be invalid, the remainder of this Agreement shall not be affected by such a determination.      20. Voluntary Agreement. EMPLOYEE UNDERSTANDS AND AGREES THAT S/HE MAY BE WAIVING SIGNIFICANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT, AND REPRESENTS THAT S/HE HAS ENTERED INTO THIS AGREEMENT KNOWINGLY AND VOLUNTARILY, WITH A FULL UNDERSTANDING OF AND IN AGREEMENT WITH ALL OF ITS TERMS. -------------------------------------------------------------------------------- DATED: _____________________,____ CREDIT MANAGEMENT SOLUTIONS, INC. By: __________________________ Its: __________________________ DATED: _____________________, ____ [EMPLOYEE NAME] __________________________

EXHIBIT 10.17 COMERICA BANK 151 South Rose Street Kalamazoo, Michigan 49007 April 20, 2000 Manatron, Inc. 2970 South Ninth Street Kalamazoo, Michigan 49009 Gentlemen:           This letter (herein called the "Agreement") constitutes an agreement by and between Comerica Bank, a Michigan banking corporation (herein called "Bank") and Manatron, Inc., a Michigan corporation, (herein called "Company"), pertaining to certain loans and other credit which Bank has made and/or may from time to time hereafter make available to Company. This Agreement supersedes and replaces that certain Letter Agreement dated October 9, 1998, by and between Company and Bank, as amended.           In consideration of all present and future loans, advances and other credit from time to time made available by Bank to or in favor of Company, including, without limitation, all loan and advances made or to be made, by Bank to or in favor of Company under a Five Million Dollars ($5,000,000.00) line of credit made available by Bank in favor of Company and in consideration of all present and future Liabilities of Company to Bank, Company represents, warrants, covenants and agrees to and with Bank as follows:           1.          For purposes of this Agreement, the following terms shall have the following respective meanings:           "Affiliate" shall mean, when used with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.           "Consolidated" shall mean, when used with reference to any financial statements or financial or accounting terms in this Agreement, the aggregate for two or more persons determined on a consolidated basis in accordance with GAAP. Unless otherwise specified herein, references to "consolidated" financial statements or data of Company includes consolidation with all Subsidiaries of Company in accordance with GAAP.           "Debt" shall mean, for any applicable Person(s) and as of any applicable time of determination thereof, the total liabilities of such Person(s) at such time, as determined in accordance with GAAP. --------------------------------------------------------------------------------           "Debt-to-Tangible Net Worth Ratio" shall mean, for any applicable Person(s) and as of any applicable time of determination thereof, the ratio of (i) the total Debt of such Person(s) at such time, as determined in accordance with GAAP, to (ii) the Tangible Net Worth of such Person(s) at such time.           "Default" shall mean any condition or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.           "Environmental Laws" shall mean all laws, codes, ordinances, rules, regulations, orders, decrees and directives issued by any federal, state, local, foreign or other governmental or quasi-governmental authority or body (or any agency, instrumentality or political subdivision thereof) pertaining to hazardous or toxic materials, including, without limitation, any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos, and/or other similar materials; any so-called "superfund" or "superlien" law pertaining to hazardous or toxic materials on or about any property at any time owned, leased or otherwise used by Company and/or any of it's Subsidiaries, or any portion thereof, including, without limitation, those relating to soil, surface, subsurface groundwater conditions and the condition of the ambient air; and any other federal, state, foreign or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, radioactive, flammable or dangerous waste, substance or material, as now or at any time hereafter in effect.           "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.           "Event of Default" shall mean the occurrence or existence of any of the conditions or events set forth in Section 6 of this Agreement.           "GAAP" shall mean generally accepted accounting principles consistently applied.           "Liabilities" shall mean all present and future liabilities, obligations and indebtedness of Company to Bank, howsoever created, evidenced, existing or arising, whether direct or indirect, absolute or contingent, joint or several, now or hereafter existing or arising, or due or to become due, and any and all extensions, renewals, amendments, modifications and/or restatements thereof, including, but not limited to, a $5,000,000 Promissory Note of even date from Company to Bank.           "Loan Documents" shall mean this Agreement and any and all notes, instruments, guaranties, documents and agreements at any time evidencing, governing, securing or otherwise relating to any of the Liabilities.           "Net Earnings" shall mean, for any applicable Person(s) and as of any applicable time of determination thereof, the Net Earnings of such Person(s) at such time, as determined in accordance with GAAP. 2 --------------------------------------------------------------------------------           "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.           "Permitted Encumbrances" is defined in Section 5(d) of this Agreement.           "Person" or "person" shall mean any individual, corporation, partnership, limited liability company, trust, incorporated or unincorporated organization, joint venture, joint stock company, government, or any agency or political subdivision thereof, or any other entity of any kind.           "Subordinated Debt" shall mean, for any applicable Person(s) and as of any applicable time of determination thereof, any Debt of such Person(s) which is subordinated in priority of payment to any of the Liabilities of any such Person(s) to Bank, in each case, pursuant to an agreement executed and delivered unto and in form and detail satisfactory to Bank.           "Subsidiary" of a Person shall mean any corporation, association, limited liability company, partnership or other business entity of which more than fifty percent (50%) of the outstanding voting stock or other equity interests is owned or controlled either directly or indirectly by such Person or one or more of its other Subsidiaries, or any combination thereof, or the management of which is controlled, either directly or indirectly by such Person or one or more of its other Subsidiaries, or any combination thereof. Without limiting the generality of the foregoing definition of the term "Subsidiary", such term shall include, without limitation, Atek Information Services, Inc., an Indiana corporation, Specialized Data Systems, Inc., a North Carolina corporation and Manatron ProVal Corporation, an Ohio corporation.           "Tangible Net Worth" shall mean, for any applicable Person(s) and as of any applicable time of determination thereof, the excess of (i) the net book value of the assets of such Person(s) at such time (excluding patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill and all other intangible assets of such Person(s) at such time, amounts due to such Person(s) from employees and shareholders, and prepaid expenses), after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), over (ii) the total Debt of such Person(s) at such time, all as determined in accordance with GAAP.           2.          Each loan, advance or other extension of credit made by Bank to or otherwise in favor of Company shall be evidenced by and subject to a promissory note or other agreement or evidence of indebtedness acceptable to Bank, in each case, executed and delivered by Company unto Bank. The funding and disbursement of any loan or advance, and the extension of any other credit, to or in favor of Company, shall be subject to the execution and/or delivery unto Bank of such documents, instruments, agreements, opinions and certificates as Bank may reasonably require, and shall bc further subject to the satisfaction of such other conditions and requirements as Bank, and its counsel, may from time to time reasonably require.           3.          Company hereby represents and warrants, and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this 3 -------------------------------------------------------------------------------- Agreement, so long as Bank shall have any commitment or obligation, if any, to make loans or otherwise extend credit to or in favor of Company, and thereafter, so long as any Liabilities remain unpaid and outstanding:   (a) Company, and each of its Subsidiaries, is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation, is duly qualified and authorized to do business in each jurisdiction where the character of its assets or the nature of its activities makes such qualification necessary, and has the legal power and authority to own its properties and assets and to carry out its business as now being conducted in each such jurisdiction wherein such qualification is necessary; execution, delivery and performance of this Agreement, and any and all other Loan Documents to which Company and/or any of its Subsidiaries is a party or by which it is otherwise bound, are within Company's and each such Subsidiary's corporate powers and authorities, have been duly authorized by all requisite corporate or other necessary or appropriate action, and are not in contravention or violation of law or the terms of Company's or any such Subsidiary's Articles of Incorporation or Bylaws, and do not require the consent or approval of any governmental body, agency or authority; and this Agreement, and any other Loan Documents contemplated hereby, when executed, issued and/or delivered by Company and/or any such Subsidiary, or by which Company or any such Subsidiary is otherwise bound, will be valid and binding and legally enforceable against Company and/or any such Subsidiary, as the case may be, in accordance with their terms.         (b) The execution, delivery and performance of this Agreement, and any other Loan Documents required under or contemplated by this Agreement to which Company and/ or any of its Subsidiaries is a party or by which it is otherwise bound, and the issuance of this Agreement and any such other Loan Documents by Company and/or any such Subsidiary, and the borrowings and other transactions contemplated hereby and thereby, are not in contravention or violation of the unwaived terms of any indenture, agreement or undertaking to which Company or any such Subsidiary is a party or by which it or any of its property or assets is bound, and will not result in the creation or imposition of any lien or encumbrance of any nature whatsoever upon any of the property or assets of Company or any such Subsidiary, except to or in favor of Bank.         (c) No litigation or other proceeding before any court or administrative or governmental agency is pending, or, to the knowledge of Company or any of its officers, is threatened against Company or any of its Subsidiaries, the outcome of which could materially impair Company's or any such Subsidiary's financial condition or its ability to carry on its business or its/their ability to pay and perform its/their liabilities and obligations hereunder or otherwise in respect of the Liabilities.         (d) There are no security interests in, liens, mortgages, or other encumbrances on any of Company's or any of its Subsidiary's property or assets, except Permitted Encumbrances. 4 --------------------------------------------------------------------------------   (e) No Default or Event of Default has occurred and is continuing or exists under under any of the Liabilities or Loan Documents.         (f) The most recent financial statements with respect to Company and its Subsidiaries delivered to Bank fairly present the financial condition of Company and its Subsidiaries and the results of their operations as of the date thereof and for the period(s) covered thereby in accordance with GAAP; and since October 31, 1999, there has been no material adverse change in the condition (financial or otherwise) or operations of Company or any of its Subsidiaries, and there are no material debts, liabilities or obligations (absolute or contingent) of Company or any of its Subsidiaries, except as disclosed in such financial statements (or in the notes thereto).           4.          So long as Bank shall have any commitment or obligation, if any, to make any loans or extend credit to or in favor of Company, and so long as any Liabilities remain unpaid and outstanding, Company covenants and agrees that it shall:   (a) Furnish to Bank, or cause to be furnished to Bank, in each case, in form and detail and on a reporting basis satisfactory to Bank, the following:   (i) as soon as available, and in any event not later than ninety (90) days after and as of the end of each fiscal year of Company, beginning with the fiscal year ending April 30, 2000, audited consolidated financial statements of Company and its Subsidiaries, containing the consolidated balance sheet of Company and its Subsidiaries as of the close of each such fiscal year, consolidated statements of income and retained earnings and a statement of cash flows of Company and its Subsidiaries for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such financial statements shall be audited by independent certified public accountants of recognized standing selected by Company and acceptable to Bank, shall be prepared in accordance with GAAP, and shall be in such detail as Bank may reasonably require;         (ii) as soon as available, and in any event not later than forty five (45) days after and as of the end of each fiscal quarter of Company, beginning with the fiscal quarter ending July 31, 2000, consolidated financial statements of Company and its Subsidiaries, containing the consolidated balance sheets of Company and its Subsidiaries as of the close of each such fiscal quarter, consolidated statements of income and retained earning and a statement of cash flows for Company and its Subsidiaries for each such fiscal quarter and for the portion of the fiscal year of Company and its Subsidiaries through the end of the fiscal quarter then ending, and such other comments and financial details as are usually included in similar reports. Such financial statements shall be prepared by Company in accordance with GAAP, and on a basis consistent with the annual statements to be furnished to Bank pursuant to sub-section (i) above, shall be in such detail as Bank may reasonably require, and shall be certified a s 5 --------------------------------------------------------------------------------     to accuracy and fairness by the chief executive officer or chief financial officer of Company;         (iii) simultaneous with the delivery to Bank of the respective financial statements required in subsections (i) and (ii) above, a compliance certificate in form and detail reasonably satisfactory to Bank, certified by the chief executive officer or chief financial officer of Company, certifying that, as of the date thereof, to the best of such officer's knowledge, no Default or Event of Default shall have occurred and be continuing or exist, or if any Default or Event of Default shall have occurred and be continuing or exist, specifying, in detail, the nature and period of existence thereof and any action taken or proposed to be taken by Company in respect thereto, and also certifying as to whether Company is in compliance with the financial covenants contained in Sections 4(g) and (h) of this Agreement (which certificate shall set forth, in reasonable detail, Company's calculations and the resultant ratios or financial tests determined thereunder);         (iv) as soon as possible, and in any event within three (3) business days after becoming aware of the occurrence or existence of any Default or Event of Default, or of any other condition or occurrence which has had or could reasonably be expected to have a materially adverse effect upon Company's or any of its Subsidiary's business, properties, or financial condition or upon Company's or any such Subsidiary's ability to comply with its obligations hereunder or otherwise in respect of any of the Liabilities or Loan Documents, a written statement of an authorized officer of Company setting forth the details of such Default or Event of Default, or such other condition or occurrence, and the action which Company has taken or caused to be taken, or proposes to take or cause to be taken, with respect thereto; and         (v) promptly, at such times as Bank may reasonably require, in form and detail satisfactory to Bank, such other information and reports as may be required under the terms of any Loan Documents or as Bank may reasonably request from time to time.   (b) Keep, and cause each of its Subsidiaries to keep, proper books of record and account in which full and correct entries shall be made of all of its financial transactions and its assets and businesses so as to permit the presentation of financial statements (including, without limitation, those financial statements to be delivered to Bank pursuant to Section 4(a) above) prepared in accordance with GAAP; and permit Bank, or its representatives, at reasonable times and intervals, to visit all of Company's and each of its Subsidiary's offices and to make inquiries as to Company's and each such Subsidiary's respective financial matters with its respective directors, officers, employees, and independent certified public accountants. 6 --------------------------------------------------------------------------------   (c) Permit Bank, and cause each of its Subsidiaries to permit Bank, through Bank's authorized employees, officers, attorneys, accountants and representatives, to inspect, audit and examine Company's and each of its Subsidiary's books, accounts, records, ledgers and assets and properties of every kind and description, wherever located, at all reasonable times during normal business hours, upon oral or written request of Bank.         (d) Keep, and cause each of its Subsidiaries to keep, its insurable properties adequately insured, and maintain (i) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of Company or such Subsidiary, as the case may be, (ii) necessary workers' compensation insurance, (iii) public liability and product liability insurance, and (iv) such other insurance as may be required by law or as may be reasonably required by Bank, all of which insurance shall be in such amounts, contain such terms, be in such form, be for such purposes, prepaid for such time periods, and written by such companies as may be satisfactory to Bank. All such policies shall contain a provision whereby they may not be canceled or materially amended except upon thirty (30) days' prior written notice to Bank. Company will promptly deliver to Bank, or caused to be delivered to Bank, at Bank's request, evidence reasonably satisfactory to Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to Bank.         (e) Pay, and cause each of its Subsidiaries to pay, promptly and within the time that they can be paid without late charge, penalty or interest, all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon Company or any such Subsidiary and/or its/their property, except to the extent being contested in good faith and, if requested by Bank, bonded in an amount and manner satisfactory to Bank. If Company or any such Subsidiary fails to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest, Bank shall have the option (but not the obligation) to do so, and Company agrees to repay Bank, upon demand, with interest at the highest rate of interest applicable to any of the Liabilities, all amounts so expended by Bank.         (f) Do, or cause to be done, all things necessary to preserve and keep in full force and effect Company's and each of its Subsidiary's corporate existence, rights and franchises and comply with all applicable laws; continue to conduct and operate, and cause each of its Subsidiaries to continue to conduct and operate, its respective business substantially as conducted and operated during the present and preceding calendar year; at all times maintain, preserve and protect, and cause each of its Subsidiaries to so maintain, preserve and protect, all franchises and trade names and preserve all the remainder of its property and keep the same in good repair, working order and condition; and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7 --------------------------------------------------------------------------------   (g) Maintain, on a Consolidated statement basis, a Tangible Net Worth of not less than the amounts specified during the periods specified below:   (i) $2,450,000 from the date hereof until April 30, 2000; and   (ii) After April 30, 2000, increasing amounts equal to: (x) $2,450,000, plus (y) $250,000 on each July 31, October 31, January 31 and April 30 thereafter.   (h) Maintain, on a Consolidated statement basis, a Debt-to-Tangible Net Worth Ratio of not more than 4.5 to 1.0.         (i) Maintain, on a Consolidated statement basis, as of the last day of each fiscal quarter, beginning with the fiscal quarter ending April 30, 2000, Net Earnings for the four calendar quarters ending on such date of not less than $1,000,000.         (j) At all times meet, and cause each of its Subsidiaries to meet, the minimum funding requirements of ERISA with respect to Company's and each Subsidiary's employee benefit plans subject to ERISA; promptly after Company knows or has reason to know of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or that the PBGC or Company or any of its Subsidiaries has instituted or will institute proceedings to terminate an employee pension plan, deliver to Bank a certificate of an authorized officer of Company setting forth details as to such event or proceedings and the action which Company and/or such Subsidiary(ies) propose(s) to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and upon the request of Bank, furnish to Bank (or cause the plan administrator to furnish Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by Company and/or any of its Subsidiaries not later than ten (10) days after such report has been so filed. Company and its Subsidiaries shall be permitted to voluntarily terminate employee pension or benefit plans, so long as any such voluntary termination is done in accordance with ERISA and does not result in a material liability or obligation to Company or any of its Subsidiaries.         (k) Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required under applicable Environmental Laws, where the failure to do so could have a material adverse affect upon the business, operations, condition (financial or otherwise) performance or properties of Company or any of its Subsidiaries, or could have a material adverse effect upon the ability of Company to perform its obligations under this Agreement or any of the other Loan Documents or otherwise in respect of any of the Liabilities, or could materially adversely affect the enforceability of this Agreement or any of the other Loan Documents; and promptly provide to Bank, immediately upon receipt thereof, copies of any material correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a violation of any Environmental Laws by Company or any of its Subsidiaries, or of any circumstance or condition which requires or may require a financial 8 --------------------------------------------------------------------------------     contribution by Company or any of its Subsidiaries, or a cleanup, removal, remedial action or other response by or on behalf of Company or any of its Subsidiaries under applicable Environmental Law(s), or which seeks damages or civil, criminal, or punitive penalties from Company or any of its Subsidiaries for any violation or alleged violation of any Environmental Law(s) by Company or any of its Subsidiaries. Company hereby indemnities, saves and holds Bank, and any of Bank's past, present and future officers, directors, shareholders, employees, representatives and consultants, harmless from any and all losses, damages, suites, penalties, costs, liabilities and expenses (including, without limitation, reasonable legal expenses and attorneys' fees) incurred or arising out of any claim, loss or damage of any property, injuries to or death of any persons, contamination of or adverse effects on the environment, or other violation of any applicable Environmental Law(s), in any case, caused by Company or any of its Subsidiaries, or in any way related to any property owned or operated by Company or any of its Subsidiaries, or due to any acts of Company or any of its Subsidiaries, or any of their respective officers, directors, shareholders, employees, consultants and/or representations, provided, however, that the foregoing indemnification shall not be applicable, and Company shall not be liable for any such losses, damages, suits, penalties, costs, liabilities or expenses, to the extent (but only to the extent) the same arise or result from any gross negligence or willful misconduct of Bank or any of its agents or employees.           5.          So long as Bank shall have any commitment or obligation, if any, to make any loans or extend credit to or in favor of Company, and so long as any Liabilities remain unpaid and outstanding, Company covenants and agrees that it shall not, and, to the extent applicable, shall cause each of its Subsidiaries to not, without the prior written consent of Bank:   a) Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including, without limit, any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP), whether now owned or hereafter acquired, other than the following (collectively, "Permitted Encumbrances"):   (i) liens, mortgages, security interests and encumbrances to or in favor of Bank, if any;         (ii) liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings diligently pursued and, if requested by Bank, bonded in an amount and manner satisfactory to Bank;         (iii) liens, not delinquent, created by statute in connection with workers' compensation, unemployment insurance, social security, old age pensions (subject to the applicable provisions of this Agreement) and similar statutory obligations; 9 --------------------------------------------------------------------------------   (iv) liens in favor of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable;         (v) minor encumbrances or imperfections of title consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restriction or existing or future public restrictions on the use of real property, none of which (individually or in the aggregate) materially impairs, or would materially impair, the present or future use of such property in the operation of the business for which it is used, or would be violated in any material respect by any existing or proposed structure or land use or would have a material adverse effect on the sale or lease of such property, or render title thereto unmarketable; and         (vi) purchase money security interests and liens arising out of "capitalized leases" securing obligations (including, without limit, all loan and lease installment payments) not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00), in aggregate, at any time, so long as such security interests and liens arise substantially contemporaneously with the incurrence of the purchase money indebtedness or capitalized lease obligation to which it relates, secures only the respective purchase money indebtedness or capitalized lease obligation to which it relates, and no other Debt, and covers and extends only to the respective property and assets to which it relates, and no other property or assets.   (b) Sell, lease (as lessor), transfer or otherwise dispose of properties and assets having an aggregate book value of more than Two Hundred Fifty Thousand Dollars ($250,000.00) (whether in one transaction or in a series of transactions), except as to the sale of inventory in the ordinary course of business; change its name; enter into a share exchange with or consolidate with or merge into any other corporation or other business entity, or permit any other corporation or other business entity to merge into it (except for mergers of Subsidiaries into Company and mergers or consolidations of Subsidiaries of Company into other Subsidiaries of Company); acquire all or substantially all of the capital stock, properties or assets of any other Person to the extent that the aggregate amount(s) payable by Company and its Subsidiaries in respect of all such transactions shall exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in any fiscal year of Company; enter into any reorganization or recapitalization, or reclassify its capital stock; or enter into any sale-leaseback transaction.         (c) Acquire or expend for, or commit itself to acquire or expend for, fixed assets, whether by lease, purchase or otherwise, in an aggregate amount that exceeds Seven Hundred and Fifty Thousand Dollars ($750,000.00) in any fiscal year of Company.           6.          The occurrence and/or existence of any of the following conditions or events shall constitute an "Event of Default": 10 --------------------------------------------------------------------------------   (a) Company shall fail to pay the principal of or interest on or shall otherwise fail to pay any other amount owing by Company to Bank, when due, under any of the Liabilities, and such default in payment shall continue unremedied or uncured beyond any applicable period of grace provided with respect thereto, if any, in the relevant Loan Document(s);         (b) any representation, warranty, certification or statement made or deemed to have been made by Company herein, or by any Person(s) (including, without limit, Company) in any certificate, financial statement or other document or agreement delivered by or on behalf of Company in connection with the Liabilities or any of the Loan Documents, shall prove to be untrue in any material respect;         (c) Company shall fail to observe or perform any condition, covenant or agreement of Company set forth herein;         (d) Company, any Subsidiary(ies), or any other Person(s) party thereto, shall fail to observe or perform any condition, covenant or agreement set forth in any other Loan Document (other than as provided in subparagraphs (a) and (c) above), and such default shall remain unremedied or uncured beyond any applicable period of grace or cure, if any, provided with respect thereto;         (e) if there shall be rendered against Company and/or any of its Subsidiaries one or more judgments or decrees involving an aggregate liability of Two Hundred Fifty Thousand Dollars ($250,000.00), or more, which has or have become nonappealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive; or if a writ of attachment or garnishment against the property of Company or any of its Subsidiaries shall be issued and levied in an action claiming Two Hundred Fifty Thousand Dollars ($250,000.00), or more, and not released or appealed and bonded in a manner satisfactory to Bank;         (f) if Company or any of its Subsidiaries shall voluntarily suspend transaction of its business or make a general assignment for the benefit of creditors; or if Company or any of its Subsidiaries shall be adjudicated a bankrupt; or if Company or any of its Subsidiaries shall file a voluntary petition in bankruptcy or for a reorganization or to effect a plan or other arrangement with its creditors; or if Company or any of its Subsidiaries shall file an answer to a creditor's petition or other petition against it (admitting the material allegations thereof) for any adjudication in bankruptcy or for a reorganization; or if Company or any of its Subsidiaries shall apply for or permit the appointment of a receiver, trustee, or custodian for any substantial portion of its properties or assets; or if any order shall be entered by any court approving an involuntary petition seeking reorganization of Company or any such Subsidiary, or if a receiver, trustee, or custodian shall be appointed for Company or any of its Subsidiaries or for any substantial portion of its properties or assets; or if any order shall be entered by any court approving an involuntary petition seeking reorganization of Company or any of its Subsidiaries; or if a receiver, trustee, or custodian shall be appointed for Company or any of its Subsidiaries or for any substantial portion of its/their property or assets; or if bankruptcy, 11 --------------------------------------------------------------------------------     reorganizational or liquidation proceedings are instituted against Company or any of its Subsidiaries and remain undismissed for sixty (60) days, or if Company or any of its Subsidiaries becomes unable to meet its obligations as they mature; or if Company or any of its Subsidiaries commits an act of bankruptcy;         (g) if Company or any of its Subsidiaries shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan established or maintained by it, or if any such plan shall be the subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Company or any of its Subsidiaries to the PBGC which, in the opinion of Bank, will have a material adverse effect upon the operations, business, property, assets, financial condition or credit of Company or any of its Subsidiaries, as the case may be;         (h) if there shall occur, with respect to any pension plan maintained by Company or any of its Subsidiaries, any reportable event (within the meaning of Section 4043(b) of ERISA) which Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after Bank gives written notice to Company, provided that termination of such plan or appointment of such trustee would, in the opinion of Bank, have a material adverse effect upon the operations, business, property, assets, financial condition or credit of Company or any of its Subsidiaries, as the case may be;         (i) any action, suit or proceeding is initiated against Company or any of its Subsidiaries under any federal or state controlled substance, gambling or racketeering statute (including, without limit, the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit or proceeding could result in the confiscation or forfeiture of any portion of the assets of Company or any of its Subsidiaries; or         (j) upon the occurrence or existence of any "Default" or "Event of Default", as the case may be, set forth in any other Loan Document.           7.          Upon the occurrence and at any time during the continuance or existence of any Event of Default, Bank may give notice to Company declaring all outstanding Liabilities to be due and payable, whereupon all such Liabilities then outstanding shall immediately become due and payable, without further notice or demand, and any commitment or obligation, if any, on the part of Bank to make loans or otherwise extend credit to or in favor of Company shall immediately terminate; provided, however, upon the occurrence of any Event of Default set forth in sub-Section 6(f) hereof, the Liabilities shall immediately and automatically become due and payable and any commitment of obligation of Bank to make loans or extend credit to or in favor of Company shall immediately and automatically terminate, in each case, without any necessity of notice or demand, each of which is hereby expressly waived by Company. In addition to the foregoing, upon the occurrence and at any time during the continuance or existence of any Event of Default hereunder, Bank may exercise any and all rights and remedies available to it as a result thereof, whether by agreement, by law, or otherwise. 12 --------------------------------------------------------------------------------           8.          No forbearance on the part of the Bank in enforcing any of its rights or remedies under this Agreement or any other Loan Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by Company hereunder or any such other Loan Document, shall constitute a waiver of any of the terms of this Agreement or such Loan Document or of any such right or remedy.           9.          This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Michigan.           10.          All covenants, agreements, representations and warranties by or on behalf of Company made in connection with this Agreement and any other Loan Documents shall survive the borrowing hereunder or thereunder and shall be deemed to have been relied upon by Bank. All statements contained in any certificate or other document delivered to Bank at any time by or on behalf of Company pursuant hereto shall constitute representations and warranties by Company.           11.          This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that Company shall not assign or transfer any of its rights or obligations hereunder or otherwise in respect of any of the Liabilities without the prior written consent of Bank.           12.          COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE LIABILITIES.           If the foregoing is acceptable to Company, please indicate such with the authorized signature(s) of Company as provided below.   Very truly yours, COMERICA BANK   /s/ Robert W. Carpenter Robert W. Carpenter Vice President 13 -------------------------------------------------------------------------------- ACCEPTED AND AGREED: MANATRON, INC, By: /s/ Paul R. Sylvester --------------------------------------------------------------------------------      Paul R. Sylvester Its: President Dated: April 20, 2000   ACCEPTANCE BY GUARANTORS           The undersigned Guarantors of the indebtedness of Manatron, Inc, to Comerica Bank hereby: accept and agree to the terms of the foregoing letter; and reaffirm that all Guarantys of the indebtedness of Manatron, Inc, to Comerica Bank previously executed by any of the undersigned are in full force and effect, have not been terminated or rescinded by any of the undersigned and cover all "Liabilities" as defined in the above letter agreement. Dated: April 20, 2000 ATEK INFORMATION SERVICES, INC. By: /s/ Paul R. Sylvester --------------------------------------------------------------------------------      Paul R. Sylvester Its: President           SPECIALIZED DATA SYSTEMS, INC. By: /s/ Paul R. Sylvester --------------------------------------------------------------------------------      Paul R. Sylvester Its: President           MANATRON PROVAL CORPORATION By: /s/ Paul R. Sylvester --------------------------------------------------------------------------------      Paul R. Sylvester Its: Chief Executive Officer 14

    EXHIBIT 10.1 FORM OF PURCHASE AGREEMENT BETWEEN REGISTRANT AND X-RAY TECHNOLOGIES, INC. PURCHASE AGREEMENT                THIS PURCHASE AGREEMENT (this "Agreement") is made as of the __ day of November, 2000 by and between X-Ray Technologies, Inc., a ___________________ corporation, and a wholly owned subsidiary of Oxford Instruments plc, having a principal place of business at 275 Technology Circle, Scotts Valley, CA 95066 (the "Purchaser"), and Field Emission Picture Element Technology, Inc., a wholly owned subsidiary of SI Diamond Technology, Inc., a Texas corporation, having a principal place of business at 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758 (the "Seller") (collectively the "Parties" or "parties").   RECITALS               WHEREAS, Purchaser desires to purchase carbon cold cathodes, as hereinafter defined, from Seller, under the terms and conditions more specifically set forth hereafter;               WHEREAS, Seller agrees to sell carbon cold cathodes, as hereinafter defined, to Purchaser under the terms and conditions more specifically set forth hereafter;               NOW, THEREFORE, in consideration of the promises and of the mutual undertakings and obligations of the parties hereinafter set forth, it is hereby agreed and covenanted as follows:   Article I - Definitions 1.1                "Effective Date" means the date that this Agreement is executed by both parties. 1.2               "Carbon Cold Cathode" means a single field emission cold cathode device comprised of a carbon based emitting material deposited on a substrate, developed and produced by Seller. 1.3               "Carbon Cold Cathode Product" means any x-ray tube which incorporates or employs or is made with the benefit of a Carbon Cold Cathode in the Technical Field, and which Carbon Cold Cathode is supplied by Seller to Purchaser. 1.4               "Cold Cathode Technology" means certain proprietary technology and know-how and improvements and enhancements related to the manufacture and use of a Carbon Cold Cathode.                1.5               "Territory" means the World. 1.6               "Technical Field" means instrumentation using x-ray sources for thickness gauging, radiography inspection and spectroscopy applications, where the Carbon Cold Cathodes replace the current technology that utilizes radioactive isotopes. 1.7               "Gross Selling Price" means at least the fair market value of the Carbon Cold Cathode Products, that is, the selling price which would result from an unaffiliated buyer in an arm's length sale of the substantially identical product in the same country, in the same quantity and at the same time subject to the same royalty. 1.8               "Sales Price" means the Gross Selling Price for the Carbon Cold Cathode Products, less accepted returns from customers, excise, sales or use taxes, customs duties and consulor fees, and transportation and insurance costs. Article II B Purchase of Carbon Cold Cathodes 2.1                Terms                      (a)               Purchaser shall use its best efforts to market Carbon Cold Cathode Products.                      (b)               Carbon Cold Cathodes shall be purchased by Purchaser from Seller under purchase orders, which will be in writing and will contain quantity and delivery terms. Purchaser may cancel a purchase order by providing written notice to Seller at any time prior to the delivery date of the Carbon Cold Cathodes ordered within the purchase order. In the event Purchaser cancels a purchase order, Purchaser shall pay a cancellation fee equal to Seller's applicable engineering charges for manufacturing the Carbon Cold Cathodes for the canceled purchase order, but no more than the total price of the Carbon Cold Cathodes ordered by the purchase order. Additional or different preprinted terms of the purchase orders, acknowledgments, or confirmations, whether or not signed or accepted, will not supplement or supercede the terms of this Agreement unless solely agreed in a separate, signed amendment. Title and risk of loss or damage to the Carbon Cold Cathodes purchased under this Agreement shall pass to Purchaser upon shipment of the Carbon Cold Cathodes to Purchaser FOB Seller's plant or warehouse. The cost of packing, crating, freight and in-transit insurance incurred by Seller is an additional charge and will be added to the sales prices, reimbursed upon request, or paid by Purchaser directly.                        (c)               For each purchase order issued by Purchaser to Seller for Carbon Cold Cathodes, the purchase price shall be in accordance with the following schedule:   (i) quantity 1- 50: $80 per Carbon Cold Cathode;   (ii) quantity 51-199: $75 per Carbon Cold Cathode;   (iii) quantity 200-299: $70 per Carbon Cold Cathode;   (iv) quantity 300-499: $65 per Carbon Cold Cathode; and   (v) quantity 500+: $60 per Carbon Cold Cathode.                        (d)                Subject to Sections 2.1(f) and 3.2, in addition to the purchase prices for Carbon Cold Cathodes as set forth in this Section 2.1, Purchaser further agrees to pay to Seller a two percent (2%) royalty on all Carbon Cold Cathode Products sold, licensed or otherwise disposed of to any party, including any third party, by Purchaser.                        (e)                Purchaser has entered into a development agreement with an end user manufacturer of radiation therapy systems. In furtherance of this development agreement, Purchaser is developing an x-ray tube for use in radiation therapy, with the purpose of replacing radioactive isotopes for use in intra-cavity radiation therapy. Seller agrees to allow Purchaser to use Carbon Cold Cathodes to produce x-ray tubes for this intra-cavity radiation therapy application for research and development purposes only; and such Carbon Cold Cathodes may not be used to manufacture or develop such x-ray tubes for commercial purposes. Purchaser agrees to introduce Seller to such end user manufacturer and pursue in good faith a mutually acceptable agreement between Purchaser, Seller and such end user manufacturer whereby Seller will be the exclusive supplier of Carbon Cold Cathodes to replace the current technology that utilizes radioactive isotopes for intra-cavity radiation therapy. Seller will not publicly disclose the nature of this development effort without the prior written consent of Purchaser.                       (f)               During the first year of this Agreement beginning with the Effective Date, Purchaser shall purchase a minimum of three hundred (300) Carbon Cold Cathodes from Seller in accordance with the terms of this Agreement. The two percent (2%) royalty set forth in Section 2.1(d) will not accrue on Carbon Cold Cathode Products manufactured with the three hundred (300) Carbon Cold Cathodes purchased under this Section 2.1(f), except that the two percent (2%) royalty set forth in Section 2.1(d) shall accrue on Carbon Cold Cathode Products manufactured with Carbon Cold Cathodes purchased under this Section 2.1(f) subsequent to Purchaser's termination or fulfillment of Purchaser's obligation to East/West as set forth in Section 3.1. The royalty set forth in Section 2.1(d) will again accrue on Carbon Cold Cathode Products manufactured with Carbon Cold Cathodes purchased after the initial three hundred (300) minimum in this Section 2.1(f), regardless of the status of Purchaser's obligation to East/West as set forth in Section 3.1. 2.2               Accrual of Royalties                     Subject to Section 2.1(d), royalties shall accrue on all Carbon Cold Cathode Products sold, licensed or otherwise disposed of to any party, including any third party, by Purchaser. Obligations to pay accrued royalties shall survive termination of this Agreement. "Disposed of" means (1) Carbon Cold Cathode Products not sold but delivered by Purchaser to others (including corporate affiliates and deliveries for export), regardless of the basis for compensation, if any; and (2) Carbon Cold Cathode Products not sold or licensed as such but sold or licensed by Purchaser as components or constituents of other products. Whether Carbon Cold Cathode Products are either sold, licensed or otherwise disposed of to any party as set forth in this Agreement, the royalty to be paid by Purchaser to Seller shall be based on the Sales Price for such Carbon Cold Cathode Products sold, licensed or otherwise disposed of to any party. 2.3               Payment of Purchases and Royalties                     Payment of  purchases are due within forty-five (45) days following delivery of the purchased Carbon Cold Cathodes. Payments not made during such forty-five (45) day period shall be subject to a two percent (2%) per month late payment charge or such lesser maximum amount as may be allowed under Texas law. Payment of royalties are due upon the delivery of a report as set forth in Section 9.2 by Purchaser to Seller detailing the quantity of Carbon Cold Cathode Products sold or licensed to any party, including any third party, by Purchaser. Royalty payments not paid by Purchaser upon the delivery of the report as set forth in Section 9.2 shall be subject to a two percent (2%) per month late payment charge or such lesser maximum amount as may be allowed under Texas law. Reports shall be furnished to Seller no later than thirty (30) days following the end of each quarterly period in each year from the Effective Date as set forth in Section 9.2. 2.4               Right of First Refusal                     Subject to Section 3.2, if Seller provides written notification of a potential customer for one or more Carbon Cold Cathode Products for use in the Technical Field, then Purchaser shall have fifteen (15) days to sell such Carbon Cold Cathode Product(s) to such potential customer; otherwise, Seller will be free of any restrictions to seek any avenue it desires to fulfill any and all demands by such potential customer for Carbon Cold Cathode Product(s) for use in the Technical Field.                      Subject to Section 3.2, if Seller provides written notification of a potential customer for Carbon Cold Cathodes in the Technical Field, then Purchaser shall have sixty (60) days to order from Seller the same volume of Carbon Cold Cathodes as offered by the potential customer under the same or better terms; otherwise, Seller will be free of any restrictions to enter into an agreement with such potential customer or to pursue such market. 2.5               Taxes                      Purchaser shall be solely responsible for any applicable sales or use or other like taxes based upon or measured by the royalty fees paid by Purchaser to Seller or the purchases of the Carbon Cold Cathodes from Seller by Purchaser. 2.6               Nonpayment                     If Purchaser fails to pay any past-due amount payable under this Agreement (including interest thereon), then in addition to all other rights and remedies that Seller may have at law or in equity, Seller may, in its sole discretion terminate this Agreement.   Article III - Obligations and Restrictions of Purchaser 3.1              Purchases                     Subject to Section 3.2, Purchaser shall purchase Carbon Cold Cathodes exclusively from Seller and shall not make any further purchases from a third party of products that are materially related to the Carbon Cold Cathodes or to the technology of the Carbon Cold Cathodes, except solely to the extent necessary for Purchaser to fulfill the obligation made, previous to the Effective Date, by Purchaser to East/West Technology Partners, Ltd. ("East/West") to purchase three hundred (300) cathodes of which twenty-five (25) cathodes have already been purchased by Purchaser. Purchaser is obligated to notify Seller in writing within three (3) days after Purchaser has either terminated or fulfilled such obligations to East/West. 3.2              Purchases of Cathodes                     At Seller's sole discretion, and upon thirty (30) days prior written notice from Seller to Purchaser, Seller may release Purchaser from the restriction set forth in Section 3.1. Sections 2.1(d), 2.4, 5.1, 7.1, 9.2, and Article IV shall not apply if Seller has released Purchaser from the restriction set forth in Section 3.1. 3.3               Limited Use of Carbon Cold Cathodes                     Purchaser shall use the Carbon Cold Cathodes to manufacture, use, and sell, license or otherwise dispose of Carbon Cold Cathode Products for use only in the Technical Field. This Agreement shall not be construed to grant to Purchaser any license or any other rights in Seller's patents, trademarks, copyrights, trade secrets, proprietary technology or know-how, or any other intellectual property rights except as expressly stated herein.   Article IV -- Obligations and Restrictions of Seller                     Subject to Sections 2.4 and 3.2, Seller shall not license the technology of the Carbon Cold Cathodes to a third party for use in the Territory in the Technical Field.   Article V -- Limitation of Warranty 5.1              Warranty of Noninfringement                     Subject to Section 3.2, Seller warrants to Purchaser that the Carbon Cold Cathodes as delivered to Purchaser and when properly used for the purpose and in the manner specifically set forth in the Technical Field do not infringe any United States patent existing at the time of the Effective Date. 5.2               Novelty                     Seller does not warrant the novelty of the Carbon Cold Cathodes or the Cold Cathode Technology. 5.3               Warranty Period                     Seller warrants that the Carbon Cold Cathodes sold to Purchaser will be in good operating condition, free from defects in materials and workmanship, and will perform in material respects in accordance with the Specifications as set forth in Exhibit A for a period of six (6) months from delivery. The Parties shall agree on the scope of the Specifications at the time that a Carbon Cold Cathode Product is first ready for commercial production. If the Seller receives notice of such defects during the warranty period, Seller shall repair or replace the defective Carbon Cold Cathode at no additional charge. If Seller is unable, within a reasonable time, to repair or replace the Carbon Cold Cathode to a condition as warranted, Purchaser shall be entitled to a refund of the purchase price of the Carbon Cold Cathode paid to Seller upon return of the defective Carbon Cold Cathode to Seller. 5.4               Exclusions                     Seller shall not be responsible for the obsolescence of the Carbon Cold Cathodes that may result from changes in Purchaser's requirements. Seller shall not be responsible for causes of action resulting from use of the Carbon Cold Cathodes other than as intended under the terms of this Agreement. Seller shall not replace a defective Carbon Cold Cathode as long as the defect is a result of mishandling, abuse, misuse or improper storage, installation, maintenance or operation. 5.5               Disclaimer                     SUBJECT TO SECTION 5.3, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ANY AND ALL PROMISES, REPRESENTATIONS, AND WARRANTIES WITH RESPECT TO THE CARBON COLD CATHODES INCLUDING THEIR CONDITION, THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, THE EXISTENCE OF ANY LATENT OR PATENT DEFECTS, ANY NEGLIGENCE, AND THEIR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. 5.6               Cumulative Liability                     EXCEPT FOR BREACH OF WARRANTY UNDER SECTION 5.1, IF APPLICABLE IN ACCORDANCE WITH SECTION 3.2, THE CUMULATIVE LIABILITY OF SELLER TO PURCHASER FOR ALL CLAIMS RELATING TO THE CARBON COLD CATHODE PRODUCTS AND THIS AGREEMENT, INCLUDING ANY CAUSE OF ACTION SOUNDING IN CONTRACT, TORT, OR STRICT LIABILITY, SHALL NOT EXCEED THE PURCHASE AMOUNTS RECEIVED BY SELLER FROM PURCHASER UP TO THE DATE OF LIABILITY. THIS LIMITATION OF LIABILITY IS INTENDED TO APPLY WITHOUT REGARD TO WHETHER OTHER PROVISIONS OF THIS AGREEMENT HAVE BEEN BREACHED OR HAVE PROVEN INEFFECTIVE. Article VI - Limitation of Liability                     IN NO EVENT SHALL SELLER BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES, INCLUDING (WITHOUT LIMITATION) DAMAGES FOR LOSS OF REVENUE, COST OF CAPITAL, CLAIMS OF CUSTOMERS FOR SERVICE INTERRUPTIONS OR FAILURE OF SUPPLY.   Article VII - Indemnification 7.1               Indemnification Related to Infringement                Subject to Section 3.2, provided that (i) Seller is notified promptly in writing by Purchaser, (ii) Purchaser cooperates reasonably at Seller's expense, and (iii) Seller has sole control over the defense and settlement of such claims, then in the event of a claim for the violation of the warranty of noninfringement in Section 5.1 above, Seller shall settle or defend such claim or action and, if not settled, shall pay all finally awarded costs, fees (including legal fees) and damages. Seller shall have no liability under this Section 7.1 unless Purchaser gives written notice to Purchaser within thirty (30) days after Purchaser receives notice of the initiation of any applicable infringement claim which has been initiated against Purchaser and allows Seller to have sole control of the defense or settlement of the claim. Purchaser has the right to participate in the defense of any suit or proceeding provided that Purchaser shall be responsible for all of its own attorney's fees and related expenses. Seller shall not be responsible for any settlement made by Purchaser without Seller's prior written consent. If any applicable infringement claim is initiated, or in Seller's sole opinion is likely to be initiated, then Seller shall have the option, at its expense, to:                a.               modify or replace all, or the infringing part, of the Carbon Cold Cathode so that it is no longer infringing, provided that the Carbon Cold Cathode functionally does not change in any material adverse respect; or                b.               procure for Purchaser the right to continue using the infringing part of the Carbon Cold Cathode. 7.2               Exclusion for Unauthorized Actions               Seller shall have no liability under any provision of this Agreement with respect to any performance problem, claim of infringement, or other matter to the extent that such problem, claim, or other matter is caused by or substantially contributed to by any unauthorized or improper use or modification of the Carbon Cold Cathode outside of the scope of the Specifications or any breach of this Agreement by Purchaser.   Article VIII - Confidentiality 8.1               Confidential Information               For purposes of this Agreement, "Confidential Information" shall mean any information (1) related to (a) technical information, including, but not limited to, specifications, processes, know-how, trade secrets, and product plans, (b) quality information, including, but not limited to, quality assurance data, plans, and processes, and business information, including, but not limited to, forecasts, cost information, and client lists, as well as any other information labeled "Confidential" or provided to the receiving party with reference to this Agreement, and (2) which is disclosed on tangible media conspicuously identified as "confidential," or if orally disclosed or disclosed by demonstration or observation (other than data disclosed on a tangible media), which is identified as "confidential" at the time of disclosure and is confirmed as such, in writing, within 30 days thereafter. Confidential Information also includes the Cold Cathode Technology. 8.2               Limited Disclosure and Use                Each party acknowledges that it is to be given access to Confidential Information. For a period of ten (10) years from the date of disclosure of any Confidential Information, the party who has received Confidential Information from the other disclosing party (the Receiving Party) agrees that:                a.             it will not disclose the Confidential Information received hereunder to any third party;                b.              it will not copy or modify the Confidential Information, or any copy, adaptation, transcription, or merger portion thereof, except as expressly authorized by the disclosing party;                c.              it will not use for its benefit, or the benefit of any third party, any of the Confidential Information, except as set forth in this Agreement or any other agreement between the parties;               d.              it will not compete with the disclosing party in connection with any of the Confidential Information, except as set forth in this Agreement or any other agreement between the parties.   8.3              Exceptions              The receiving party's obligation to hold the Confidential Information disclosed to the receiving party in confidence will not apply to information:              a.              which the receiving party can show was in the public knowledge or literature at the time of disclosure hereunder, or              b.              which the receiving party can show was already in the receiving party's possession at the time of disclosure hereunder without obligation of confidentiality, or              c.              subsequent to its disclosure hereunder and without fault of the receiving party becomes part of the public knowledge, or             d.              is disclosed to the receiving party by a third party without obligation of confidentiality, the third party having legal right to do so.              Nothing in this Article VIII shall restrict either party's obligations to disclose the terms of this Agreement as may be required by law or as may be ordered by a court of competent jurisdiction or other governmental or quasi-governmental authority.              For purposes of this Section, specific disclosures made hereunder shall not be deemed to be within the above exceptions merely because they are embraced by general disclosures in the public knowledge or literature or in the receiving party's possession, and any combination of features disclosed hereunder shall not be deemed within the above exceptions merely because individual features are in the public knowledge or literature or in the receiving party's possession. 8.4              Notification              The receiving party will immediately notify the disclosing party upon discovery of any unauthorized use or disclosure of the disclosing party's Confidential Information, or any breach of this Article by the receiving party, and the receiving party will cooperate with the disclosing party in every reasonable way to aid the disclosing party to regain possession of the Confidential Information and prevent its further unauthorized use or disclosure. 8.5            Restricted Disclosure              The receiving party agrees to restrict disclosure of the disclosing party's Confidential Information to only those of the receiving party's employees who have a need to know such information to carry out the purposes of this Agreement. 8.6              Unauthorized Disclosure or Use              The receiving party acknowledges that all Confidential Information is solely owned by the disclosing party and that the unauthorized disclosure or use of such Confidential Information would cause irreparable harm and significant injury, the degree of which may be difficult to ascertain. Accordingly, the receiving party agrees that the disclosing party will have the right to obtain an immediate injunction enjoining any breach of this Section, as well as a right to pursue any and all other rights and remedies available at law or equity for such a breach. Article IX -- Records 9.1              Purchaser's Records              Purchaser shall keep true and accurate records, files and books of account containing all the data reasonably required for the full computation and verification of the quantity of Carbon Cold Cathode Products sold or licensed to any party, including any third party, by Purchaser. Following seven days prior written notice to Purchaser, any certified accountant appointed by Seller shall be given access to such records, files and books during usual business hours; provided, however, that such inspection shall be at Seller's expense but shall not occur more often than once every six (6) months. If the audit results indicate that Purchaser has underpaid Seller by ten percent (10%) or more in royalty fees under this Agreement, then Purchaser shall remit to Seller the amount underpaid plus the cost of the examination and audit that led to the discovery that Purchaser had underpaid Seller within ten (10) business days of receiving the results of the audit. If the audit results indicate that Purchaser has underpaid Seller by ten percent (10%) or more in royalty fees under this Agreement, the amount underpaid shall be subject to a two percent (2%) per month late payment charge or such lesser maximum amount as may be allowed under Texas law. 9.2              Purchaser's Reports              Quarterly, within thirty (30) days after the first days of January, April, July, and October of each year during the continuance of this Agreement, Purchaser shall render written reports stating in each such report the quantities of all Carbon Cold Cathode Products sold or licensed during the proceeding three calendar months, except that the first such report shall cover only the portion of the quarter between the Effective Date of this Agreement and the end of the quarter. Each such report shall be accompanied by remittance in full covering the royalties shown to be due Seller. Royalties paid on Carbon Cold Cathode Products that are returned by customers may be credited against future royalty payments, provided royalties are paid on any such returned Carbon Cold Cathode Products that are later sold or licensed. No royalties may be paid on Carbon Cold Cathode Products furnished to customers without charge to replace returned Carbon Cold Cathode Products on which royalties have been paid, provided no credit is taken against royalty payments for such returned Carbon Cold Cathode Products. 9.3              Terminal Report              If this Agreement is for any reason terminated before all payments herein provided for have been made, Purchaser shall immediately submit a terminal report and pay to Seller any remaining unpaid balance even though the due date as provided in Section 2.1 has not been reached.   Article X - Termination 10.1              Termination              This Agreement may be terminated by either party upon the occurrence of the following events:              a.              Purchaser fails to pay Seller within ten (10) days after Seller makes written demand for any past-due amount payable under this Agreement (including interest thereon) that is not the subject of a good faith dispute as to which the Purchaser has given written notice to Seller explaining its position in reasonable detail.              b.              Either party breaches, in any material respect, its obligations hereunder and the breaching party fails to cure such breach within a thirty (30) day period immediately following such breach.              c.              Infringement claim initiated or likely to be initiated as set forth in Section 7.1. 10.2              Notice of Termination              Either party shall provide thirty (30) days written notice of termination in which the notice shall identify and describe the basis for such termination. 10.3              Survival              Articles I, VI, VIII, and XI and Sections 2.2, 2.3, 2.5, 5.2, 5.4, 5.5, 5.6, 7.2, 9.1, and 10.3 shall survive termination of this Agreement.   Article XI B Miscellaneous 11.1              Governing Law              This Agreement shall be governed by and construed in accordance with the laws of the state of Texas, without reference to conflict of law principles. 11.2              Jurisdiction and Venue              Exclusive jurisdiction and venue for all disputes arising under this Agreement shall be with the state or federal courts located in Travis County, Texas, and the parties expressly submit themselves to the personal jurisdiction of such courts. 11.3              Severability              If any provision of this Agreement shall be held illegal, invalid or unenforceable by a court of competent jurisdiction, that provision shall be deleted and the remainder of this Agreement shall remain in full force and effect. 11.4               Integration              This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges all prior discussions between them. 11.5              Alteration              A provision of this Agreement may be altered only by a writing signed by authorized persons of both Parties. 11.6            Notice              All notices and communications to be given by each party to the other shall be in writing and addressed respectively to the parties at the following addresses:     To SI Diamond Technology, Inc.: To X-Ray Technologies, Inc. Dr. Zvi Yaniv Bradley Boyer 3006 Longhorn Blvd. X-Ray Technologies, Inc. Suite 107 275 Technology Circle Austin, Texas 78758 Scotts Valley, California 95066     with a copy to:   Kelly Kordzik, Esq.   Winstead Sechrest & Minick, P.C.   100 Congress Avenue, Suite 800   Austin, Texas 78701     11.7              Relationship of Parties                Nothing in this Agreement shall be construed to constitute or appoint either party as the agent, partner or representative of the other party for any purpose whatsoever, or to grant to either party any rights or authority to assume or create any obligation or responsibility, express or implied, for or on behalf of or in the name of the other, or to bind the other in any way or manner whatsoever. 11.8             Headings              The headings in this Agreement are for purposes of convenience and reference only and are not intended to affect the meaning or interpretation of this Agreement. 11.9              Counterparts               This Agreement may be executed in duplicate and either copy or both copies are considered originals. 11.10               No Bias               This Agreement shall be interpreted as written and negotiated jointly by the parties. It shall not be strictly construed against either party, regardless of the actual drafter of the Agreement. 11.11              Force Majeure              If Seller is unable to perform its obligations under this Agreement due to circumstances beyond its reasonable control (including without limitation, acts of nature, acts of government, labor disputes, delays in transportation, and delays in delivery or inability to deliver by Seller's suppliers), such obligations shall be suspended so long as those circumstances persist, provided that Seller notifies Purchaser promptly of the delay and its causes and uses commercially reasonable efforts to recommence performance without delay. 11.12              Export Controls              Purchaser shall comply with all relevant U.S. export laws and regulations and will obtain all required export licenses prior to exporting or re-exporting Carbon Cold Cathode Products. Seller does not represent to Purchaser that an export license shall not be required nor that, if required, it shall be issued. Purchaser assumes all responsibility for its exports or re-exports of Carbon Cold Cathode Products. 11.13               Assignment                        This Agreement may not be assigned by Purchaser without the prior written consent of Seller. --------------------------------------------------------------------------------                IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by authorized persons on the respective dates hereinafter set forth.       SI DIAMOND TECHNOLOGY, INC.       _____________________________________   Name: Dr. Zvi Yaniv                                             Title:  President and C.O.O.                                 Date:                                                                               X-RAY TECHNOLOGIES, INC.       _____________________________________       Name: Bradley Boyer                                             Title:                                                                       Date:                                                                               OXFORD INSTRUMENTS plc       _____________________________________       Name: ________________________________   Title:                                                                       Date:                                                                           -------------------------------------------------------------------------------- EXHIBIT A Specifications

EXHIBIT 10.95 [ex10-95x1x1.jpg] APPLICATION AND BUSINESS SERVICES AGREEMENT      This APPLICATION AND BUSINESS SERVICES AGREEMENT (“Agreement”) is entered into by and between Maxicare Health Plans, Inc. (“Client”) and The TriZetto Group, Inc., a Delaware corporation, and its subsidiaries and affiliates (collectively, “TriZetto”), and is effective as of the 1st day of September 2000.      Whereas, TriZetto offers certain connectivity, assessment and transformation services and is an Application Services Provider, which delivers pre-integrated and hosted best of class packaged software applications, transaction services and other management services to clients; and       Whereas, Client wishes to contract with TriZetto to provide certain services.        Now therefore, in consideration of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1.       TriZetto Services.               a)   Services.   TriZetto shall provide the "Services" and “Supported Applications” described in Exhibit A of this Agreement at the “Service Levels” set forth in Exhibit B. The Services, Supported Applications and Service Levels may be modified only by mutual written agreement of TriZetto and Client. Material changes, individually or in the aggregate, or additions to work performed pursuant to Exhibit A or Exhibit B may require changes in the resources provided by TriZetto and are subject to the change control provisions set forth in Exhibit C. TriZetto will provide application and operation support services to Client only for the software application programs (the “Supported Applications”) specifically identified in Exhibit A.              b)   License.   In accordance with this Agreement, TriZetto hereby provides Client a restricted, non-transferable (except as provided herein) and nonexclusive license to use the Supported Applications for the purpose of supporting the internal operations of Client’s business. Client may use the Supported Applications only to process Client’s own data and that of Client’s patients, members, medical groups, providers, and wholly-owned subsidiaries and affiliates. Client may not use the Supported Applications in a resale capacity, to process and/or analyze the data of a third party as a service bureau, or on any hardware and with any operating system or applications software other than as approved in advance and in writing by TriZetto. Notwithstanding anything contained herein to the contrary, Client may sublicense any or all of its rights in and to the Supported Applications to any of its wholly-owned subsidiaries or its affiliates; provided, however, that such sublicensee agrees in writing to be bound by the terms of this Agreement. For purposes of this Agreement, the term affiliates shall mean, a person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, Client.              c)   Connectivity Solutions.   Client will utilize the required equipment, including but not limited to, desktops, network, servers, and printers, as well as application software and operating system software (collectively, the “Required Equipment”) which are identified in Exhibit A to this Agreement and based on TriZetto’s assessment of Client’s infrastructure. Client acknowledges and agrees that the Service Levels are predicated and conditioned upon Client’s use of the required Equipment. Except as otherwise set forth in Exhibit A, Client shall have sole responsibility for maintaining the Required Equipment.              d)   Other Services.   From time to time, TriZetto may, at Client’s request, perform consulting and other services outside the scope of this Agreement (the “Other Services”). The terms and conditions under which Other Services are provided shall be governed by the change control provisions set forth in Exhibit C or pursuant to a separate written agreement between Client and TriZetto. 2.       Invoicing and Payment Terms.               a)   Invoices.   TriZetto will invoice Client monthly in advance for the Services and Supported Applications, to be provided to Client during the upcoming month at the applicable rates and for the amounts set forth in Exhibit E . TriZetto shall begin invoicing for such services when TriZetto makes the Services available for use or as otherwise provided in Exhibit E.              b)   Prior Month Adjustment.   Within fifteen (15) business days after the end of each month, Client shall deliver to TriZetto a statement indicating the number of members enrolled in Client’s health plan. Upon receipt of such reconciliation, the following month’s invoice shall include a billing adjustment which reflects the retroactive increase or decrease in the number of members for the prior month; provided, however, that TriZetto shall not be required to make adjustments to reflect increases or decreases that occurred more than four months prior to the invoice date.               c)   Payment Terms; Interest.   Client will pay TriZetto all undisputed fees within 30 days of the receipt by Client of the invoice. If Client fails to pay undisputed amount of any invoice within 30 days after receipt by Client, TriZetto may charge interest of the lesser of 1.5% or the maximum permissible rate per month on any outstanding undisputed balance and, upon Client’s failure to pay undisputed outstanding balances following the due date and subsequently within 30 days notice from TriZetto, TriZetto may suspend Services and Supported Applications until such outstanding balances are paid, unless the parties have extended the payment due date in writing. Any disputes regarding fees shall be resolved in accordance with Section 9.               d)   Taxes.   Client will be responsible for the payment of sales and use taxes related to the delivery of the Services or Supported Applications. TriZetto will be responsible for the payment of all taxes assessed against TriZetto or any of its subsidiaries, affiliates or properties, or based on TriZetto’s revenues, income or property. If TriZetto is required to pay any such taxes directly, Client shall, upon receipt of TriZetto’s invoice, reimburse TriZetto for any amount that TriZetto has  1 -------------------------------------------------------------------------------- paid. TriZetto shall, to the extent reasonably possible, deliver any products or services contemplated hereby through electronic media or other means requested by Client.                e)   Insurance Coverage.                      i)   Client Insurance.   Client shall obtain and maintain, at Client’s expense, commercially reasonable liability insurance and insurance against loss or damage to TriZetto’ s property located on Client’s premises, if any, in amounts set forth on Exhibit F. Notwithstanding anything contained herein to the contrary, such insurance coverage may be included in insurance coverage maintained by Client on its own property. Upon request, Client shall furnish TriZetto with a Certificate of Insurance or other evidence of insurance coverage. Client shall take commercially reasonable steps to protect from damage TriZetto’s hardware and other property located on Client’s premises, if any.                      ii)   TriZetto Insurance.   TriZetto shall at all times during the term of this Agreement maintain its current levels of insurance coverage as set forth on Exhibit F, at its own expense.                     iii)   Failure to Maintain Coverage.   Each party shall promptly notify the other party in writing if a lapse in coverage occurs. Notwithstanding anything contained in this Agreement to the contrary, failure to maintain insurance as provided in this Section 2(f) shall not be the basis for termination of this Agreement by either party. 3.       The Parties’ Responsibilities.   The parties will adhere to and comply with the roles and responsibilities set forth in Exhibit F. 4.      Visitations, Access and Exclusivity.                 a)   Visitations.   Upon at least two business days’ prior written request to TriZetto, TriZetto will allow Client to visit TriZetto facilities during normal business hours, subject to TriZetto’s standard administrative and security procedures, to review TriZetto's operations as they relate to the Services provided under this Agreement. Client shall always use all commercially reasonable efforts to avoid any disruption to TriZetto’s business.                b)   Access.    Client will provide TriZetto prompt and adequate access to Client’s systems and facilities as needed for TriZetto to perform its obligations under this Agreement. Except to the extent necessary to address emergencies or at Client’s request, TriZetto shall provide at least two business days’ notice of any needed access, and shall always use all commercially reasonable efforts to avoid any disruption to Client’s business. 5.      Ownership of Software, Data and Records.                 a)   Right to Software.                      i)   TriZetto’s Right.   Except as set forth in Exhibit A, TriZetto represents and warrants that TriZetto, to the best of its knowledge, owns or has the right to use and license all the hardware and software components used to provide the Supported Applications and Services under this Agreement for the Supported Applications and as contemplated by this Agreement.                     ii)   Client’s Right.   Client represents and warrants that Client, to the best of its knowledge, owns or has the right to use the legacy hardware and software components that it will continue to use during the term of this Agreement.                b)   Infringement Action.   If Client promptly notifies TriZetto in writing of a third party action against Client that any Service or Supported Application infringes upon a United States registered patent or a United States registered trademark or copyright, or misappropriates a trade secret, TriZetto will defend such action at its sole expense and will pay any and all costs or damages that are finally awarded against Client resulting from such action. Client shall provide TriZetto with its reasonable cooperation (at TriZetto’s expense) and full authority to defend or settle the action. TriZetto will not pay any such damages, however, if the claim of infringement is caused by (1) Client's misuse of the Services; (2) Client's failure to use corrections or enhancements made available at cost on a timely basis by TriZetto; (3) Client's use of the Services in combination with any product or information not provided or authorized in writ ing by TriZetto; or (4) information, direction, specification or materials provided by Client or any third party directed by Client. If any Supported Application or Service is, or in TriZetto's reasonable opinion is likely to be, held to be infringing, TriZetto shall at its option and sole expense either (a) procure the right for Client to continue using it, (b) replace it with a noninfringing equivalent reasonably satisfactory to Client, or (c) modify it to make it noninfringing. If it is not commercially reasonable for TriZetto to cure infringement by taking the steps set forth in the preceding sentence, TriZetto may terminate the Supported Application or Services. Upon such termination, TriZetto shall, at its own expense, perform deconversion services in order to transfer and convert the Client Data to a new application. TriZetto will not be responsible for any licensing or maintenance fees for the new application or for any additional hardware or software required to run such application. The foregoing r emedies constitute Client's sole and exclusive remedies and TriZetto's entire liability with respect to infringement.                c)   Client’s Use of Software.   Client acknowledges and understands that TriZetto may provide to Client (i) TriZetto owned software, and/or (ii) software applications owned by third parties which TriZetto uses under license agreements with such third parties. Client acknowledges and agrees that (i) title to all such TriZetto software and software applications remains with and is subject to the proprietary rights of TriZetto or its third party vendors, and (ii) such software and software applications may contain trade secrets and other valuable proprietary information of TriZetto or its third party vendors. Client may not grant any sublicenses to or otherwise make such software, such software applications, the Supported Applications, or the documentation available to any other person, entity or business. Client agrees that Client will not reverse assemble, reverse compile, reverse engineer, modify, reproduce, distribute, prepare derivative works based on, or demonstrate such software, such software applications or th e Supported Applications in whole or in part.                d)   Data and Records.   TriZetto understands and agrees that TriZetto receives no ownership rights in the materials, data or records furnished by Client ("Client’s Data") and that Client receives no ownership rights to the Supported Applications. Client represents and warrants that Client and those providing information to Client have the right to transmit to TriZetto and receive any materials, data or records from TriZetto, that are required to enable TriZetto to perform its obligations under this Agreement. Except as set forth herein or as specifically authorized by Client in writing, TriZetto will not disclose Client’s Data to a third party or make any other use of Client’s Data. TriZetto shall be responsible for conformance with all laws, statutes, rules, regulations and other obligations relating to TriZetto’s handling of private information relating to medical records obtained by or for Client and its subsidiari es and affiliates; provided, however, that TriZetto shall not be responsible for violations of laws, statutes, rules, regulations and other obligations due to Client’s acts or omissions. 2 --------------------------------------------------------------------------------                e)   Source Code Escrow.   Prior to the first productive use of the TriZetto Software, which shall be no later than the date on which the TriZetto Software is first used by Client for commercial purposes, TriZetto shall deposit with a third party escrow agent reasonably acceptable to Client the source code, together with all documentation and descriptions associated therewith, of the TriZetto Software, pursuant to a Source Code Escrow Agreement (the “ Escrow Agreement”) substantially in the form of Exhibit G hereto. Pursuant to the Escrow Agreement, Maxicare shall, at no additional cost, be entitled to receive and use for the remaining term of the Agreement, a source code version of the TriZetto Software that is currently in use by Maxicare if TriZetto has breached its obligations under the Agreement and such breach is not cured as provided herein. For purposes of this Section 5(e), "TriZetto Software" shall m ean that software developed and owned by TriZetto, including certain Supported Applications owned by TriZetto, any interfaces between or integration of the Supported Applications developed and owned by TriZetto, and any other software application owned by TriZetto to support Client's use of the Supported Applications. TriZetto shall use its commercially reasonable efforts to have its third party vendors deposit the source code, together with all documentation and descriptions associated therewith, of the non-TriZetto Software which is offered as a part of the Supported Applications. 6.      Confidentiality.                a)   Both TriZetto and Client have made and will continue throughout the term of this Agreement to make available to the other party confidential and proprietary materials and information ("Proprietary Information"). All material and information provided by one party to the other relating to the business, policies, procedures, customs and forms of providing party or any of its affiliates, including but not limited to Client’s Data, as well as information previously divulged or delivered regarding the aforementioned subject matter, is hereby designated as confidential and proprietary and shall be considered to be Proprietary Information. Except for confidential patient information included in Client’s Data, the parties agree that the obligations set forth above in this Section 6 do not apply to materials or information that: (i) are already, or otherwise become, generally known by third parties as a result of no act or omission of the receiving party; (ii) subsequen t to disclosure hereunder are lawfully received from a third party having the right to disseminate the information and without restriction on disclosure; (iii) are generally furnished to others by the disclosing party without restriction on disclosure; (iv) were already known by the receiving party prior to receiving them from the disclosing party and were not received from a third party in breach of that third party's obligations of confidentiality; or (v) are independently developed by the receiving party without the use of Proprietary Information of the disclosing party.                b)   Each party shall maintain the confidentiality of the other's Proprietary Information and will not disclose such Proprietary Information without the written consent of the other party, except in connection with providing Services in accordance with this Agreement or as otherwise permitted hereunder. Each party shall also keep confidential the terms of this Agreement and/or any exhibits attached hereto.                c)   Neither of the parties’ obligations of confidentiality will prevent or prohibit the parties from providing access to Proprietary Information upon request of a state or federal regulatory agency or authority as may be required, in such party’s reasonable discretion, by law or judicial or administrative process. Notwithstanding the foregoing, in the event of any requested access to Proprietary Information by a regulatory authority, the one of the parties from whom the Proprietary Information is requested will provide notice to the other in a timely fashion to allow the other party the opportunity to contest the release of its Proprietary Information to such regulatory authority.                d)   TriZetto will comply with all applicable laws and regulations concerning security and privacy in TriZetto’s performance of this Agreement, including, but not limited to, the Health Insurance Portability and Accountability Act of 1996 and regulations promulgated thereunder.                e)   Except as required by law, neither party shall make any press release, public statements, or disclosures regarding the terms, subject matter or collaboration of the parties to this Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld. 7.      Warranty, Disclaimer of Warranty and Limitation of Liability.                a)   Performance Warranty.   TriZetto warrants that the Services will be provided in accordance with the Service Levels set forth in Exhibit B. TriZetto shall not be responsible for any failure to meet the Service Levels resulting from any force majeure as set forth in Section 11(g) or from Client’s failure to use the Required Equipment. TriZetto will not be responsible for any loss, damage, increase in costs or other expenses relating to conduct which is the responsibility of Client or which is otherwise approved in writing by TriZetto.                b)   Exclusive Remedy.   Except for breaches resulting from TriZetto’s gross negligence or willful misconduct, TriZetto’s obligation and Client’s sole and exclusive remedy from a breach of the warranty in Section 7(a) or any failure of TriZetto to meet the Service Levels, except from force majeure events including without limitation Client’s acts or omissions, shall be that TriZetto shall use commercially reasonable efforts to correct the breach, Client shall receive the remedies associated with the applicable Service Levels as described in Exhibit B, and Client may proceed with dispute resolution to pursue damages subject to the limitations set forth in Section 7.                c)   Year 2000.                     i)   TriZetto represents that the software and hardware set forth in Exhibit A and used by TriZetto in performing the Services have been designed to allow date data century recognition, calculations which accommodate same century and multi-century formulae and date value, and date data entry of all values that reflect the century. TriZetto’s obligation and Client’s sole and exclusive remedy from a breach of this representation and warranty, except from force majeure events including without limitation Client’s acts or omissions, shall be that TriZetto shall, at no cost to Client, reprocess Client’s data that was not processed in accordance with the Service Levels.                     ii)   Client represents that the software and hardware, including the legacy systems used by Client, have been designed to allow date data century recognition, calculations which accommodate same century and multi-century formulae and date value, and date data entry of all values that reflect the century. Except as explicitly set forth herein, TriZetto shall have no liability for such software and hardware.                d)   Transmission of Data.   Except to the extent solely caused by TriZetto’s gross negligence or willful misconduct, TriZetto is not responsible for loss of data in transmission, improper transmission by Client or failure by Client or any third party to act on any communication transmission to or by Client  3 -------------------------------------------------------------------------------- through TriZetto. In the event of improper transmission or loss of data in transmission, TriZetto’s obligation and Client’s sole and exclusive remedy for such improper transmission or loss of data will be that TriZetto will use commercially reasonable efforts to recreate such transmission at Client’s expense.                 e)   DISCLAIMER OF WARRANTIES.   EXCEPT FOR WARRANTIES PROVIDED IN SECTIONS 5 AND 7, AND EXCEPT FOR SUCH OTHER EXPRESS WARRANTIES MADE IN WRITING AND EXECUTED BY TRIZETTO’S CHIEF EXECUTIVE OFFICER, PRESIDENT OR VICE PRESIDENT OF LEGAL AFFAIRS, THE PARTIES MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AS TO ANY MATTER WHATSOEVER, INCLUDING BUT NOT LIMITED TO THE HARDWARE, SUPPORTED APPLICATIONS, SOFTWARE PROVIDED BY TRIZETTO TO CLIENT, HARDWARE AND SOFTWARE USED BY CLIENT BUT NOT PROVIDED BY TRIZETTO, DOCUMENTATION, DATA FILES, OUTPUT, SERVICES, OR OTHER MATTERS PRODUCED OR PROVIDED HEREUNDER.                f)   Limitations.   Unless otherwise expressly provided herein, neither TriZetto nor any of its service providers, licensors, employees or agents warrant (i) that the Services provided hereunder will meet Client’s requirements; (ii) that the operation of the Services will be uninterrupted or error free; or (iii) that the Services will have the capacity to meet demand beyond the volumes in Exhibit A, if any. Except as set forth herein, TriZetto will not be responsible for any damages that Client may suffer arising out of use, or inability to use, the Services. TriZetto will not be liable for unauthorized access to or alteration, theft or destruction of Client’s data files, programs, procedures or information through accident, fraudulent means or devices, or any other method, unless such access, alteration, theft or destruction is caused as a result of TriZetto’s negligence or intentional misconduct. It is hereby acknowledged that it is Client’s responsibility to validate for correctness all output and reports and to protect Client’s data and programs from loss by routinely performing backup procedures as required by TriZetto.                 g)   EXCLUDED LIABILITIES.   EXCEPT FOR DAMAGES ARISING FROM BREACHES OF SECTION 6, OR FOR CLAIMS FOR INDEMNIFICATION IN SECTION 8(A), IN NO EVENT WILL EITHER PARTY'S LIABILITY UNDER THIS AGREEMENT OR IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER, REGARDLESS OF THE FORM OF ACTION, INCLUDE ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR CLAIMS FOR LOSS OF BUSINESS OR PROFITS, UNDER CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHER LEGAL THEORY, REGARDLESS OF THE CAUSE OF ACTION AND EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.                 h)   AGGREGATE LIABILITY.   EXCEPT FOR DAMAGES ARISING FROM BREACHES OF SECTION 6, OR FOR CLAIMS FOR INDEMNIFICATION IN SECTION 8(A), EACH PARTY’S AGGREGATE LIABILITY TO THE OTHER PARTY PURSUANT TO THIS AGREEMENT UNDER CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHER LEGAL THEORY, REGARDLESS OF THE CAUSE OF ACTION WILL NOT EXCEED AN AMOUNT EQUAL THE FEES PAID BY CLIENT IN THE TWELVE MONTHS PRIOR TO WHEN THE DAMAGES FIRST AROSE. PRIOR TO THE COMPLETION OF TWELVE MONTHS OF SERVICES UNDER THIS AGREEMENT, EACH PARTY'S LIABILITY TO THE OTHER PARTY WILL NOT EXCEED AN AMOUNT EQUAL TO THE ACTUAL MONTHLY SERVICES FEES PAID BY CLIENT DURING SUCH PERIOD, EXCEPT FOR DAMAGES ARISING FROM BREACHES OF SECTION 6, OR FOR CLAIMS FOR INDEMNIFICATION IN SECTION 8(A). 8.      Indemnification.                a)   Client Indemnification Obligations.   Client agrees to indemnify, defend and to hold TriZetto harmless for any claims, liability or expense resulting from: (i) Client’s use of the Supported Applications provided by TriZetto hereunder; (ii) TriZetto’s disclosure of confidential information at Client’s direction, (iii) Client’s violations of its confidentiality obligations and license grant scope; and (iv) material breach of Client’s representations and warranties provided in Section 5(a) or Section 5(c); except to the extent that the claims are proximately caused by the negligence or willful misconduct of TriZetto.                 b)   Conditions.   Client shall have the right to direct the defense of any indemnification of TriZetto hereunder; provided, that TriZetto may participate in the defense or settlement of the claim at its own expense. 9.      Dispute Resolution.                 a)   Dispute Resolution.   In connection with a dispute arising out of or relating to this Agreement, the parties shall attempt in good faith to resolve such dispute promptly. If the parties cannot resolve the matter within 45 days, either party may initiate arbitration of the dispute as provided below.                b)   Arbitration.   Except for collection actions for fees and for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order, a preliminary injunction, or other equitable relief to preserve the status quo or prevent irreparable harm, any controversy or claim arising out of or relating to this Agreement or to its breach shall be settled by arbitration by a single arbitrator in accordance with the JAMS/Endispute Rules, pursuant to an arbitration held in Los Angeles, California. Judgment upon the award rendered by the arbitrator may be entered into in any court of competent jurisdiction. The arbitrator shall not have the authority to award punitive damages.                c)   Governing Law.   The parties hereby agree that this Agreement was entered into in Los Angeles, California. This Agreement will be governed in accordance with the laws of the State of California without regard to its conflict of law provisions. The parties agree that jurisdiction and venue for any actions relating to this Agreement will be in the state or federal courts in Los Angeles, California. Except as set forth above, each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Los Angeles, California, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and c onsents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  4 -------------------------------------------------------------------------------- 10.      Term and Termination.                 a)   Term.   Unless earlier terminated as provided herein, the term of this Agreement will commence on the date first set forth above and will continue for an initial period of seven years. This Agreement will automatically renew each year for successive one year terms unless either one of the parties terminates the Agreement by providing written notice of termination to the other party at least 180 days before the termination date.                b)   Termination for Cause.   This Agreement may be terminated if either party materially breaches this Agreement. In the event of a claim of breach under this Section 10(b), the party alleging such breach shall give written notice of the alleged breach , which notice shall specify the nature of any such claim in sufficient detail to allow the receiving party to investigate the allegations. This Agreement may be terminated by the party alleging such breach 30 days after the deliver of notice unless: (i) the breach is cured within such 30 days; (ii) except for failures to make payments when due, it is not possible to cure the breach within 30 days but the defaulting party has commenced correction within 30 days and proceeds diligently towards, and completes, a cure within 180 days; or (iii) except for failures to make payments when due, the matter remains a subject of disagreement between the parties and the dispute resolution process has been initiated under Section 9 above. Upon termination of this Agreement pursuant to this Section 10(b), the parties shall be obligated to pay the termination fees and other existing payment obligations as set forth in Exhibit E.                c)   Termination for Convenience.   Client may terminate this Agreement upon 180 days prior written notice to TriZetto setting forth the date of termination and by paying the termination fees set forth hereunder upon the date of termination. The prices for Services under this Agreement were determined by mutual agreement based upon certain assumed volumes of processing activity and the length of the term of this Agreement. Client acknowledges that without the certainty of revenue for the full term of the Agreement, TriZetto would have been unwilling to provide processing Services at the prices set forth in the Agreement. TriZetto and Client agree that it would be difficult to ascertain actual damages for termination of the Agreement for convenience by Client before the end of the term. Upon Client’s early termination, Client will pay TriZetto the amounts set forth on Exhibit E.                 d)   Deconversion Services Upon Termination.   Upon the termination of this Agreement for any reason and subject to agreement on reasonable terms, TriZetto shall assist Client in the deconversion and transfer of information to Client or a party or parties identified by Client and with such other actions as may be necessary or appropriate, in Client’s reasonable judgment, to facilitate the transfer of the functions performed by TriZetto to Client or an entity selected by Client. As soon as practicable following the receipt of a written request from Client, TriZetto will deliver to Client, in a format and on the media available to TriZetto at the time of the request, all of Client’s data. Upon delivery of such data, TriZetto shall be reimbursed for its costs and labor on a time and materials basis.                 e)   Return of Materials Upon Termination.   Upon termination of this Agreement, the Client must immediately cease use of the Services and shall return all documentation and software, if any, relating to the Services and TriZetto’s confidential information to TriZetto within 30 business days of termination. 11.      General.                 a)   Authority to Enter into Agreement.   Each party hereby represents and warrants that (i) it has all requisite corporate power and authority to enter, and perform pursuant to, this Agreement; (ii) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly authorized by all requisite corporate action on its part; and (iii) this Agreement has been duly executed and delivered by such party.                 b)   Relationship Between the Parties.   The performance by TriZetto of its duties and obligations under this Agreement shall be that of an independent contractor and nothing contained in this Agreement shall create or imply an agency relationship between Client and TriZetto, nor shall this Agreement be deemed to constitute a joint venture or partnership between Client and TriZetto. Each party assumes sole and full responsibility for its acts and the acts of its personnel. Neither party shall have the authority to make commitments or enter into contracts on behalf of, bind, or otherwise oblige the other party except for the limited agency expressly provided for herein.                 c)   TriZetto Not Engaged in Practice of Medicine.   TriZetto does not, nor does it intend to, engage in the performance or delivery of medical or hospital services or other types of healthcare. TriZetto’s performance under this Agreement should not, in any case, be deemed or understood as a recommendation, endorsement, guarantee or warranty of the professional services of Client or any providers who render healthcare services. Nothing herein shall be construed to imply that TriZetto, or any of TriZetto’s subsidiaries, officers, directors, employees or agents are engaged in the practice of medicine or other professions related thereto. All matters related to such field shall be the exclusive province of Client and its staff, agents and employees.                 d)   Government Licensee.   If Client is using the Supported Applications on behalf of any unit or agency of the United States Government, the following applies: The Supported Applications and any Proprietary Information is provided with RESTRICTED RIGHTS. Use, duplication or disclosure by the Government is subject to restrictions as set forth in Subparagraphs (a) through (d) of the Commercial Computer-Restricted Rights clause at FAR 52.227-19 when applicable, or in Subparagraph 252.227-7013 (c)(1)(ii) of the Rights in Technical Data and Computer Software at DFARS, and in similar clauses in the NASA FAR Supplement. Contractor/manufacturer is The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360 Newport Beach, CA 92660.                 e)   Additional Costs.   If certain items and outside services are purchased by TriZetto in order to provide Services to Client these items and services, detailed below, will be charged to and payable by Client at the actual cost incurred by TriZetto, without markup, fees or overhead:                      i)   Forms and supplies.   All forms and supplies, such as special forms and standard printer paper utilized for printing reports and action letters, envelopes utilized for mailing action letters, plastic cards utilized for member identification cards.                      ii)   Postage and shipping expenses.   All postage and shipping expenses required for delivering, as requested by Client, forms, letters, reports, magnetic tapes, identification cards, and similar items., to Client or to Client’s designees, members, employers, etc.   5 --------------------------------------------------------------------------------                     iii)   Telecommunication expenses.   All communication line expenses related to providing Services. These expenses include those necessary to transmit data between Client and TriZetto locations, as well as to other locations as requested by Client.                      iv)   Travel.   Out-of-pocket travel expenses requested by Client and required to provide TriZetto's services at Client’s location. These expenses include coach airfare, lodging, meals, and ground transportation.                f)   Notices.   All notices and other communications pursuant to this Agreement shall be in writing and deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, via facsimile, sent by nationally-recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, addressed to the party at the address set forth on the signature page to this Agreement, or at such other address for such party as shall be specified by like notice. All such notices and other communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a facsimile, when the party receiving such copy shall have confirmed receipt of the communication, (c) in the case of delivery by nationally-recognized overnight courier, on the business day following dispatch, and (d) in the case of mailing, on the th ird business day following such mailing.                g)   Force Majeure.   Each party’s performance of its obligations will be excused or the timeframe for performance will be extended as is reasonably necessary under the circumstances, in the event that such party is prevented from performing its obligations in whole or in part by riots, fire, flood, earthquake, explosion, epidemics, war, embargo, civil or military authority, act of God, changes in law, regulation or governmental policy, acts or omissions of vendors or suppliers, communication or transportation difficulties or delays, vendor delays or other causes beyond its reasonable control (individually, a “force majeure event”); provided, that no event or act shall be considered a force majeure event if it could be avoided through commercially reasonable preparation or the expenditure of a commercially reasonable amount of time or money. In the event that TriZetto is prevented or delayed in the delivery or installation of the Services because of a force majeure event, such delivery or installation shall take place as soon thereafter as is reasonably possible.                 h)   Assignment.   Neither this Agreement nor any rights granted hereunder may be sold, leased, assigned or otherwise transferred, in whole or in part by either party by operation of law or otherwise, and any such attempted assignment shall be void and of no effect without the advance written consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that such consent shall not be required if either party assigns this Agreement to a wholly owned subsidiary or an affiliate or in connection with a merger, acquisition, or sale of all or substantially all of its assets or stock, unless the surviving entity is a competitor of TriZetto, as determined by TriZetto in its reasonable judgment.                 i)   Other Agreements.   Nothing in this Agreement shall prevent TriZetto or TriZetto's affiliated companies from entering into similar or different agreements with others in the health care industry or other industries, including Client’s competitors.                  j)   Non-Solicitation.   Except as set forth on Exhibit G or Exhibit I, each of the parties agrees to refrain from directly or indirectly soliciting the employment of any current or future employee during the term of, and for a period of one year after the expiration of, this Agreement, unless permission is granted in writing by the employer, which consent may be granted or withheld in such party’s sole discretion. The foregoing provision will not prevent either party from employing any such person who contacts such party on his or her own initiative or in response to general solicitation without any direct solicitation, by or other encouragement from, such party or its representatives. In the event that either party hires a person in violation of this Section 11(j), such party shall pay the other party two-times the annual sa lary being paid by the offending party. The parties agree that this amount represents reasonable and foreseeable estimates of damages in conformity with California Civil Code Section 1671.                 k)   Severability.   If one or more provisions or parts of this Agreement are declared invalid, illegal or unenforceable by a court with jurisdiction over the parties to this Agreement, the remaining provisions will nevertheless remain in full force and effect in such jurisdiction, unless such severance would frustrate the contractual intent of the parties.                l)   Entire Agreement; Amendments, Exhibits.   This Agreement (including the Schedules and Exhibits attached hereto) embodies the entire understanding of the parties in relation to its subject matter, and supersedes all proposals, letters of intent or prior agreements, oral or written, and all other communications and representations between the parties relating to the subject matter of this Agreement and no other agreement or understanding, verbal or otherwise, relative to this subject matter exists between the parties at the time of execution of this Agreement. This Agreement may be amended only by a written agreement signed by both parties. Each of the exhibits attached to this Agreement is made a part of this Agreement and the terms of these Exhibits will be fully binding on the parties. The parties agree that Exhibit E is attached hereto in its final form. The remaining exhibits shall become final in their current forms attached hereto on September 20, 2000, unless the parties agree in writing to revisions or amendments thereto. The parties agree that minor and insubstantial changes may be made to the remaining exhibits.                m)   Survival.   Notwithstanding the expiration or termination of this Agreement or any renewal period hereunder, the parties agree that the terms of Sections 2, 5, 6 7(d) – 7(h), 8, 9, 10 and 11 shall survive.                n)   Waiver.   No waiver of any breach of any provisions of this Agreement shall be effective unless made in writing and signed by each of the parties to this Agreement. Each party agrees that no failure or delay by the other party in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.                o)   Headings.   The headings used herein are for identification and reference purposes only and shall not be used in the construction and interpretation of this Agreement.                p)   Successors and Assigns.   This Agreement shall inure to the benefit of and be binding on the parties hereto and their respective successors and assigns (if such assignment was properly made pursuant to this Agreement).                q)   Counterparts.   This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. This Agreement shall become effective when counterparts have been signed by each of the parties and delivered by facsimile or other means to the other party.  6 --------------------------------------------------------------------------------                r)   Remedies.   Except for remedies that are described herein as sole and exclusive remedies, no remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder, now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies shall not constitute a waiver of the right to pursue other available remedies. 7 --------------------------------------------------------------------------------      IN WITNESS WHEREOF, the parties have caused this Application and Business Services Agreement to be executed and delivered by their duly authorized representatives, as of the date first above written.        THE TRIZETTO GROUP, INC. (“TriZetto”)   By:        --------------------------------------------------------------------------------      Name: Title: Address:     567 San Nicolas Drive, Suite 360                    Newport Beach, CA 92660 Phone:        (949) 719-2200 Fax:            (949) 219-2197          MAXICARE HEALTH PLANS, INC. (“Client”)   By:        --------------------------------------------------------------------------------      Name: Title: Address:     1149 South Broadway Street                     Los Angeles, CA 90015 Phone:         (213) 765-2000 Fax:             (213) 765-2393             S-1 --------------------------------------------------------------------------------

Exhibit 10.8 (a)   American Woodmark Corporation Fiscal Year 2000 Annual Incentive Plan for the Chairman of the Board and the President & CEO   The objectives of the Annual Incentive Plan are threefold: I. Provide an incentive which will encourage and reward outstanding individual performance; II. Help align the personal goals of the individual with the overall goals of and objectives of American Woodmark and the stockholders of American Woodmark; and III. Together with base pay and long term incentive programs, provide a compensation package, in both form and total value, which is equal to or better than opportunities offered in the competitive marketplace for similar performance in similar positions.   Eligibility for Participation in the Annual Incentive Program The Chairman and President/CEO of the Company. Eligible participants must be employed by the Company on April 30, 2001. All calculations will be reduced on a pro-rated basis for eligible participants not employed as of May 1, 2000.   Determination of Annual Incentive Payout Determination of the payout will be based on one component: 1. Zero to 110% of base salary on April 30, 2000 as determined by the attached schedule for net income. No payment will be made on net income below $13.5 million. Net income will be the audited amount as listed in the Company's annual report for Fiscal 2000.

Exhibit (10) (k) SEVERANCE AGREEMENT             SEVERANCE AGREEMENT (the "Agreement") dated October 5, 2000 ("Effective Date") between Charles C. Gillman ("Employee") and Brown Shoe Company, Inc., a New York corporation (as further defined in Section 13, the "Company").             WHEREAS, in order to accomplish its objectives, the Company believes it is essential that members of its Operating Committee, such as Employee, be encouraged to remain with the Company during management transition and thereafter and in the event there is any change in corporate structure which results in a Change in Control.             WHEREAS, Employee wishes to have the protection provided for in this Agreement and, in exchange for such protection, is willing to give to the Company, under certain circumstances, his covenant not to compete.             WHEREAS, the Company and Employee desire to amend and restate the Severance Agreement dated December 1, 1999.             NOW, THEREFORE, the parties amend and restate the Severance Agreement dated December 1, 1999, hereto agree as follows:             1. Definitions.         a. "Cause" means (i) engaging by Employee in willful misconduct which is materially injurious to the Company; (ii) conviction of the Employee of a felony; (iii) engaging by Employee in fraud, material dishonesty or gross misconduct in connection with the business of the Company; (iv) engaging by Employee in any act of moral turpitude reasonably likely to materially and adversely affect the Company or its business; or (v) habitual use by Employee of narcotics or alcohol.         b. "Change of Control" means (i) any person other than the Company acquiring more than 25 percent of the Company's Common Stock through a tender offer, exchange offer or otherwise; (ii) the liquidation or dissolution of the Company following the sale of all or substantially all of its assets; or (iii) the Company not being the surviving parent corporation resulting from any merger or consolidation to which it has been a party.         c. "Competitor" shall mean any person, firm, corporation, partnership or other entity which in its prior fiscal year had annual gross sales volume or revenues of shoes of more than $20,000,000 or is reasonably expected   -------------------------------------------------------------------------------- to have such sales or revenues in either the current fiscal year or the next following fiscal year.         d. "Confidential Information" shall have the meaning set forth in Section 10.         e. "Customer" shall mean any wholesale customer of the Company which either purchased from the Company during the one (1) year immediately preceding the Termination Date, or is reasonably expected by the Company to purchase from the Company in the one (1) period immediately following the Termination Date, more than $1,000,000 in shoes.         f. "Good Reason," when used with reference to a voluntary termination by Employee of his employment with the Company, shall mean (i) a reduction in Employee's base salary as in effect on the date hereof, or as the same may be increased from time to time; (ii) a reduction in Employee's status, position, responsibilities or duties; or (iii) notice of termination of this Agreement by the Company pursuant to Section 1.g. below, provided Employee terminates employment with the Company within six (6) months of the expiration of the Term.         g. "Term" means the period commencing on the Effective Date and terminating one year after the Effective Date; provided, however, that the Term shall automatically be extended for successive additional one year periods unless either party to this Agreement provides the other party with notice of termination of this Agreement at least ninety days prior to the expiration of the original one-year period or any one-year period thereafter.         h. "Termination Date" shall mean the effective date as provided hereunder of the termination of Employee's employment.             2. Termination During Term -- Change in Control Severance Inapplicable.         a. Employee's employment may be terminated by the Company for Cause at any time, effective upon the giving to Employee of a written notice of termination specifying in detail the particulars of the conduct of Employee deemed by the Company to justify such termination for Cause.         b. Employee's employment may be terminated by the Company without Cause at any time, effective upon the giving to Employee of a written notice of termination specifying that such termination is without Cause.         c. Employee may terminate his employment with the Company at any time.   2 --------------------------------------------------------------------------------           d. Upon a termination by the Company of Employee's employment for Cause during the Term, but prior to a Change in Control or more than 24 months after a Change in Control, Employee shall be entitled only to the payments specified in Section 3.a. below. Upon a termination by the Company of Employee's employment without Cause during the Term, but prior to a Change in Control or more than 24 months after a Change in Control, Employee shall be entitled to all of the payments and benefits specified in Section 3 below.         e. If Employee voluntarily terminates his employment during the Term, but prior to a Change in Control or more than 24 months after a Change in Control, he shall notify Employer in writing if he believes the termination is for Good Reason. Employee shall set forth in reasonable detail why Employee believes there is Good Reason. If such termination is for Good Reason, Employee shall be entitled to all of the payments and benefits specified in Section 3 below. If such voluntary termination is for other than Good Reason, then Employee shall be entitled only to the payments specified in Section 3.a. below.             3. Payments and Benefits Upon Termination During Term -- Change in Control Severance Inapplicable. To the extent provided in Section 2 above, upon termination of his employment during the Term, but prior to a Change in Control or more than 24 months after a Change in Control, Employee shall receive the following payments and benefits:         a. The Company shall pay to Employee on the Termination Date (i) the full base salary earned by employee through the Termination Date and unpaid at the Termination Date, plus (ii) credit for any vacation earned by Employee but not taken at the Termination Date, plus (iii) all other amounts earned by Employee and unpaid as of the Termination Date.         b. The Company shall continue to pay to Employee his base monthly salary at the highest rate in effect at any time during the twelve months immediately preceding the Termination Date (including his targeted bonus in the current year) for the twelve months succeeding his Termination Date. Such amounts shall be paid in accordance with the Company's regular pay period policy for its employees.         c. The Company, at its expense, shall provide to Employee for a period of twelve months after the Termination Date medical and/or dental coverage under the medical and dental plans maintained by the Company. Upon Employee's re-employment during such period, to the extent covered by the new Employer's Plan, coverage under the Company's plan shall lapse. Additionally, the Company shall make a cash lump sum payment in an amount equal to the sum of (i) and (ii) below:   3 --------------------------------------------------------------------------------               (i) The fair market value (determined as of the Termination Date) of that number of shares of non-vested restricted stock of the Company held by the Employee which would have vested within the twelve-month period following the Employee's Termination Date had the Employee remained employed with the Company; plus             (ii) With respect to each non-vested option to purchase Company stock held by the Employee which would have vested within the twelve-month period following the Employee's Termination Date had the Employee remained employed with the Company, the excess, if any, of the fair market value (determined as of the Termination Date) of the Company stock subject to such option over the exercise price of such option.   Employee's participation in and/or coverage under all other employee benefit plans, programs or arrangements sponsored or maintained by the Company shall cease effective as of the Termination Date.         d. The Company shall pay the reasonable costs of outplacement services selected by the Company.         e. For purposes of determining Employee's benefit under the Brown Group, Inc. Supplemental Employment Retirement Plan, an additional one year of Credited Service shall be credited to the Employee's actual or deemed Credited Service.             4. Termination Within 24 Months After a Change in Control Which Occurs During the Term.         a. Employee's employment may be terminated by the Company for Cause at any time, effective upon the giving to Employee of written notice of termination specifying in detail the particulars of the conduct of Employee deemed by the Company to justify such termination for Cause.         b. Employee's employment may be terminated by the Company without Cause at any time, effective upon the giving to Employee of a written notice of termination specifying that such termination is without Cause.         c. Employee may terminate his employment with the Company at any time.         d. Upon a termination by the Company of Employee's employment for Cause within 24 months after a Change in Control which occurs during the Term, Employee shall be entitled only to the payments specified in Section 5.a. below. Upon a termination by the Company of Employee's employment without   4 -------------------------------------------------------------------------------- Cause within 24 months after a Change in Control which occurs during the Term, Employee shall be entitled to all of the payments and benefits specified in Section 5 below.         e. If Employee voluntarily terminates his employment within 24 months after a Change in Control which occurs during the Term, he shall notify the Company in writing if he believes the termination is for Good Reason. Employee shall set forth in reasonable detail why Employee believes there is Good Reason. If such termination is for Good Reason, Employee shall be entitled to all of the payments and benefits specified in Section 5 below. If such voluntary termination is for other than Good Reason, then Employee shall be entitled only to the payments specified in Section 5.a. below.             5. Payments and Benefits Upon Termination Within 24 Months after a Change in Control Which Occurs During Term. To the extent provided in 4 above, upon termination of his employment within 24 months after a Change in Control which occurs during the Term, Employee shall receive the following payments and benefits:         a. The Company shall pay to Employee on the Termination Date (i) the full base salary earned by employee through the Termination Date and unpaid at the Termination Date, plus (ii) credit for any vacation earned by Employee but not taken at the Termination Date, plus (iii) all other amounts earned by Employee and unpaid as of the Termination Date.         b. The Company shall pay to Employee in a lump sum not later than 30 days after his Termination Date an amount equal to 300 percent of the sum of (i) his base annual salary at the highest rate in effect at any time during the twelve months immediately preceding the Termination Date, and (ii) his targeted bonus for the current year. In addition, the Company shall pay to Employee his targeted bonus payment for the year of termination prorated to the Termination Date.         c. The Company, at its expense, shall provide to Employee for a period of thirty-six months after the Termination Date medical and/or dental coverage under the medical and dental plans maintained by the Company. Upon Employee's re-employment during such period, to the extent covered by the new employer's plan, coverage under the Company's plan shall lapse. Employee's participation in and/or coverage under all other employee benefit plans, programs or arrangements sponsored or maintained by the Company shall cease effective as of the Termination Date.         d. The Company shall pay the reasonable costs of outplacement services selected by the Company.         e. For purposes of determining Employee's benefit under the Brown Group, Inc. Supplemental Employment Retirement Plan, an additional three years   5 -------------------------------------------------------------------------------- of Credited Service shall be credited to the Employee's actual or deemed Credited Service.             6. Mitigation or Reduction of Benefits. Employee shall not be required to mitigate the amount of any payment provided for in Section 3 or Section 5 by seeking other employment or otherwise. Except as otherwise specifically set forth herein, the amount of any payment or benefits provided in Section 3 or Section 5 shall not be reduced by any compensation or benefits or other amounts paid to or earned by Employee as the result of employment by another employer after the Termination Date or otherwise.             7. Employee Expenses After Change in Control. If Employee's employment is terminated by the Company within 24 months after a Change in Control which occurs during the Term and there is a dispute with respect to this Agreement, then all Employee's costs and expenses (including reasonable legal and accounting fees) incurred by Employee (a) to defend the validity of this Agreement, (b) if Employee's employment has been terminated for Cause, to contest such termination, (c) to contest any determinations by the Company concerning the amounts payable by the Company under this Agreement, or (d) to otherwise obtain or enforce any right or benefit provided to Employee by this Agreement, shall be paid by the Company if Employee is the prevailing party.             8. Release. Notwithstanding anything to the contrary stated in this Agreement, no benefits will be paid pursuant to Sections 3 and 5 except under Sections 3.a. and 5.a. prior to execution by Employee of a release to the Company in the form attached as Exhibit A.             9. Covenant Not to Compete. Benefits payable pursuant to Sections 3.b, 3.c, and 3.e are subject to the following restrictions.                             a. Post-Termination Restrictions.             i. Employee acknowledges that (i) the Company has spent substantial money, time and effort over the years in developing and solidifying its relationships with its customers throughout the world and in developing its Confidential Information; (ii) under this Agreement, the Company is agreeing to provide Employee with certain benefits based upon Employee's assurances and promises contained herein not to divert the Company's customers' goodwill or to put himself in a position following his employment with Company in which the confidentiality of Company's Confidential Information might somehow be compromised.             ii. Accordingly, Employee agrees that, for twelve (12) months after a Termination Date described in the second sentence of Section 2.d, Employee will not, directly or indirectly, on Employee's own behalf or on behalf   6 -------------------------------------------------------------------------------- of any other person, firm, corporation or entity (whether as owner, partner, consultant, employee or otherwise):               A. provide any executive- or managerial-level services in the shoe industry in the United States in competition with the Company, for any Competitor;             B. hold any executive- or managerial-level position with any Competitor in the United States;             C. engage in any research and development activities or efforts for a Competitor, whether as an employee, consultant, independent contractor or otherwise, to assist the Competitor in competing in the shoe industry in the United States;             D. cause or attempt to cause any Customer to divert, terminate, limit, modify or fail to enter into any existing or potential relationship with the Company;             E. cause or attempt to cause any shoe supplier or manufacturer of the Company to divert, terminate, limit, modify or fail to enter into any existing or potential relationship with the Company; and             F. solicit, entice, employ or seek to employ, in the shoe industry, any executive- or managerial-level employee of, or any consultant or advisor to, the Company.           b. Acknowledgment Regarding Restrictions. Employee recognizes and agrees that the restraints contained in Section 9.a. (both separately and in total) are reasonable and should be fully enforceable in view of the high-level positions Employee has had with the Company, the national and international nature of both the Company's business and competition in the shoe industry, and the Company's legitimate interests in protecting its Confidential Information and its customer goodwill and relationships. Employee specifically hereby acknowledges and confirms that he is willing and intends to, and will, abide fully by the terms of Section 9.a. of this Agreement. Employee further agrees that the Company would not have adequate protection if Employee were permitted to work for its competitors in violation of the terms of this Agreement since the Company would be unable to verify whether (i) its Confidential Information was being disclosed and/or misused, and (ii) Employee was involved in diverting or helping to divert the Company's customers and/or its customer goodwill.         c. Company's Right to Injunctive Relief. In the event of a breach or threatened breach of any of Employee's duties and obligations under the terms and provisions of Section 9.a. of this Agreement, the Company shall be entitled,   7 -------------------------------------------------------------------------------- in addition to any other legal or equitable remedies it may have in connection therewith (including any right to damages that it may suffer), to temporary, preliminary and permanent injunctive relief restraining such breach or threatened breach. Employee hereby expressly acknowledges that the harm which might result to Company's business as a result of noncompliance by Employee with any of the provisions of Section 9.a. would be largely irreparable. Employee specifically agrees that if there is a question as to the enforceability of any of the provisions of Section 9.a. hereof, Employee will not engage in any conduct inconsistent with or contrary to such Section until after the question has been resolved by a final judgment of a court of competent jurisdiction. Employee undertakes and agrees that if Employee breaches or threatens to breach the Agreement, Employee shall be liable for any attorneys' fees and costs incurred by Company in enforcing its rights hereunder.         d. Employee Agreement to Disclose this Agreement. Employee agrees to disclose, during the twelve-month period following a Termination Date described in the second sentence of Section 2.d, the terms of this Section 9 to any potential future employer.             10. Confidential Information. The Employee acknowledges and confirms that certain data and other information (whether in human or machine readable form) that comes into his possession or knowledge (whether before or after the date of this Employment Agreement) and which was obtained from the Company, or obtained by the Employee for or on behalf of the Company, and which is identified herein is the secret, confidential property of the Company (the "Confidential Information"). This Confidential Information includes, but is not limited to:         a. lists or other identification of customers or prospective customers of the Company (and key individuals employed or engaged by such parties);         b. lists or other identification of sources or prospective sources of the Company's products or components thereof (and key individuals employed or engaged by such parties);         c. all compilations of information, correspondence, designs, drawings, files, formulae, lists, machines, maps, methods, models, notes or other writings, plans, records, regulatory compliance procedures, reports, specialized or technical data, schematics, source code, object code, documentation, and software used in connection with the development, manufacture, fabrication, assembly, marketing and sale of the Company's products;         d. financial, sales and marketing data relating to the Company or to the industry or other areas pertaining to the Company's activities and contemplated activities (including, without limitation, manufacturing, transportation, distribution and sales costs and non-public pricing information);   8 --------------------------------------------------------------------------------         e. equipment, materials, procedures, processes, and techniques used in, or related to, the development, manufacture, assembly, fabrication or other production and quality control of the Company's products and services;         f. the Company's relations with its customers, prospective customers, suppliers and prospective suppliers and the nature and type of products or services rendered to such customers (or proposed to be rendered to prospective customers);         g. the Company's relations with its employees (including, without limitation, salaries, job classifications and skill levels); and         h. any other information designated by the Company to be confidential, secret and/or proprietary (including without limitation, information provided by customers or suppliers of the Company). Notwithstanding the foregoing, the term "Confidential Information" shall not consist of any data or other information which has been made publicly available or otherwise placed in the public domain other than by the Employee in violation of this Employment Agreement.             11. Certain Additional Payments by the Company.         a. Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (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 shall 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 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 Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 11.a., if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Payments do not exceed 110 percent of the greatest amount (the "Reduced Amount") that could be paid to the Employee such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made   9 -------------------------------------------------------------------------------- to the Employee, and the Payments, in the aggregate, shall be reduced to the Reduced Amount.         b. Subject to the provisions of Section 11.c., all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young or such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11.c. and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee.         c. The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall:               i. give the Company any information reasonably requested by the Company relating to such claim,   10 --------------------------------------------------------------------------------               ii. take such action in connection with contesting such claim as the Company 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 Company,             iii. cooperate with the Company in good faith in order to effectively contest such claim, and             iv. permit the Company to participate in any proceedings relating to such claim;     provided, however, that the Company 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 Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11.c., the Company 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 Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee 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 shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold Employee 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 Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee 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.         d. If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 11.c., the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 11.c.) promptly pay to the Company the amount of such refund (together with any interest paid or   11 -------------------------------------------------------------------------------- credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 11.c., a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee 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 Gross-Up Payment required to be paid.             12. Notice. All notices hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally or by courier, or (b) on the third business day following the mailing thereof by registered or certified mail, postage prepaid, or (c) on the first business day following the mailing thereof by overnight delivery service, in each case addressed as set forth below:                     a. If to the Company:                         Brown Shoe Company, Inc.                         8300 Maryland Avenue                         St. Louis, Missouri 63166-0029                         Attention: Chief Executive Officer                     b. If to Employee:                         Charles C. Gillman                         9914 East 10th Street                         Indianapolis, IN 46229   Any party may change the address to which notices are to be addressed by giving the other party written notice in the manner herein set forth.             13. Successors; Binding Agreement.         a. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, upon or prior to such succession, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. A copy of such assumption and agreement shall be delivered to Employee promptly after its execution by the successor. Failure of the Company to obtain such agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to benefits from the Company in the same amounts and on the same terms as Employee would be entitled hereunder if Employee terminated his employment for Good Reason. For purposes of the preceding sentence, the date on which any such succession becomes effective shall be deemed the Termination 12 --------------------------------------------------------------------------------   Date. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13.a. or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.         b. This Agreement is personal to Employee and Employee may not assign or delegate any part of his rights or duties hereunder to any other person, except that this Agreement shall inure to the benefit of and be enforceable by Employee's legal representatives, executors, administrators, heirs and beneficiaries.         14. Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall to any extent be held to be invalid or unenforceable, the remainder of this Agreement and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.         15. Headings. The headings in this Agreement are inserted for convenience of reference only and shall not in any way affect the meaning or interpretation of this Agreement.         16. Counterparts. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.         17. Waiver. Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of such right, power or privilege or of any other right, power or privilege or of the same right, power or privilege in any other instance. Without limiting the generality of the foregoing, Employee's continued employment without objection shall not constitute Employee's consent to, or a waiver of Employee's rights with respect to, any circumstances constituting Good Reason. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged therewith, and, in the case of the Company, by its duly authorized officer.         18. Entire Agreement. This instrument constitutes the entire agreement of the parties in this matter and shall supersede any other agreement (including, but not limited to, the Severance Agreement dated December 1, 1999) between the parties, oral or written, concerning the same subject matter.         19. Amendment. This Agreement may be amended only by a writing which makes express reference to this Agreement as the subject of such amendment and which is signed by Employee and by a duly authorized officer of the Company.   13 --------------------------------------------------------------------------------         20. Governing Law. In light of Company's and Employee's substantial contacts with the State of Missouri, the facts that the Company is headquartered in Missouri and Employee resides in and/or reports to Company management in Missouri, the parties' interests in ensuring that disputes regarding the interpretation, validity and enforceability of this Agreement are resolved on a uniform basis, and Company's execution of, and the making of, this Agreement in Missouri, the parties agree that: (i) any litigation involving any noncompliance with or breach of the Agreement, or regarding the interpretation, validity and/or enforceability of the Agreement, shall be filed and conducted exclusively in the state or federal courts in St. Louis City or County, Missouri; and (ii) the Agreement shall be interpreted in accordance with and governed by the laws of the State of Missouri, without regard for any conflict of law principles.             IN WITNESS WHEREOF, Employee and the Company have executed this Agreement as of the day and year first above written.                                                                                  BROWN SHOE COMPANY, INC.                                                                                    By: /s/ Jeffery E. Struve                                                                                      EMPLOYEE                                                                                      By: /s/ Charles C. Gillman                 Charles C. Gillman   14 --------------------------------------------------------------------------------

NOTE PURCHASE AGREEMENT DATED AS OF JUNE 30, 2000 BY AND AMONG AMERICAN FOUNDERS FINANCIAL CORP., VESTA FIRE INSURANCE CORPORATION AND VESTA INSURANCE GROUP, INC. TABLE OF CONTENTS Page 1. Definitions.................................................................................................1 -- ----------- 2. Closing Transaction.........................................................................................1 -- ------------------- 2.1 ISSUANCE, SALE AND PURCHASE..............................................................................1 --------------------------- 2.2 CLOSING..................................................................................................2 ------- 3. Representations and Warranties of AFFC......................................................................2 -- -------------------------------------- 3.1 AUTHORIZATION, EXECUTION AND DELIVERY....................................................................2 ------------------------------------- 3.2 NONCONTRAVENTION.........................................................................................2 ---------------- 3.3 REQUIRED CONSENTS........................................................................................3 ----------------- 3.4 ORGANIZATION, STANDING AND AUTHORITY; SUBSIDIARIES.......................................................3 -------------------------------------------------- 3.5 LICENSES.................................................................................................3 -------- 3.6 ACTIONS AND PROCEEDINGS..................................................................................3 ----------------------- 3.7 OUTSTANDING CAPITAL STOCK AND SURPLUS NOTES OF AFFC AND ITS SUBSIDIARIES.................................3 ------------------------------------------------------------------------ 3.8 TITLE TO SUBSIDIARY STOCK; SURPLUS NOTES.................................................................4 ---------------------------------------- 3.9 OPTIONS OR OTHER RIGHTS..................................................................................4 ----------------------- 3.10 CORPORATE RECORDS.....................................................................................4 ----------------- 3.11 INSURANCE ANNUAL STATEMENTS; FINANCIAL STATEMENTS.....................................................5 ------------------------------------------------- 3.12 ABSENCE OF LIABILITIES AND OBLIGATIONS................................................................5 -------------------------------------- 3.13 NO MATERIAL ADVERSE CHANGE............................................................................5 -------------------------- 3.14 COMPLIANCE WITH LAWS..................................................................................6 -------------------- 3.15 PROPERTY..............................................................................................7 -------- 3.16 CONTRACTS AND OTHER AGREEMENTS........................................................................7 ------------------------------ 3.17 EMPLOYMENT BENEFITS...................................................................................7 ------------------- 3.18 POWERS OF ATTORNEY...................................................................................10 ------------------ 3.19 INSURANCE............................................................................................10 --------- 3.20 TAX MATTERS..........................................................................................11 ----------- 3.21 TAX STATUS OF INSURANCE/ANNUITY PRODUCTS.............................................................12 ---------------------------------------- 3.22 ENVIRONMENTAL MATTERS................................................................................12 --------------------- 3.23 BROKERAGE............................................................................................13 --------- 3.24 LOSS RESERVES........................................................................................13 ------------- 3.25 TRADEMARKS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS AND DATA PROCESSING SYSTEMS.......................13 ------------------------------------------------------------------------------ 3.26 EMPLOYMENT MATTERS...................................................................................13 ------------------ 3.27 IMPROPER PAYMENTS....................................................................................14 ----------------- 3.28 REINSURANCE..........................................................................................14 ----------- 3.29 EMPLOYMENT CONTRACTS.................................................................................14 -------------------- 3.30 GUARANTEES...........................................................................................15 ---------- 3.31 INVESTMENTS..........................................................................................15 ----------- 3.32 ACCOUNTS; SECURITY DEPOSITS..........................................................................15 --------------------------- 3.33 INSURANCE BUSINESS...................................................................................15 ------------------ 3.34 NO MISREPRESENTATIONS................................................................................16 --------------------- 4. Representations and Warranties of Vesta Fire and Vesta.....................................................16 -- ------------------------------------------------------ 4.1 ORGANIZATION, STANDING AND AUTHORITY....................................................................16 ------------------------------------ 4.2 AUTHORIZATION, EXECUTION AND DELIVERY...................................................................16 ------------------------------------- 4.3 REQUIRED CONSENTS.......................................................................................17 ----------------- 4.4 NONCONTRAVENTION........................................................................................17 ---------------- 5. Pre-Closing Covenants......................................................................................17 -- --------------------- 5.1 GENERAL.................................................................................................17 ------- 5.2 NOTICES AND CONSENTS....................................................................................18 -------------------- 5.3 OPERATION OF BUSINESS...................................................................................18 --------------------- 5.4 FULL ACCESS; CONFIDENTIALITY............................................................................18 ---------------------------- 5.5 STATE INSURANCE AND OTHER REGULATORY APPROVALS..........................................................19 ---------------------------------------------- 5.6 EXCLUSIVITY.............................................................................................20 ----------- 5.7 OTHER DOCUMENTS.........................................................................................20 --------------- 5.8 FINANCIAL STATEMENT AUDIT...............................................................................20 ------------------------- 6. Conditions to Obligation to Close..........................................................................20 -- --------------------------------- 6.1 CONDITIONS TO OBLIGATION OF VESTA.......................................................................20 --------------------------------- 6.2 CONDITIONS TO OBLIGATION OF AFFC........................................................................22 -------------------------------- 7. Remedies for Breaches of This Agreement....................................................................23 -- --------------------------------------- 7.1 SURVIVAL PERIOD; INDEMNIFICATION AS REMEDY..............................................................23 ------------------------------------------ 7.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF VESTA.........................................................24 ----------------------------------------------- 7.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF AFFC..........................................................24 ---------------------------------------------- 7.4 MATTERS INVOLVING THIRD PARTIES.........................................................................24 ------------------------------- 7.5 EXCLUSIVE REMEDY AFTER THE CLOSING......................................................................25 ---------------------------------- 7.6 CLAIM NOTICE............................................................................................25 ------------ 8. Termination................................................................................................25 -- ----------- 8.1 TERMINATION OF AGREEMENT................................................................................25 ------------------------ 8.2 EFFECT OF TERMINATION...................................................................................26 --------------------- 9. Miscellaneous..............................................................................................26 -- ------------- 9.1 ENTIRE AGREEMENT........................................................................................26 ---------------- 9.2 SUCCESSION AND ASSIGNMENT...............................................................................26 ------------------------- 9.3 COUNTERPARTS............................................................................................26 ------------ 9.4 HEADINGS................................................................................................27 -------- 9.5 EXPENSES................................................................................................27 -------- 9.6 NOTICES.................................................................................................27 ------- 9.7 AMENDMENTS AND WAIVERS..................................................................................28 ---------------------- 9.8 SEVERABILITY............................................................................................28 ------------ 9.9 CONSTRUCTION............................................................................................28 ------------ AFFC's Disclosure Schedule 3.3 .........Required Consents 3.7 .........Outstanding Capital Stock and Surplus Notes of AFFC and its Subsidiaries 3.9 .........Options or other Rights 3.17 .........Employment Benefits Appendix A .........Definitions Exhibit A-1 .........Series B Exchange Agreement Exhibit A-2 .........Investor Rights Agreement Exhibit A-3 .........9.5% Convertible Subordinated Note Exhibit A-4 .........Employment Agreement Exhibit A-5 .........Series D Preferred Stock AMERICAN FOUNDERS FINANCIAL CORPORATION NOTE PURCHASE AGREEMENT ----------------------- This Agreement is entered into this 30 day of June, 2000, by and among American Founders Financial Corp., an Arizona corporation ("AFFC"), Vesta Fire Insurance Corporation, an Illinois corporation ("Vesta Fire") and Vesta Insurance Group, Inc., a Delaware corporation and the owner of all of the outstanding capital stock of Vesta Fire ("Vesta"). AFFC, Vesta Fire and Vesta are sometimes referred to collectively herein as the "Parties" and individually as a "Party". AFFC is seeking investment capital. Vesta Fire desires to make a $25 million investment in AFFC by purchasing from AFFC convertible subordinated notes. In addition, Vesta Fire desires that it have the right to vote the shares into which such note is convertible on an as-converted basis. AFFC is willing to accept such investment by selling such notes to Vesta Fire and providing Vesta Fire with its desired pre-conversion voting rights through a newly created special voting preferred stock provided that Vesta is a Party to this Agreement and that Vesta, Vesta Fire and AFFC enter into an investor rights agreement delineating certain rights and obligations of the Parties with respect to corporate governance and other matters. Vesta Fire is willing to make its investment on such terms. Accordingly, the Parties agree as follows: 1. Definitions. ----------- As used in this Agreement, the terms set forth in Appendix A shall have the meanings ascribed to such terms in Appendix A. 2. Closing Transaction. ------------------- 2.1 Issuance, Sale and Purchase. --------------------------- At the Closing, subject to the conditions set forth in Section 6 (the "Closing Conditions"), AFFC will duly execute, issue and deliver five Notes, each in the principal amount of $5 million, and duly executed certificates, each evidencing five shares of the Special Voting Preferred, to Vesta Fire. Vesta Fire will purchase and accept (a) the Notes by paying to AFFC $25 million in cash, by wire transfer to an account designated by AFFC and (b) the Special Voting Preferred by paying to AFFC $250 in cash (by wire transfer to an account designated by AFFC). In addition, at the Closing, AFFC, Vesta and Vesta Fire will enter into the Investor Rights Agreement, AFFC will enter into the Employment Agreements and the Exchange Agreement with the Series B Preferred Holders and AFFC will, simultaneously with the Closing, consummate the transactions contemplated by the Redemption Agreement and pay in full AFFC's Promissory Note dated May 23, 2000, to Vesta in the original principal amount of $5,500,000. 2.2 Closing. ------- The Closing will take place at the offices of AFFC at 2720 East Camelback Road, Phoenix, Arizona, or at such other place as the parties may agree, on June 30, 2000, or if the Closing Conditions have not been satisfied by such date, on such later date within ten days after the Closing Conditions have been satisfied as the Parties may designate (the "Closing Date"). 3. Representations and Warranties of AFFC. -------------------------------------- AFFC represents and warrants to Vesta Fire and Vesta that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete on and as of the Closing Date except where any such statement is made as of a specific date. 3.1 Authorization, Execution and Delivery. ------------------------------------- AFFC has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by AFFC and the consummation by AFFC of the transactions contemplated hereby will have been, before the Closing Date, duly authorized by the Board of Directors and stockholders of AFFC, and no other corporate proceedings on the part of AFFC are necessary to authorize the execution and delivery of this Agreement and the consummation by AFFC of the transactions contemplated hereby. This Agreement has been duly executed and delivered by AFFC and constitutes a valid and binding obligation of AFFC enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, rehabilitation, liquidation, insolvency, reorganization, rearrangement, receivership and other similar laws relating to or affecting insurance companies or the enforcement of creditors' rights generally, by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), and by matters involving the discretionary authority of any court before which any proceeding therefor may be brought or any state Insurance Commissioner or Insurance Department that has jurisdiction. 3.2 Noncontravention. ---------------- Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which AFFC or any of its Subsidiaries is subject or, any provision of its charter or bylaws or the charter or bylaws of any of its Subsidiaries or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which AFFC or any of its Subsidiaries is a party or by which any of them is bound or to which any of their respective assets is subject. 3.3 Required Consents. ----------------- Except as set forth in Section 3.3 to the AFFC Disclosure Schedule, neither AFFC nor any of its -------------------------------------------- Subsidiaries is required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency or other Person in order for the Parties to consummate the transactions contemplated by this Agreement. 3.4 Organization, Standing and Authority; Subsidiaries. -------------------------------------------------- AFFC and each of its Subsidiaries is duly organized, validly existing and in Good Standing under the laws of the state of its organization. 3.5 Licenses. -------- AFFC and each of the life insurance company Subsidiaries is duly licensed and qualified to transact all business it is currently conducting and is in Good Standing in the state of its incorporation and in each of the other jurisdictions where it is currently conducting such business, except where the lack of such license or qualification would not have a Material Adverse Effect. All Licenses held by AFFC and its Subsidiaries are (i) in full force and effect and (ii) are not subject to any action, proceeding, or investigation which restricts or would restrict any of the Licenses except where the ineffectiveness of any License or the existence of any such restriction would not have a Material Adverse Effect. 3.6 Actions and Proceedings. ----------------------- Except for claims under or with respect to insurance policies, (i) there are no outstanding adverse, material orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or naming AFFC or its Subsidiaries, or any of the directors, officers or employees of AFFC or its Subsidiaries in their capacity as such; and (ii) there are no material complaints, actions, suits or claims or legal, administrative or arbitration proceedings against or investigations of, or threatened against or involving, any of AFFC or its Subsidiaries, or any of their directors, officers, employees in their capacity as such or their properties or assets. 3.7 Outstanding Capital Stock and Surplus Notes of AFFC and its Subsidiaries. ------------------------------------------------------------------------ Section 3.7 to the AFFC Disclosure Schedule sets forth the authorized capitalization of AFFC --------------------------------------------- and each of its Subsidiaries (i) immediately prior to the consummation of the Transactions, (ii) immediately following the consummation of the Transactions, and (iii) immediately following the consummation of the Transactions on a fully diluted and as converted basis, including the number of issued and outstanding shares of each class of its capital stock, the outstanding principal amount of each surplus note, the names of the holders thereof, and the number of shares or principal amount held by each such holder. All of the outstanding shares of capital stock of AFFC and each Subsidiary are duly authorized and are validly issued, fully paid and non-assessable. The outstanding surplus note of Laurel Life is duly authorized, validly issued and fully enforceable. AFFC has delivered to Vesta Fire and Vesta true and complete copies of the Redemption Agreement, as executed, including all exhibits and attachments thereto. 3.8 Title to Subsidiary Stock; Surplus Notes. ---------------------------------------- AFFC owns, beneficially and of record, all of the outstanding shares of capital stock and the surplus note of Laurel Life, and Laurel Life owns, beneficially and of record, all of the outstanding shares of capital stock of AFL, in each case free and clear of any Security Interests or restrictions other than the Security Interest of Vesta in a surplus note, which will be satisfied at Closing. 3.9 Options or Other Rights. ----------------------- Except as set forth in Section 3.9 to the AFFC Disclosure Schedule, there is no (i) outstanding -------------------------------------------- right, subscription, warrant, call, unsatisfied preemptive right, option or other contract or other agreement of any kind to purchase or otherwise to receive from AFFC or any of its Subsidiaries any of the outstanding, authorized but unissued, unauthorized or treasury shares of the capital stock, any surplus note, or any other security of AFFC or its Subsidiaries, (ii) outstanding security of any kind convertible into any security of AFFC or its Subsidiaries, or (iii) outstanding contract or other agreement to purchase, redeem or otherwise acquire any outstanding capital stock, surplus note or any other security of AFFC or its Subsidiaries. 3.10 Corporate Records. ----------------- AFFC has heretofore made available to Vesta Fire and Vesta true, complete and correct copies of the Certificates or Articles of Incorporation and the By-Laws of AFFC and its Subsidiaries, as in effect on the date hereof, and made available to Vesta Fire and Vesta copies of (i) the stock transfer records, which are true and complete and reflect all issuances and transfers of capital stock, and (ii) the corporate records of meetings of the directors and shareholders, of AFFC and its Subsidiaries, which are true and complete and reflect all corporate actions and proceedings of the directors and shareholders that actually took place and should be reflected therein. 3.11 Insurance Annual Statements; Financial Statements. ------------------------------------------------- AFFC has furnished to Vesta Fire and Vesta copies of the Annual Statements ("Insurance Annual Statements") of Laurel Life and each of its insurance company Subsidiaries for the years ended December 31, 1999, 1998, 1997, and 1996, in each case as filed by Laurel Life or the respective Subsidiary with the Insurance Department of the state of its domicile and with the appropriate regulatory authorities in all jurisdictions in which such filing is required. The Insurance Annual Statements of Laurel Life and AFL for the years ended December 31, 1999, 1998, 1997, and 1996 have been audited. Additionally, AFFC has furnished to Vesta Fire and Vesta copies of the unaudited insurance financial statements of Laurel Life and AFL for the quarter ended March 31, 2000, filed by Laurel Life or AFL with the Insurance Department of the state of its domicile and with the appropriate regulatory authorities in all jurisdictions in which such filing is required. (All of the foregoing financial statements referred to in this Section 3.11 are hereinafter collectively referred to as the "Most Recent Financial Statements"). Each of the Most Recent Financial Statements fairly presents the financial position of the applicable Subsidiary as of its date and results of its operations for the periods set forth therein in accordance with SAP applied on a consistent basis throughout the related periods, except that the unaudited statements are subject to audit adjustments and may lack footnotes and other presentation items. AFFC also has furnished Vesta Fire and Vesta with a list of its assets and liabilities as of May 31, 2000. The reserves established and reflected in the Most Recent Financial Statements in respect of the insurance and annuity policies and contracts of Laurel Life and its life insurance Subsidiaries were determined in accordance with generally accepted actuarial standards consistently applied, are fairly stated in all material respects in accordance with sound actuarial principles and are adequate and in compliance in all material respects with the requirements of the applicable insurance laws, rules and regulations in the state of Texas, as the case may be, as well as those of any other applicable jurisdictions. 3.12 Absence of Liabilities and Obligations. -------------------------------------- As of December 31, 1999, neither AFFC nor any of its Subsidiaries had any liabilities or other obligations that were not reflected on the Most Recent Financial Statements or any footnotes thereto, except for such liabilities and obligations as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.13 No Material Adverse Change. -------------------------- Since December 31, 1999, there has been (a) no change, or development involving a prospective change, in the general affairs, management, shareholders' equity, assets, liabilities, properties, business, operations, condition (financial or otherwise) or results of operations of AFFC and its Subsidiaries, that has had or may reasonably be expected to have a Material Adverse Effect, other than those resulting from (i) a change in general economic or financial conditions in the United States (ii) the effects of the acquisition by AFFC of Laurel Life on January 31, 2000, or actions contemplated under this Agreement, and (b) no material change in the manner in which the business of AFFC or its Subsidiaries is conducted; nor will there be prior to Closing other than those resulting from actions contemplated under this Agreement. 3.14 Compliance with Laws. -------------------- AFFC and each of its Subsidiaries have complied in all respects (or will comply within the applicable statutory or grace period provided) with all laws, regulations, including, but not limited to, requirements concerning sales practices, licensing requirements and orders applicable to it or to the operation of its business, except where the failure to do so would not have a Material Adverse Effect. Neither AFFC nor any of its Subsidiaries is in violation of (i) any applicable order, judgment, injunction, award or decree, or (ii) any federal, state, local or foreign law, ordinance or regulation or any other requirement of any governmental authority, court or arbitrator applicable to any of its business that would have a Material Adverse Effect, and none of AFFC or its Subsidiaries has received written notice that any such violation is being alleged or that AFFC or any of its Subsidiaries needs to have licenses it does not have. AFFC and each of its Subsidiaries has filed all reports and other documents that it was required to file with any Insurance Department or other governmental or regulatory authority having jurisdiction over AFFC or any of its Subsidiaries except where the failure to file would not have a Material Adverse Effect. As of their respective dates, each of such reports and documents complied in all respects with the relevant statutes, rules and regulations enforced or promulgated by the authority with which they were filed and did not contain any untrue statement of a fact or omit to state any 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, where such non-compliance would not have, or such untrue statement or omission does not relate to the existence of, a Material Adverse Effect. AFFC has provided Vesta Fire and Vesta with access to true and complete copies of (a) all exam reports issued by any Insurance Department with respect to any examination of Laurel Life or any of its Subsidiaries conducted since December 31, 1995, and (b) all insurance policy and annuity or insurance contract forms issued by Laurel Life or its Subsidiaries. All insurance policy and annuity or insurance contract forms issued by Laurel Life or its Subsidiaries have been filed with and approved by all applicable Insurance Departments to the extent required by law, except where the failure to file or the lack of approval would not have a Material Adverse Effect. 3.15 Property. -------- (a) With respect to each parcel of real property owned by Subsidiaries of AFFC, except for matters which would not have a Material Adverse Effect, the applicable Subsidiary has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for installments of special assessments not yet delinquent, recorded easements, covenants, and other restrictions, and utility easements, building restrictions, zoning restrictions, and other easements and restrictions existing generally with respect to properties of a similar character. AFFC does not own any real property. (b) Each lease and sublease to which AFFC or any of its Subsidiaries is a party is legal, valid, binding, enforceable, and in full force and effect, except where the illegality, invalidity, nonbinding nature, unenforceability, or ineffectiveness would not have a Material Adverse Effect. To the Knowledge of AFFC, none of AFFC, the applicable Subsidiary of AFFC or any other party to such lease or sublease, is in material violation or breach of or default under any such lease or sublease. (c) AFFC and its Subsidiaries own or have the right to use all material items of tangible and intangible property necessary for the conduct of the business of AFFC and its Subsidiaries as it is currently conducted, except where the lack of ownership or the lack of such right to use items of tangible and intangible property could not reasonably be expected to have a Material Adverse Effect. 3.16 Contracts and Other Agreements. ------------------------------ No contract or commitment, written or oral, to which any of AFFC or its Subsidiaries is a party or by which any of them is bound, excluding direct insurance policies written or assumed by Laurel Life or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect. 3.17 Employment Benefits. ------------------- (a) Section 3.17 of AFFC's Disclosure Schedule lists each Benefit Plan that any of AFFC and its Subsidiaries maintains or to which any of AFFC and its Subsidiaries contributes, and except as set forth in Section 3.17 of AFFC's Disclosure Schedule: ------------------------------------------- (i) Each Benefit Plan that is an Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable laws. (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately and in accordance with the Code and ERISA with respect to each such Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met in all material respects with respect to each such Benefit Plan that is an Employee Welfare Benefit Plan. (iii) All contributions (including all employer contributions and employee salary reduction contributions) that are due have been paid to each such Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date that are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of each of AFFC and its Subsidiaries. All premiums or other payments for all periods ending on or before the Closing Date will have been paid with respect to each such Benefit Plan that is an Employee Welfare Benefit Plan or accrued in the Most Recent Financial Statements. All contributions required to have been made by AFFC, or its Subsidiaries under the terms of any Benefit Plan have been timely made. (iv) Each such Benefit Plan that is an Employee Pension Benefit Plan meets all of the requirements of a "qualified plan" under Code Sec. 401(a) and has received a favorable determination letter from the Internal Revenue Service, and AFFC has no Knowledge of any circumstances that could affect adversely the qualified status of such Benefit Plan. (v) The market value of assets under each such Benefit Plan that is an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or exceeds the present value of all vested and nonvested liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the Closing Date. (vi) No such Benefit Plan that is in an Employee Pension Benefit Plan has an "accumulated funding deficiency" (whether or not waived) within the meaning of Code Sec. 412 or Section 302 of ERISA, and no member of the Controlled Group of Corporations that includes AFFC and its Subsidiaries has an outstanding funding waiver. (vii) With respect to each Benefit Plan that is an Employee Pension Benefit Plan, AFFC has made available to Vesta correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements that implement each such Employee Benefit Plan, if any, and with respect to any Benefit Plan that is not an Employee Pension Benefit Plan, AFFC has given Vesta Fire and Vesta access to the documents described in this 3.17(a)(vii) if any. (b) With respect to each Benefit Plan for which AFFC or any of its Subsidiaries has or could have any liability: (i) No such Benefit Plan that is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or, to the Knowledge of AFFC, threatened. (ii) There have been no Prohibited Transactions with respect to any such Benefit Plan that is an Employee Benefit Plan. No Fiduciary has any liability for any material breach of fiduciary duty or any other material act or failure to act or comply in connection with the administration of or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration of or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of AFFC, threatened. (iii) None of AFFC or any of its Subsidiaries has incurred any material liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability) or under the Code with respect to any such Benefit Plan that is an Employee Pension Benefit Plan. (c) None of AFFC, its Subsidiaries and the other members of the Controlled Group of Corporations that includes AFFC and its Subsidiaries contributes to, ever has contributed to, or ever has been required to contribute to any Multiemployer Plan or has any material liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any withdrawal liability, under any Multiemployer Plan except where such contribution, requirement to contribute, or liability would not have a Material Adverse Effect. (d) None of AFFC or its Subsidiaries has maintained nor maintains or contributes to, or ever has contributed to, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B) except where such contribution, requirement to contribute, or maintenance would not have a Material Adverse Effect. (e) AFFC has made available to Vest Fire and Vesta true and complete copies of all Benefit Plans currently in effect, all of which are listed on Section 3.17 of AFFC's Disclosure Schedule. ------------------------------------------- 3.18 Powers of Attorney. ------------------ There are no outstanding powers of attorney granted by AFFC or its Subsidiaries except those powers of attorney that, if exercised in accordance with their terms, could not have a Material Adverse Effect. 3.19 Insurance. --------- At all times material, AFFC and its Subsidiaries have maintained in full force and effect insurance coverage for all risks, and in such amounts, customarily insured by a Person of similar size carrying on similar businesses as AFFC and its Subsidiaries, except where the failure to maintain such insurance coverage could not reasonably be expected to have a Material Adverse Effect. 3.20 Tax Matters. ----------- For tax periods ending on or prior to December 31, 1999: (a) The unpaid federal income Taxes of Laurel Life and its Subsidiaries do not exceed the reserves for federal income Tax liability (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth in the 1999 Insurance Annual Statements for Laurel Life and its Subsidiaries by an amount in excess of fifty thousand dollars ($50,000). AFFC has no unpaid federal income Taxes as of December 31, 1999. (b) The unpaid Taxes (other than federal income Taxes) of Laurel Life and its Subsidiaries do not exceed the reserves for those Taxes set forth on the 1999 Insurance Annual Statements for Laurel Life and its Subsidiaries by an amount in excess of fifty thousand dollars ($50,000). AFFC has no unpaid Taxes as of December 31, 1999. (c) Each of AFFC and Laurel Life and its Subsidiaries has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. None of AFFC or Laurel Life and its Subsidiaries currently is the beneficiary of any extension of time within which to file any income Tax Return. (d) There is no material dispute or claim concerning any Tax liability of any of AFFC or Laurel Life and its Subsidiaries either (i) claimed or raised by any authority in writing or (ii) as to which AFFC has Knowledge based upon personal contact with any agent of such authority. (e) AFFC has provided Vesta Fire and Vesta access to correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of AFFC or Laurel Life and its Subsidiaries since December 31, 1993. None of AFFC or Laurel Life and its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to an Tax assessment or deficiency. (f) Laurel Life and its subsidiary AFL each is subject to federal income Tax as a "life insurance company" within the meaning of Section 801 of the Code. (g) To the Knowledge of AFFC, proper and accurate amounts have been withheld by AFFC and its Subsidiaries in full and complete compliance with the Tax and social security withholdings provisions of applicable Federal, state, local and foreign law, and such withholdings have been timely paid to the respective governmental authorities. (h) To the Knowledge of AFFC, AFFC and its Subsidiaries have made all required estimated tax payments sufficient to avoid any underpayment penalties. 3.21 Tax Status of Insurance/Annuity Products. ---------------------------------------- Except to the extent that no Material Adverse Effect would exist: (a) All of the life insurance contracts of Laurel Life and its Subsidiaries qualify as "life insurance contracts" within the meaning of Section 7702 of the Code. (b) No life insurance contracts issued by Laurel Life or its Subsidiaries meet the test of "modified endowment contracts" contained in Section 7702A of the Code. (c) All annuity contracts issued by Laurel Life and its Subsidiaries that are subject to Section 72(s) of the Code, contain all of the necessary provisions of Section 72(s). 3.22 Environmental Matters. --------------------- Neither the conduct nor operation of AFFC or its Subsidiaries nor any condition of or on any property presently or previously owned, leased or operated by any of them violates or violated any Environmental Laws in any respect material to the business of AFFC and its Subsidiaries and no condition exists or event has occurred with respect to any of them or any such property that, with notice or the passage of time, or both, would constitute a violation of any Environmental Law material to the business of AFFC or its Subsidiaries or obligate (or potentially obligate) AFFC or its Subsidiaries to remedy, stabilize, neutralize or otherwise alter the environmental condition of any such property where the aggregate cost of such actions could reasonably be expected to have a Material Adverse Effect. None of AFFC or its Subsidiaries has received any notice that any operation or condition of any property presently or, previously owned, leased or operated by any of them are or were in violation of any Environmental Laws or that any of them are responsible (or potentially responsible) for the cleanup or other remediation of any pollutants, contaminants, or hazardous or toxic wastes, substances or materials at, on or beneath any such property. 3.23 Brokerage. --------- No broker or finder has acted directly or indirectly for AFFC or its Subsidiaries or has or will have any valid claim against AFFC or its Subsidiaries for any brokerage, finder's fee or other commission or compensation. 3.24 Loss Reserves. ------------- The loss reserves reflected in the Insurance Annual Statements were or will be determined in accordance with SAP and generally accepted actuarial standards and principles applied by AFFC on a basis consistent with prior periods. Such loss reserves make or will make sufficient provision for the settlement of the total amount of all liabilities and obligations of AFFC and the Subsidiaries through the Closing Date arising under the terms of all insurance and assumed reinsurance contracts pursuant to which AFFC and the Subsidiaries have any obligation or liability as of the Closing Date. 3.25 Trademarks, Service Marks, Trade Names, Copyrights and Data Processing Systems. ------------------------------------------------------------------------------ AFFC and the Subsidiaries have the right to use and hold good and marketable title, free and clear of all encumbrances, to each of the trademarks, service marks, trade names and copyrights and to those data processing systems, including all component hardware, software, operating systems, programs, manuals, forms, techniques or the like, used or relied upon by AFFC and the Subsidiaries in connection with their respective business. Neither AFFC nor any Subsidiary has any Knowledge of the infringement by any Person, of any such trademark, service mark, tradename or copyright. 3.26 Employment Matters. ------------------ (a) To Knowledge of AFFC, AFFC and each Subsidiary is not and has not engaged in any unfair labor practice. There is no unfair practice complaint against AFFC or any Subsidiary pending or, to Knowledge of AFFC, threatened before the National Labor Relations Board. (b) Neither AFFC nor any Subsidiary is a party to any collective bargaining agreement with any labor union or other association of employees and, to Knowledge of AFFC, no attempt has been made to organize or certify the employees of AFFC or the Subsidiaries as a bargaining unit. (c) To Knowledge of AFFC, neither AFFC nor any Subsidiary has ever been the subject of any inspection or investigation relating to its compliance with or violation of the Immigration Reform and Control Act of 1986, and the rules and regulations promulgated thereunder, nor have they been fined or otherwise penalized by reason of any alleged failure to comply with such immigration laws, nor is any such proceeding pending or, to Knowledge of AFFC, threatened in respect of AFFC or any Subsidiary. 3.27 Improper Payments. ----------------- (a) No funds or assets of AFFC or any Subsidiary have been used for any illegal purposes; (b) No unrecorded fund or asset of AFFC or any Subsidiary has been established for any purpose; (c) All payments by or on behalf of AFFC or any Subsidiary have been duly and properly recorded and accounted for on the books and records of AFFC or the respective Subsidiary; and (d) No false or artificial entry has been made on the books and records of AFFC or any Subsidiary for any purpose or reason whatsoever. 3.28 Reinsurance. ----------- All reinsurance agreements or treaties to which AFFC or any Subsidiary is a party or is a named reinsured and (i) under which there remains any outstanding obligations or (ii) which covers loss or potential loss arising out of any event occurring (whether or not reported) during the period of three (3) years ending on the date hereof are in writing and in full force and effect. To the Knowledge of AFFC, there are no oral side agreements or other oral agreements between AFFC or the Subsidiary and the other parties to such reinsurance agreements or treaties, except for such agreements, the existence, performance or termination of which would not have a Material Adverse Effect. No such agreement or treaty contains any provision providing that the other party thereto may terminate such agreement or treaty by reasons of the transactions contemplated by this Agreement. To the Knowledge of AFFC, there are no material claims or losses which have arisen under policies written by AFFC or any Subsidiary for which reinsurance has been purchased, and for which AFFC or any Subsidiary intended there to be reinsurance coverage, that are not covered under such reinsurance agreements. 3.29 Employment Contracts. -------------------- Except for the individuals covered by the Employment Agreements, the employment of each officer, director and employee is terminable at will by AFFC or a Subsidiary, without restriction, penalty or payment of any kind. 3.30 Guarantees. ---------- Neither AFFC nor any of its Subsidiaries is a guarantor or indemnitor for any liability (including indebtedness) of an affiliate or any other Person other than guaranties and indemnities, if any, made by Laurel Life or AFL in the ordinary course of its insurance business and other than guaranties of obligations of AFFC and any of its Subsidiaries. 3.31 Investments. ----------- There have been no material changes to the credit quality or composition of the investment portfolio of AFFC and each Subsidiary since December 31, 1999, other than changes in connection with the acquisition by AFFC of Laurel Life on January 31, 2000, and other than a $5.5 million loan by AFFC to ComStar Mortgage Corporation and other than changes due to changes in interest rates and purchases and sales of investments in the normal course of business. 3.32 Accounts; Security Deposits. --------------------------- There have been no material changes to the composition of or number of bank accounts, safe deposit boxes, brokerage accounts, trust accounts, depository accounts or other custodial accounts of AFFC and each Subsidiary since December 31, 1999, including but not limited to, any deposits maintained with any governmental agency or department for the purpose of obtaining or continuing any authority within any jurisdiction, other than changes in the ordinary course of business 3.33 Insurance Business. ------------------ (a) AFFC has received no written notification from any agent, broker or other person that currently produces or writes insurance on reinsurance business for AFFC or any Subsidiary ("Agents") threatening litigation or termination of their agency agreements or otherwise indicating that such Agents are likely to cease to do business with AFFC or such Subsidiary in the same manner as such business has been conducted historically, whether as a result of the transactions contemplated by this Agreement or otherwise, which could reasonably be expected to result in a Material Adverse Effect. (b) To the Knowledge of AFFC, each of the written contracts between AFFC or any Subsidiary and its Agents ("Agency Agreements") is valid, binding and in full force and effect in accordance with its terms, assuming no default by any such Agent under any such agreement, except where there would not be a Material Adverse Effect. To the Knowledge of AFFC, neither AFFC nor any other party thereto is in default in any material respect with respect to any Agency Agreement, and no such Agency Agreement contains any provision providing that the other party thereto may terminate the same by reason of the transactions contemplated by this Agreement or any other provision which would be altered or otherwise become applicable solely by reason of such transactions, except where there would not be a Material Adverse Effect. (c) There are no material oral side agreements or other material oral agreements between AFFC or any Subsidiary and its Agents or former agents with respect to the payment of compensation by AFFC to its Agents or former agents in existence on the date hereof and on the Closing Date. 3.34 No Misrepresentations. --------------------- None of the representations and warranties of AFFC set forth in this Agreement or in the certificates of officers to be delivered to Vesta Fire and Vesta at Closing contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact required to be stated therein. AFFC has disclosed all material facts necessary to make such representations and warranties contained herein or any such statement not misleading, in light of the circumstances under which they were made. 4. Representations and Warranties of Vesta Fire and Vesta. ------------------------------------------------------ Vesta represents and warrants to AFFC that the statements contained in this Section 4 are correct and complete on and as of the date of this Agreement and will be correct and complete as of the Closing Date except where any such statement is made as of a specific date. 4.1 Organization, Standing and Authority. ------------------------------------ Vesta Fire is an insurance company duly organized, validly existing and in Good Standing under the laws of the state of Illinois. Vesta is a corporation duly organized, validly existing and in Good Standing under the laws of the state of Delaware. 4.2 Authorization, Execution and Delivery. ------------------------------------- Vesta Fire and Vesta each has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Vesta Fire and Vesta and the consummation by Vesta Fire and Vesta of the transactions contemplated hereby have been duly authorized by the Board of Directors of each such Person and no other corporate proceedings on the part of Vesta Fire and Vesta are necessary to authorize the execution and delivery of this Agreement and the consummation by Vesta Fire and Vesta of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Vesta Fire and Vesta and constitutes a valid and binding obligation of Vesta Fire and Vesta, enforceable against each in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, rehabilitation, liquidation, insolvency, reorganization, rearrangement, receivership and other similar laws relating to or affecting insurance companies or the enforcement of creditors' rights generally, by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), and by matters involving the discretionary authority of any court before which any proceeding therefor may be brought or any state Insurance Commissioner or Insurance Department that has jurisdiction. 4.3 Required Consents. ----------------- Other than the approval of the Texas Department of Insurance, any approvals that may be required under the HSR, neither Vesta Fire nor Vesta is required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency or other Person in order for the Parties to consummate the transactions contemplated by this Agreement where the failure to give notice, to file, or to obtain any authorization, consent, or approval would have a Material Adverse Effect or materially adversely affect the ability of the Parties to consummate the transactions contemplated by this Agreement. 4.4 Noncontravention. ---------------- Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Vesta is subject or any provisions of the charter or bylaws of Vesta Fire or Vesta or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Vesta Fire or Vesta is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a Material Adverse Effect or materially adversely affect the ability of the Parties to consummate the transactions contemplated by this Agreement. 5. Pre-Closing Covenants. --------------------- The Parties agree as follows with respect to the period between the execution of this Agreement and the Effective Time. 5.1 General. ------- Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing Conditions). 5.2 Notices and Consents. -------------------- Each of the Parties will (i) give notices to those third parties and will use their reasonable best efforts to obtain those third party consents that are necessary, proper or advisable in connection with the transactions contemplated hereby and (ii) give any notices to, make any filing with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of, governments and governmental agencies in connection with the transactions contemplated hereby. 5.3 Operation of Business. --------------------- Except as otherwise contemplated by this Agreement or as Vesta Fire may otherwise consent to in writing, which consent will not be unreasonably withheld or delayed, AFFC will and will cause each of its Subsidiaries not to: (a) (i) declare or pay dividends or declare or make any other distributions, or any other payment or transfer of assets, of any kind to its shareholders, or (ii) make any direct or indirect redemption, retirement, purchase or other acquisition of its capital stock, except that AFFC may at Closing redeem its Series A Convertible Preferred Stock, together with the Warrants relating thereto, pursuant to the Redemption Agreement; and (b) take any action or omit to take any action that would make any of the representations or warranties of AFFC inaccurate or untrue. 5.4 Full Access; Confidentiality. ---------------------------- AFFC will permit, and AFFC will cause its Subsidiaries to permit, representatives of Vesta Fire and Vesta to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of AFFC and its Subsidiaries, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to AFFC and its Subsidiaries. Vesta Fire and Vesta each will treat and hold as such any Confidential Information it receives from AFFC and its Subsidiaries in the course of the reviews contemplated by this Section 5, will not use any of the Confidential Information except in connection with this Agreement. In the event that Vesta Fire or Vesta is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Vesta Fire or Vesta will notify AFFC promptly of the request or requirement so that the AFFC may seek an appropriate protective order or waive compliance with the provisions of this Section 5.4. If, in the absence of a protective order or the receipt of a waiver hereunder, Vesta Fire or Vesta is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, AFFC may disclose the Confidential Information to the tribunal; provided, however, that Vesta Fire and Vesta each shall use ------------------ its reasonable best efforts to obtain, at the reasonable request of AFFC, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as AFFC shall designate. In the event this Agreement is terminated for any reason whatsoever, Vesta Fire and Vesta will return to AFFC and its Subsidiaries all tangible embodiments (and all copies) of the Confidential Information that are in its possession or control. For purposes of this Agreement, "Confidential Information" means any information concerning the businesses and affairs of AFFC and its Subsidiaries provided to Vesta Fire or Vesta by AFFC or any Subsidiary that is not already generally available to the public; provided, however, that the term "Confidential Information" does not include information (i) which was or becomes available to Vesta Fire or Vesta on a non-confidential basis from a source other than AFFC or its representatives, provided that neither Vesta Fire or Vesta is aware that such source is under an obligation (whether contractual, legal or fiduciary) to AFFC to keep such information confidential; (ii) is public knowledge at the time of disclosure; (iii) was in the possession of Vesta Fire or Vesta or its representatives before receipt from AFFC; (iv) becomes available to the public through no fault of Vesta Fire or Vesta or its representatives; or (v) is developed independently by Vesta Fire or Vesta or its representative as evidenced by written records of Vesta Fire or Vesta or its representative. 5.5 State Insurance and Other Regulatory Approvals. ---------------------------------------------- Vesta Fire and Vesta each shall, in cooperation with AFFC, use its reasonable best efforts: (a) to obtain as promptly as practicable the approval of the Texas Department of Insurance to consummate the transactions contemplated hereby; (b) to provide notice to the appropriate governmental or regulatory body of each of the other applicable departments of insurance with respect to the transactions contemplated hereby; and (c) to obtain all necessary approvals, authorizations and consents of each governmental and regulatory body required to be obtained prior to the Closing Date to consummate the transactions contemplated hereby. Prior to the Closing Date, AFFC shall, and shall cause Laurel Life and each of its Subsidiaries to, cooperate with Vesta Fire and Vesta to the fullest extent practicable in seeking to obtain the approval of the Texas Department of Insurance and any other necessary governmental approvals, and in providing notice to other insurance departments, and shall provide, and shall cause Laurel Life to provide, such information and communications to the Texas Department of Insurance and such other governmental and regulatory bodies as Vesta Fire and Vesta may reasonably request in connection therewith. 5.6 Exclusivity. ----------- AFFC will not, and will cause Laurel Life and its Subsidiaries not to solicit, initiate, encourage or accept the submission of any proposal or offer from any Person relating to, or agree to or otherwise facilitate, the sale or disposition of all or any part of the capital stock, surplus notes or the assets of AFFC or any of its Subsidiaries (including any disposition structured as a merger, consolidation, or share exchange), except for sales or dispositions of assets in the Ordinary Course of Business, and the sale of the corporate shells of BNL and APL. 5.7 Other Documents. --------------- Prior to the Closing Date, AFFC shall provide Vesta Fire and Vesta with copies of all material filings made by AFFC or any of its Subsidiaries and relating to Laurel Life or any of its Subsidiaries with any insurance department or other governmental or regulatory agency (including, without limitation, any tax returns), within ten (10) business days after the filing thereof. 5.8 Financial Statement Audit. ------------------------- AFFC will, in cooperation with Vesta and at Vesta's expense, take all commercially reasonable steps to obtain, within 60 days following the Closing Date audited financial statements for AFFC and its Subsidiaries for the purpose of enabling Vesta to fulfill its requirements with respect to such financial statements under the Securities Exchange Act of 1934 and the regulations promulgated thereunder. 6. Conditions to Obligation to Close. --------------------------------- 6.1 Conditions to Obligation of Vesta. --------------------------------- The obligation of each of Vesta Fire and Vesta to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties of AFFC set forth in this Agreement that are qualified as to materiality or Material Adverse Effect shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, at and as of the Closing Date, provided that those representations and warranties that are confined by their terms to a specified date shall speak only as of such date; (b) AFFC shall have performed and complied with all of its respective covenants and agreements hereunder in all material respects through the Closing; (c) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (d) AFFC shall have delivered to Vesta Fire and Vesta a certificate to the effect that each of the conditions specified above in Section 6.1 (a) - (c) is satisfied in all respects; (e) all approvals, authorizations, and consents from federal and state governmental and regulatory bodies required for the transactions contemplated by this Agreement (including, without limitation, the approval of the transactions contemplated by this Agreement by the Texas Department of Insurance) shall have been obtained and shall be in full force and effect and without conditions or limitations reasonably unacceptable to Vesta Fire and Vesta, and Vesta Fire and Vesta shall have been provided with appropriate evidence, reasonably satisfactory to it and its counsel, of the granting of such approvals, authorizations and consents; (f) Vesta Fire and Vesta shall have received either (i) certificates of compliance (or the equivalent thereof) dated as of a date not more than sixty (60) days prior to the Closing Date, with respect to each of Laurel Life and its Subsidiaries, as to the applicable jurisdictions with respect to which it has a License, or (ii) with respect to those jurisdictions with respect to which no certificate of compliance is received, an officer's certificate from AFFC stating that all reports and Taxes known to be due have been filed and paid and no adverse regulatory actions are pending or have been threatened; (g) Since June 7, 2000, there shall have been (a) no materially adverse change, or development involving a prospective change, in the general affairs, management, shareholders' equity, assets, liabilities, properties, business, operations of AFFC and its Subsidiaries, other than those resulting from (x) a change in general economic or financial conditions in the United States or (y) matters contemplated under this Agreement, and (b) no material change in the manner in which the business of AFFC or its Subsidiaries is conducted other than those resulting from matters contemplated under this Agreement; (h) AFFC and its Subsidiaries shall have given all notices, made all filings and received all authorizations, consents or approvals of all Persons required in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file or to obtain such authorization, consent or approval would not materially adversely affect the ability of the Parties to consummate the transactions contemplated by this Agreement or materially affect AFFC or any of its Subsidiaries; (i) Vesta Fire and Vesta shall have received from counsel to AFFC an opinion in form and substance reasonably satisfactory to Vesta Fire and Vesta and their counsel, addressed to Vesta Fire and Vesta, and dated as of the Closing Date; (j) the Investor Rights Agreement, the Employment Agreements and the Exchange Agreement shall have been executed by all parties other than Vesta Fire and Vesta that are parties to such agreements and the transactions contemplated by the Redemption Agreement shall have been consummated either prior to or contemporaneously with the Closing; and (k) all actions to be taken by AFFC and its Subsidiaries in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Vesta Fire, Vesta and their counsel. Vesta Fire and Vesta may waive any condition specified in this Section 6.1 if it executes a writing so stating at or prior to the Closing. 6.2 Conditions to Obligation of AFFC. -------------------------------- The obligation of AFFC to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties of Vesta Fire and Vesta set forth in this Agreement that are qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, at and as of the Closing Date, provided that those representations and warranties that are confined by their terms to a specified date shall speak only as of such date; (b) Vesta Fire and Vesta each shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (c) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (d) Vesta Fire and Vesta each shall have delivered to AFFC a certificate to the effect that each of the conditions specified above in Section 6.2 (a) - (c) is satisfied in all respects; (e) all approvals, authorizations, and consents from federal and state governmental and regulatory bodies required for the transactions contemplated by this Agreement (including, without limitation, the approval of the transactions by the Texas Department of Insurance) shall have been obtained and shall be final and in full force and effect and without conditions or limitations reasonably unacceptable to AFFC, and AFFC shall have been provided with appropriate evidence, reasonably satisfactory to it and its counsel, of the granting of such approvals, authorizations and consents; (f) Vesta Fire and Vesta shall have given all notices, made all filings and received all authorizations, consents or approvals of all Persons required in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file or to obtain such authorization, consent or approval would not materially adversely affect the ability of the Parties to consummate the transactions contemplated by this Agreement or materially adversely affect Vesta Fire and Vesta or any of their Subsidiaries; (g) the Investor Rights Agreement, the Employment Agreements and the Exchange Agreement shall have been executed by all parties other than AFFC that are parties to such agreements and the transactions contemplated by the Redemption Agreement shall have been consummated either before or contemporaneously with the Closing; and (h) all actions to be taken by Vesta Fire and Vesta in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to AFFC and its counsel. AFFC may waive any condition specified in Section 6.2 if AFFC executes a writing so stating at or prior to the Closing. 7. Remedies for Breaches of This Agreement. --------------------------------------- 7.1 Survival Period; Indemnification as Remedy. ------------------------------------------ The representations and warranties of AFFC contained in Sections 3.7, 3.8, 3.9, 3.20 and 3.22 shall survive the Closing and continue in full force and effect indefinitely, subject to the time limitations contained in any applicable statute of limitations measured from the Closing Date. All of the other representations and warranties of the Parties contained in this Agreement shall survive the Closing and continue in full force and effect until the second anniversary of the Closing Date. 7.2 Indemnification Provisions for Benefit of Vesta. ----------------------------------------------- In the event AFFC breaches any of its representations, warranties, and covenants contained herein, or in the event of any inaccuracy in such representations and warranties or in any certificate delivered hereunder, provided that Vesta makes a written claim for indemnification against AFFC pursuant to Section 7.6 within the applicable survival period, then AFFC agrees to indemnify Vesta Fire or Vesta, as the case may be, from and against the entirety of any Adverse Consequences Vesta Fire or Vesta, as the case may be, shall suffer through and after the date of the claim for indemnification caused proximately by the breach or inaccuracy. 7.3 Indemnification Provisions for Benefit of AFFC. ---------------------------------------------- In the event Vesta Fire or Vesta breaches any of its representations, warranties, and covenants contained herein, or in the event of any inaccuracy in such representations and warranties or in any certificate delivered hereunder, and, provided that AFFC makes a written claim for indemnification against Vesta Fire or Vesta, as the case may be, pursuant to Section 7.6 within the applicable survival period, then Vesta agrees to indemnify AFFC from and against the entirety of any Adverse Consequences AFFC shall suffer through and after the date of the claim for indemnification that are caused proximately by the breach or inaccuracy. 7.4 Matters Involving Third Parties. ------------------------------- (a) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") that may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing. (b) Any Indemnifying Party will have the right to assume and thereafter conduct the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the Indemnified Party. (c) Unless and until an Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 7.4(b), however, subject to Section 7.4(b), the Indemnified Party may defend against the Third Party Claim in any manner it reasonably may deem appropriate. (d) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of each of the Indemnifying Parties (not to be withheld unreasonably). 7.5 Exclusive Remedy After the Closing. ---------------------------------- After the Closing, except as otherwise provided in this Agreement, the indemnification provisions in this Section 7 shall be the exclusive remedy of the Parties for any breach of any certifications, representations, warranties or covenants set forth in this Agreement or in the certificates delivered pursuant to Section 6. 7.6 Claim Notice. ------------ To be effective, the claim notice for indemnification under this Section 7 must (i) be sent in accordance with Section 9.6; and (ii) set forth in reasonable detail the specific facts and circumstances with respect to the claim. 8. Termination. ----------- 8.1 Termination of Agreement. ------------------------ The Parties may terminate this Agreement as provided below: (a) The Parties may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) AFFC may terminate this Agreement by giving written notice to Vesta Fire and Vesta at any time prior to the Closing (i) in the event Vesta Fire or Vesta has breached any representation or warranty that is qualified as to materiality, in any respect, or any representation or warranty that is not qualified as to materiality or Material Adverse Effect, or any covenant, in any material respect, AFFC has notified Vesta Fire and Vesta of the breach, and the breach has continued without cure for a period of ten (10) business days after the notice of breach or (ii) if the Closing shall not have occurred on or before September 30, 2000, unless the failure results primarily from AFFC's wrongful refusal to close; (c) Vesta Fire and Vesta may terminate this Agreement by giving written notice to AFFC at any time prior to the Closing (i) in the event AFFC has breached any representation or warranty that is qualified as to materiality, in any respect, or any representation or warranty that is not qualified as to materiality or Material Adverse Effect, or any covenant, in any material respect, Vesta Fire and Vesta have notified AFFC of the breach, and the breach has continued without cure for a period of ten (10) business days after the notice of breach or (ii) if the Closing shall not have occurred on or before September 30, 2000, unless the failure results primarily from Vesta Fire's or Vesta's wrongful refusal to close; and (d) Either Vesta Fire and Vesta or AFFC may terminate this Agreement by giving written notice to the other Party (treating Vesta and Vesta Fire as one Party) at any time prior to the Closing in the event that any order of any court or administrative agency shall be in effect that restrains or prohibits the transactions contemplated hereby or if any suit, action, or legal or administrative proceeding shall be pending that has been brought by a governmental or regulatory body and that challenges consummation of the transactions contemplated hereby, if not dismissed or agreed to be dismissed prior to the giving of notice of termination, which notice may not be given prior to the tenth (10th) business day after such suit, action or proceeding is brought. 8.2 Effect of Termination. --------------------- If any Party terminates this Agreement pursuant to Section 8.1, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party for a breach existing prior to termination of this Agreement or a breach of Section 8.1, without regard to Section 7); provided, however, that any such liability for breach or wrongful termination, this Section 8.2 and, the confidentiality provisions contained in Section 5.4 shall survive termination. 9. Miscellaneous. ------------- 9.1 Entire Agreement. ---------------- This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof. 9.2 Succession and Assignment. ------------------------- This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties. 9.3 Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 9.4 Headings. -------- The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 9.5 Expenses. -------- Each of the Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, except as set forth in Section 5.8. 9.6 Notices. ------- All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two (2) business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to AFFC: American Founders Financial Corp. Kenneth W. Phillips, Chairman Wayne A. Schreck, President 2720 East Camelback Road Phoenix, AZ 85016 Facsimile: (602) 224-6802 Copy to: LeBoeuf, Lamb, Greene and McRae, L.L.P. 50 North Laura Street Suite 2800 Jacksonville, FL 32202 Facsimile: (904) 353-1673 Attention: Kenneth M. Kirschner, Esquire If to Vesta Fire or Vesta: Vesta Fire Insurance Corporation Norman W. Gayle III, President and Chief Executive Officer James E. Tait, Chairman and Chief Financial Officer Donald W. Thornton, Senior Vice President, Secretary and General Counsel 3760 River Run Drive Birmingham, AL 35243 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 9.7 Amendments and Waivers. ----------------------           No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties hereto. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 9.8 Severability. ------------           Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 9.9 Construction. ------------           The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation.         IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be duly executed as of the date first above written. "AFFC" AMERICAN FOUNDERS FINANCIAL CORP. By: /s/ Kenneth W. Phillips ___ ---------------------------------------- Name: Kenneth W. Phillips Title: Chairman "VESTA FIRE" VESTA FIRE INSURANCE CORPORATION By: /s/ Donald W. Thornton ------------------------------------------------- Name: Donald W. Thornton Title: Senior Vice President "VESTA" VESTA INSURANCE GROUP, INC. By: /s/ Donald W. Thornton _ ---------------------------------------- Name: Donald W. Thornton Title: Senior Vice President

EXHIBIT 10.01 October 6, 2000 Mr. Lawrence Perlman 119 North Fourth Street Suite 503 Minneapolis, MN 55401 Re:  Amendment to Consulting Agreement Dear Larry:     This letter serves as an amendment to the consulting agreement between Ceridian Corporation and you dated May 1, 2000. The agreement is amended to reflect December 1, 2000 rather than December 31, 2000 as the conclusion of the consulting engagement. All other terms and conditions of the agreement remain the same, including the second payment of $125,000 which is due and payable to you on November 1, 2000.     Please give me a call if you have questions (952/853-3301). Sincerely, /s/ Shirley J. Hughes Shirley J. Hughes jm cc: Ronald L. Turner jm 24 --------------------------------------------------------------------------------

AGREEMENT   AGREEMENT by and between C. R. BARD, INC., a New Jersey corporation (the "Corporation"), and Joseph A. Cherry (the "Executive"), dated as of the 30th day of June, 2000. WHEREAS, the Corporation, on behalf of itself and its shareholders, wishes to assure that the Corporation will have the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Corporation. The Board of Directors of the Corporation (the "Board") believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage his attention and dedication to his assigned duties currently and in the event of any threatened or pending Change of Control, and to provide the Executive with competitive compensation arrangements; therefore, the Board has caused the Corporation to enter into this Agreement (i) to ensure the Executive of individual financial security in the event of a Change of Control, and (ii) to provide such protection in a manner which is competitive with that of other corporations. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section l(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Corporation is terminated prior to the date on which a Change of Control occurs, and the Executive can reasonably demonstrate that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. (b) The "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the third anniversary of such date or (ii) the first day of the month next following the Executive's normal retirement date ("Normal Retirement Date") under the Corporation's retirement plan; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (x) two years from such Renewal Date or (y) the first day of the month coinciding with or next following the Executive's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Corporation shall give notice that the Change of Control Period shall not be so extended. 2. Change of Control. (a) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if a change of control of the nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K as in effect on the date hereof pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") occurs, provided that, without limitation, a "Change of Control" shall be deemed to have occurred if (i) the beneficial ownership at any time hereafter by any person, as defined herein, of capital stock of the Corporation, constitutes 20 percent or more of the general voting power of all of the Corporation's outstanding capital or (ii) individuals who, as of the date hereof, constitute the Board (as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least three-quarters of the Directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. No sale to underwriters or private placement of its capital stock by the Corporation, nor any acquisition initiated by the Corporation, through merger, purchase of assets or otherwise, effected in whole or in part by issuance or reissuance of shares of its capital stock, shall constitute a Change of Control. (b) For purposes of the definition of "Change of Control", the following definitions shall be applicable: (i) The term "person" shall mean any individual, corporation or other entity and any group as such term is used in Section 13(d)(3) or 14(d)(2) of the Exchange Act. (ii) Any person shall be deemed to be the beneficial owner of any shares of capital stock of the Corporation: A. which that person owns directly, whether or not of record, or B. which that person has the right to acquire pursuant to any agreement or understanding or upon exercise of conversion rights, warrants, or options, or otherwise, or C. which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (B) above), by an "affiliate" or "associate" (as defined in the rules of the Securities and Exchange Commission under the Securities Act of 1933, as amended) of that person, or D. which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (B) above), by any other person with which that person or his "affiliate" or "associate" (defined as aforesaid) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of capital stock of the Corporation. (iii) The outstanding shares of capital stock of the Corporation shall include shares deemed owned through application of clauses (ii) (B), (C) and (D), above, but shall not include any other shares which may be issuable pursuant to any agreement or upon exercise of conversion rights, warrants or options, or otherwise, but which are not actually outstanding. (iv) Shares of capital stock, if any, held by The Chase Manhattan Bank N.A. under the Indenture and the Escrow Agreement dated as of November 1, 1971 between International Paper Corporation and said bank shall not be deemed owned by International Paper Corporation or by said bank for purposes of this definition, so long as they are held by said bank under said Escrow Agreement, but said shares shall be deemed outstanding for the purpose of determining the aggregate number of outstanding shares of capital stock of the Corporation. 3. Employment Period. The Corporation hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Corporation, for the period commencing on the Effective Date and ending on the earlier to occur of (a) the third anniversary of such date or (b) the first day of the month coinciding with or next following the Executive's Normal Retirement Date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than thirty-five (35) miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Corporation and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Corporation in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Corporation. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive a base salary ("Base Salary") at a monthly rate at least equal to the highest monthly base salary paid to the Executive by the Corporation during the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be consistent with increases in base salary awarded in the ordinary course of business to other key executives of the Corporation. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Base Salary shall not be reduced after any such increase. (ii) Annual Bonus. In addition to Base Salary, the Executive shall be awarded, for each fiscal year during the Employment Period, an annual bonus (an "Annual Bonus") in cash at least equal to the average bonus received by the Executive from the Corporation in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs. (iii) Incentive, Savings and Retirement Plans. In addition to Base Salary and Annual Bonus payable as hereinabove provided, the Executive shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans and programs, whether qualified or non-qualified, then applicable to other key executives of the Corporation and its affiliates (including the Corporation's 1981 Stock Option Plan, the Long-Term Performance Incentive Plan, the 1986 Stock Award Plan, the 1981 Employee Stock Appreciation Rights Plan, the Employees' Stock Ownership Plan and the Employees' Retirement Savings Plan, in each case to the extent then in effect or as subsequently amended); provided, however, that such plans and programs, in the aggregate, shall provide the Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable such compensation benefits and reward opportunities provided by the Corporation for the Executive under such plans and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans provided by the Corporation (including, without limitation, medical, prescription, dental, disability, salary continuance, executive life, group life, accidental death and travel accident insurance plans and programs), at least comparable to those in effect at any time during the 90-day period immediately preceding the Effective Date which would be most favorable to the Executive or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies and procedures of the Corporation and its affiliates in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, in accordance with the most favorable policies of the Corporation and its affiliates in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to those provided to the Executive at any time during the 90-day period immediately preceding the Effective Date which would be most favorable to the Executive or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable policies of the Corporation and its affiliates as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives. 5. Termination. (a) Death or Disability. This Agreement shall terminate automatically upon the Executive's death. The Corporation may terminate this Agreement, after having established the Executive's Disability (pursuant to the definition of "Disability" set forth below), by giving to the Executive written notice of its intention to terminate the Executive's employment. In such a case, the Executive's employment with the Corporation shall terminate effective on the 180th day after receipt of such notice (the "Disability Effective Date"), provided that, within 180 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 disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Corporation or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Corporation may terminate the Executive's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Corporation, (ii) repeated violations by the Executive of the Executive's obligations under Section 4(a) of this Agreement which are demonstrably willful and deliberate on the Executive's part and which are not remedied after the receipt of notice from the Corporation or (iii) the conviction of the Executive of a felony. (c) Termination by Executive for Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" means (i) (A) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or (B) any other action by the Corporation which results in a diminution in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Corporation promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Corporation to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial and inadvertent failure which is remedied by the Corporation promptly after receipt of notice thereof given by the Executive; (iii) the Corporation's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) any purported termination by the Corporation of the Executive's employment otherwise than as permitted by this Agreement; or (v) any failure by the Corporation to comply with and satisfy Section 11(c) of this Agreement.   Anything in this Agreement to the contrary notwithstanding, any termination by the Executive for any reason whatsoever during the six month period immediately following the first anniversary of the date of a Change of Control shall be a termination for "Good Reason". For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Corporation for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (e) Date of Termination. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be. If the Executive's employment is terminated by the Corporation other than for Cause or Disability, the Date of Termination shall be the date on which the Corporation notifies the Executive of such termination. 6. Obligations of the Corporation upon Termination. (a) Death. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than those obligations accrued or earned by the Executive hereunder at the date of the Executive's death. Anything in this Agreement to the contrary notwithstanding, the Executive's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Corporation to surviving families of executives of the Corporation under such plans, programs and policies relating to family death benefits, if any, as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death with respect to other key executives and their families. (b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive, other than those obligations accrued or earned by the Executive hereunder as of the Disability Effective Date. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Corporation to disabled employees and/or their families in accordance with such plans, programs and policies relating to disability, if any, as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter with respect to other key executives and their families. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment other than for Good Reason, the Corporation shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and shall have no further obligations to the Executive under this Agreement. (d) Termination by Executive for Good Reason; Termination by Corporation Other Than for Cause or Disability. If, during the Employment Period, the Corporation shall terminate the Executive's employment other than for Cause or Disability, or the employment of the Executive shall be terminated by the Executive for Good Reason: (i) the Corporation shall pay to the Executive in a lump sum in cash within 10 days after the Date of Termination (the "Payment Date") the aggregate of the following amounts: A. to the extent not theretofore paid, the Executive's Base Salary through the Date of Termination at the rate in effect on the Date of Termination or, if higher, at the highest rate in effect at any time within the three year period preceding the Effective Date (the "Highest Base Salary"); and B. the product of (x) the average of the annual bonuses paid, or payable to the extent deferred, to the Executive for the three full fiscal years prior to the Effective Date (the "Recent Bonus") and (y) the fraction obtained by dividing (i) the number of days between the Date of Termination and the last day of the last full fiscal year and (ii) 365; and C. the product of (x) three and (y) the sum of the Highest Base Salary and (ii) the Recent Bonus; and D. in the case of compensation previously deferred by the Executive, all amounts previously deferred and not yet paid by the Corporation; and (ii) for one year after the Date of Termination, the Corporation shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated, including health insurance and life insurance, if and as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives and their families and for purposes of eligibility for retiree benefits pursuant to such plans, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period. Anything herein to the contrary notwithstanding, the Executive may elect in his Notice of Termination to receive the payment provided for pursuant to Section 6(d)(i)(C) hereof (the "Severance Payment") in installments. If the Executive elects the installment method, one-quarter of the Severance Payment shall be paid to the Executive on the Payment Date and one-quarter of the severance payment shall be paid to the Executive on each of the next three anniversaries thereof and, in the case of the latter three payments, the amounts to be paid shall include interests from the Payment Date on the remaining unpaid balance of the Severance Payment calculated at the Morgan Guaranty Trust Company prime rate as in effect from time to time. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Corporation or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 8. Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof or as a result of any contest by the Executive about the amount of any payment pursuant to Section 9 of this Agreement, plus in each case interest at the Federal Rate (as defined below). 9. Gross-up. (a) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes, including, without limitation, any income taxes (including any interest and penalties imposed with respect to such taxes) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments and payable by the Executive, to the extent necessary to put the Executive in the same after-tax position as if no such Excise Tax had been imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen & Co. (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and Executive within fifteen (15) business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Corporation to Executive within five (5) days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 9(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of Executive. (c) Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would 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 (10) business days after Executive 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. Executive shall not pay such claim prior to the expiration of the thirty (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 Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Corporation any information reasonably requested by the Corporation relating to such claim; (ii) 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; (iii) cooperate with the Corporation in good faith in order to effectively contest such claim; and (iv) permit the Corporation to participate in any proceedings relating to such claim; 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 Executive harmless, on an after-tax basis, for any Excise 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 9(c), the Corporation shall control all proceedings taken in connection with such contest 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 and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and 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 Corporation shall determine; provided, however, that if the Corporation directs Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise 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 provided, further, that if Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, Executive may limit this extension solely to such contested amount. (d) If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 9(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Corporation's complying with the requirements of Section 9(c)) 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 Executive of an amount advanced by the Corporation pursuant to Section 9(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (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 Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Corporation or any of its affiliated companies and which shall not be 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 Corporation, the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Corporation shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. (c) The Corporation 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Joseph A. Cherry 6 Ashington Road Far Hills, New Jersey 07931 If to the Corporation : C. R. BARD, INC. 730 Central Avenue Murray Hill, New Jersey 07974 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Corporation may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive'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 thereof. (f) This Agreement contains the entire understanding of the Corporation and the Executive with respect to the subject matter hereof. (g) The Executive and the Corporation acknowledge that the employment of the Executive by the Corporation is "at will", and, prior to the Effective Date, may be terminated by either the Executive or the Corporation at any time. Upon a termination of the Executive's employment or upon the Executive's ceasing to be an officer of the Corporation, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, all as of the day and year first above written .   (Executive) Joseph A. Cherry   C. R. BARD, INC.   By: William H. Longfield Chairman and Chief Executive Officer   Attest: Assistant Secretary        

EXHIBIT 10.2 HARCOURT GENERAL, INC. 1997 INCENTIVE PLAN 1.      DEFINED TERMS Appendix A, which is incorporated by reference, defines the terms used in the Plan. 2.      IN GENERAL The Plan has been established to advance the interests of the Company by giving selected Employees, directors and other persons (including both individuals and entities) who provide services to the Company or its Affiliates equity-based or cash incentives through the grant of Awards. No Award may be granted under the Plan after December 31, 2006, but Awards previously granted may extend beyond that date. 3.     ADMINISTRATION        The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures (which it may modify or waive); and otherwise do all things necessary to carry out the purposes of the Plan. Once an Award has been communicated in writing to a Participant, the Administrator may not, without the Participant's consent, alter the terms of the Award so as to affect adversely the Participant's rights under the Award, unless the Administrator expressly reserved the right to do so. In the case of any Award intended to be eligible for the performance-based compensation exception under Section 162(m)(4)(C) of the Code, the Committee shall exercise its discretion consistent with qualifying the Award for such exception. 4.     SHARES SUBJECT TO THE PLAN        A.  A total of 4,000,000 shares of Stock have been reserved for issuance under the Plan. The following shares of Stock will also be available for future grants: (i)  shares remaining under an Award that terminates without having been exercised in full (in the case of an Award requiring exercise by a Participant for delivery of Stock); (ii)  shares subject to an Award, where cash is delivered to a Participant in lieu of such shares; (iii)  shares of Restricted Stock that are forfeited to the Company; (iv)  shares of Stock tendered by a Participant as payment upon exercise of an Award; and (v)  shares of Stock held back by the Administrator, or tendered by a Participant, in satisfaction of tax withholding requirements. Stock delivered under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan.        B.  The maximum number of shares for which Stock Options may be granted to any person over the life of the Plan shall be 1,500,000. The maximum number of shares subject to SARs granted to any person over the life of the Plan shall likewise be 1,500,000. For purposes of the preceding two sentences, the repricing of a Stock Option or SAR shall be treated as a new grant to the extent required under Section 162(m) of the Code. The aggregate maximum number of shares of Stock delivered to any person over the life of the Plan pursuant to Awards that are not Stock Options or SARs shall also be 1,500,000. Subject to these limitations, each person eligible to participate in the Plan shall be eligible in any year to receive Awards covering up to the full number of shares then available for Awards under the Plan. 5.     ELIGIBILITY AND PARTICIPATION        The Administrator will select Participants from among those key Employees, directors and other individuals or entities providing services to the Company or its Affiliates who, in the opinion of the Administrator, are in a position to [End Page] 2 make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is further limited to those individuals whose employment status would qualify them for the tax treatment described in Sections 421 and 422 of the Code. 6.     RULES APPLICABLE TO AWARDS        A.  ALL AWARDS        (1)  PERFORMANCE OBJECTIVES. Where rights under an Award depend in whole or in part on attainment of performance objectives, actions by the Company that have an effect, however material, on such performance objectives or on the likelihood that they will be achieved will not be deemed an amendment or alteration of the Award unless accomplished by a change in the express terms of the Award or other action that is without substantial consequence except as it affects the Award        (2)  ALTERNATIVE SETTLEMENT. The Company retains the right at any time to extinguish rights under an Award in exchange for payment in cash, Stock (subject to the limitations of Section 4) or other property on such terms as the Administrator determines, provided the holder of the Award consents to such exchange.        (3)  TRANSFERABILITY OF AWARDS. Except as the Administrator otherwise expressly provides, Awards (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may not be transferred other than by will or by the laws of descent and distribution and, during a Participant's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons legally appointed to act on the Participant's behalf).        (4)  VESTING, ETC. The Administrator may determine the time or times at which an Award will vest (i.e., become free of restrictions) or become exercisable. Unless the Administrator expressly provides otherwise, an Award requiring exercise will cease to be exercisable, and all other Awards to the extent not already fully vested will be forfeited, immediately upon the cessation (for any reason, including death) of the Participant's employment or other service relationship with the Company and its Affiliates.        (5) TAXES.  The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares from an Award or permit a Participant to tender previously owned shares in satisfaction of tax withholding requirements.        (6)  DIVIDEND EQUIVALENTS, ETC. The Administrator may provide for the payment of amounts in lieu of dividends or other distributions with respect to Stock subject to an Award.        (7)  RIGHTS LIMITED. Nothing in the Plan shall be construed as giving any person the right to continued employment or service with the Company or its Affiliates, nor any rights as a shareholder except as to shares actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of employment or service for any reason, even if the termination is in violation of an obligation of the Company or Affiliate to the Participant.        (8)  SECTION 162(M). In the case of an Award intended to be eligible for the performance-based compensation exception under Section 162(m)(4)(C) of the Code, the Plan and such Award shall be construed in a manner consistent with qualifying the Award for such exception.      B.  AWARDS REQUIRING EXERCISE        (1) TIME AND MANNER OF EXERCISE. Unless the Administrator expressly provides otherwise, (a) an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a written notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award; and (b) if the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.        (2) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment either at or after the time of the Award, subject to the following: (a) unless the Administrator expressly provides otherwise, all [End Page] 3 payments will be by cash or check acceptable to the Administrator; and (b) where shares issued under an Award are part of an original issue of shares, the Award shall require an exercise price equal to at least the par value of such shares.        (3) RELOAD AWARDS. The Administrator may provide that upon the exercise of an Award through the tender of previously owned shares of Stock, the Participant or other person exercising the Award will automatically receive a new Award of like kind covering a number of shares determined by reference to the number of shares tendered in payment of the exercise price of the first Award.      C.  AWARDS NOT REQUIRING EXERCISE      Awards of Restricted Stock and Unrestricted Stock may be made in return for either (i) services determined by the Administrator to have a value not less than the par value of the awarded shares, or (ii) cash or other property having a value not less than the par value of the awarded shares plus such additional amounts (if any) as the Administrator may determine payable in such combination of cash, other property (of any kind) or services as the Administrator may determine. 7.     EFFECT OF CERTAIN TRANSACTIONS        A.  MERGERS, ETC.        In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company's assets or a dissolution or liquidation of the Company (a "covered transaction"), all outstanding Awards requiring exercise will cease to be exercisable, and all other Awards to the extent not fully vested (including Awards subject to performance conditions not yet satisfied or determined) will be forfeited, as of the effective time of the covered transaction. Prior to such time the Administrator may (but need not) accelerate the vesting or exercisability of any Award or provide for substitute or replacement awards from the acquiring entity (if any).        B.  CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK        (1)  BASIC ANTIDILUTION PROVISIONS. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capital structure, the Administrator will make appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4.a. and to the maximum share limits described in Section 4.b., and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.        (2)  CERTAIN OTHER ADJUSTMENTS. The Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to common stockholders other than stock dividends or normal cash dividends, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder; provided, that no such adjustment shall be made to the maximum share limits described in Section 4.b., or otherwise to an Award intended to be eligible for the performance-based exception under Section 162(m)(4)(C) of the Code, except to the extent consistent with that exception.      C.  CHANGE OF CONTROL      Notwithstanding anything to the contrary in this Plan and unless specifically provided otherwise in an Award agreement, upon any Change of Control, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any Award shall be automatically accelerated or waived so that the Award may be immediately exercised or realized in full. A Change of Control means the occurrence of any of the following:       (i)  any "person" or "group" (as described in the Securities Exchange Act of 1934, as amended) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock, par value $1.00 per share, of the Company (the "Class B Stock") as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on June 16, 2000, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;       (ii)  any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);        (iii)  any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest);       (iv)  any liquidation or sale of all or substantially all of the assets of the Company; or       (iv)  any other transaction so denominated by the Board." 8.     CONDITIONS ON DELIVERY OF STOCK        The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares previously delivered under the Plan until: the Company's counsel has approved all legal matters in connection with the issuance and delivery of such shares; if the outstanding Stock is at the time listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of notice of issuance; and all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such [End Page] 4 representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock. 9.     AMENDMENT AND TERMINATION        Subject to the last sentence of Section 3, the Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards, provided that (except to the extent expressly required or permitted by the Plan) no such amendment will, without the approval of the stockholders of the Company, effectuate a change for which stockholder approval is required in order for the Plan to continue to qualify under Section 422 of the Code or for Awards to be eligible for the performance-based exception under Section 162(m)(4)(C) of the Code. 10.    NON-LIMITATION OF THE COMPANY'S RIGHTS        The existence of the Plan or the grant of any Award shall not in any way affect the Company's right to award a person bonuses or other compensation in addition to Awards under the Plan. 11.    GOVERNING LAW       The Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts. [End Page] 5 APPENDIX A DEFINITION OF TERMS      The following terms, when used in the Plan, shall have the meanings and be subject to the provisions set forth below:      "ADMINISTRATOR": The Committee, if one has been appointed; otherwise the Board.      "AFFILIATE": Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests.      "AWARD": Any of the following: (i)      Options ("Stock Options") entitling the recipient to acquire shares of Stock upon payment of the exercise price. Each Stock Option (except as otherwise expressly provided by the Committee consistent with continued qualification of the Stock Option as a performance-based award for purposes of Section 162(m) of the Code, or unless the Committee expressly determines that such Stock Option is not subject to Section 162(m) of the Code or that the Stock Option is not intended to qualify for the performance-based exception under Section 162(m) of the Code) will have an exercise price not less than the fair market value of the Stock subject to the option, determined as of the date of grant, except that an ISO granted to an Employee described in Section 422(b)(6) of the Code will have an exercise price not less than 110% of such fair market value. The Administrator will determine the medium in which the exercise price is to be paid, the duration of the option, the time or times at which an option will become exercisable, provisions for continuation (if any) of option rights following termination of the Participant's employment with the Company and its Affiliates, and all other terms of the Option. No Stock Option awarded under the Plan will be an ISO unless the Administrator expressly provides for ISO treatment. (ii)      Rights ("SARs") entitling the holder upon exercise to receive cash or Stock, as the Administrator determines, equal to a function (determined by the Administrator using such factors as it deems appropriate) of the amount by which the Stock has appreciated in value since the date of the Award. (iii)     Stock subject to restrictions ("Restricted Stock") under the Plan requiring that the Stock be redelivered to the Company if specified conditions are not satisfied. The conditions to be satisfied in connection with any Award of Restricted Stock, the terms on which such Stock must be redelivered to the Company, the purchase price of such Stock, and all other terms shall be determined by the Administrator. (iv)     Stock not subject to any restrictions under the Plan ("Unrestricted Stock"). (v)     A promise to deliver Stock or other securities in the future on such terms and conditions as the Administrator determines. (vi)     Securities (other than Stock Options) that are convertible into or exchangeable for Stock on such terms and conditions as the Administrator determines. (vii)     Cash bonuses tied to performance criteria as described at (viii) below ("Cash Performance Awards"). (viii)    Awards described in any of (i) through (vii) above where the right to exercisability, vesting or full enjoyment of the Award is conditioned in whole or in part on the satisfaction of specified performance criteria ("Performance Awards"). The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m)(4)(C) of the Code and Performance Awards that are not intended so to qualify. No more than $3,500,000 may be paid to any individual with respect to any Cash Performance Award. In applying the limitation of the [End Page] 6 preceding sentence: (A) multiple Cash Performance Awards to the same individual that are determined by reference to performance periods of one year or less ending with or within the same fiscal year of the Company shall be subject in the aggregate to one $3,500,000 limit, and (B) multiple Cash Performance Awards to the same individual that are determined by reference to one or more multi-year performance periods ending in the same fiscal year of the Company shall be subject in the aggregate to a separate limit of $3,500,000. With respect to any Performance Award other than a Cash Performance Award, Stock Option or SAR, the maximum award opportunity shall be 1,500,000 shares or their equivalent value in cash, subject to the limitations of Section 4.b. For the avoidance of doubt, any Performance Award of a type described in (i) through (vi) above shall be treated for purposes of this paragraph as a Performance Award that is not a Cash Performance Award, even if payment is made in cash. In the case of a Performance Award intended to qualify as performance-based for the purposes of Section 162(m) of the Code, the Committee shall in writing preestablish a specific performance goal (based solely on one or more qualified performance criteria) no later than 90 days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the award as performance-based under Code Section 162(m)(4)(C)). For purposes of the Plan, a qualified performance criterion is any of the following: (1) earnings or earnings per share (whether on a pre-tax, after-tax, operational or other basis), (2) return on equity, (3) return on assets, (4) revenues, (5) sales, (6) expenses, (7) one or more operating ratios, (8) stock price, (9) stockholder return, (10) market share, (11) cash flow, (12) inventory levels or inventory turn, (13) capital expenditures, (14) net borrowing, debt leverage levels or credit quality, (15) the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions or (16) any combination of the foregoing. The performance goals selected in any case need not be applicable across the Company, but may be particular to an individual's function or business unit. Prior to payment of any Performance Award intended to qualify as performance-based under Section 162(m)(4)(C) of the Code, the Committee shall certify whether the performance goal has been attained and such determination shall be final and conclusive. If the performance goal is not attained, no other Award shall be provided in substitution of the Performance Award. (ix)    Grants of cash, or loans, made in connection with other Awards in order to help defray in whole or in part the economic cost (including tax cost) of the Award to the Participant. The terms of any such grant or loan shall be determined by the Administrator. Awards may be combined in the Administrator's discretion.       "BOARD": The Board of Directors of the Company.       "CODE": The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect.       "COMMITTEE": A committee of the Board comprised solely of two or more outside directors within the meaning of Section 162(m) of the Code. The Committee may delegate ministerial tasks to such persons (including Employees) as it deems appropriate.       "COMPANY": Harcourt General, Inc.       "EMPLOYEE": Any person who is employed by the Company or an Affiliate.       "ISO": A Stock Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code.       "PARTICIPANT": An Employee, director or other person providing services to the Company or its Affiliates who is granted an Award under the Plan.       "PLAN": Harcourt General, Inc. 1997 Incentive Plan as from time to time amended and in effect.       "STOCK": Common Stock of the Company, par value $1.00 per share.

EXHIBIT 10.28   NATIONAL PROCESSING, INC. 2000 STOCK OPTION PLAN    1.  Purposes.  The purposes of this 2000 Stock Option Plan are to provide employment incentives and to encourage capital accumulation and stock ownership by Eligible Employees of National Processing, Inc. (“National Processing”) or any of its Subsidiaries, and to provide to designated Optionees under stock options heretofore or hereafter granted pursuant to any stock option plan of National Processing or any of its Subsidiaries an alternative method of realizing the benefits provided by such stock options.    2.  Definitions.  As used in this Plan,    (a)  “Additional Option” means an Option Right granted to an Optionee to purchase a number of shares of Common Stock equal to the number of shares of already owned Common Stock relinquished by the Optionee as payment of the exercise price upon exercise of an Option Right and/or the number of shares of Common Stock tendered or relinquished as payment of the amount to be withheld under applicable federal, state and local income tax laws in connection with the exercise of an option as described in Section 5.    (b)  “Additional Option Feature” means a feature of an Option that provides for the automatic grant of an Additional Option in accordance with the provisions described in Section 5.    (c)  The term “Appreciation Right” means a right granted pursuant to Section 6 of this Plan.    (d)  The term “Board of Directors” means the Board of Directors of National Processing.    (e)  The term “Committee” means the Committee provided for in Paragraph 10(a) of this Plan.    (f)  The term “Common Stock” means Common Stock, of National Processing or any security into which such Common Stock may be changed by reason of any transaction or event of the type described in Section 8 of this Plan.    (g)  The term “Eligible Employees” means persons who are at the time the officers (including officers who are members of the Board of Directors) and other key employees of National Processing or of any of its Subsidiaries.    (h)  The term “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time.    (i)  The term “Incentive Stock Option” means an Option Right granted by National Processing to an Eligible Employee, which Option Right is intended to qualify as an “Incentive Stock Option” as that term is used in Section 422 of the Internal Revenue Code.    (j)  The term “Market Value per Share” means, at any date, the closing price, per share, of the shares of Common Stock, on the New York Stock Exchange on that date as reported by the Wall Street Journal (Midwest Edition) or, if the Common Stock shall be primarily traded in another market, as determined in a manner specified by the Board of Directors using quotations in such other market.    (k)  The term “Option Agreement” shall have the meaning set forth in Section 6(e).    (l)  The term “Optionee” shall mean the optionee named in an agreement evidencing an Outstanding Option.    (m)  The term “Option Right” means the right to purchase a share of Common Stock upon exercise of an Outstanding Option.    (n)  The term “Outstanding Option” means, at any time, an option to purchase shares of Common Stock granted by National Processing or any of its Subsidiaries pursuant to this Plan or any other -------------------------------------------------------------------------------- stock option plan of National Processing or any such Subsidiary now or hereafter in effect, or pursuant to any stock option plan of any corporation which is merged into National Processing and where National Processing has by action of its Board of Directors, assumed the obligations of such corporation under such stock option plan, all whether or not such option is at the time exercisable, to the extent that such option at such time has not been exercised and has not terminated.    (o)  The term “Spread” means the excess of the Market Value per Share of Common Stock on the date when an Appreciation Right is exercised over the option price provided for in the related Option Right.    (p)  The term “Subsidiary” shall mean any entity in which National Processing beneficially owns or controls, directly or indirectly, 50% or more of the voting equity securities.    3.  Shares Available Under Plan.    (a)  The shares of Common Stock which may be made the subject of Option Rights and Appreciation Rights pursuant to this Plan may be treasury shares or shares of original issue or a combination of the foregoing.    (b)  Subject to adjustments in accordance with Section 8 of this Plan, the maximum number of shares of Common Stock which may be sold upon the exercise of Option Rights granted pursuant to this Plan shall be 5,000,000 shares of Common Stock which are made available for sale by virtue of this Plan. For purposes of determining the number of shares that may be sold under the Plan, such number shall increase by the number of shares surrendered by an optionee or relinquished to National Processing (a) in connection with the exercise of an Option Right or (b) in payment of federal, state and local income tax withholding liabilities upon exercise of an Option Right.    (c)  Subject to adjustments in accordance with Section 8 of this Plan, the maximum number of shares of Common Stock which may be delivered upon the exercise of Appreciation Rights granted pursuant to this Plan shall not exceed 5,000,000.    (d)  Shares covered by Option Rights cancelled upon exercise of Appreciation Rights shall not be available for the granting of further Option Rights under this Plan or under any other stock option plan of National Processing or of any of its Subsidiaries, anything in this Plan or such other stock option plan to the contrary notwithstanding.    4.  Grants of Option Rights. The Board of Directors may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Eligible Employees of Option Rights. Each such grant may utilize any or all of the authorizations, and shall be subject to all of the limitations, contained in the following provisions:    (a)  Each grant shall specify the number of shares of Common Stock to which it pertains.    (b)  Each grant shall specify an option price per share not less than the Market Value per Share on the date of grant.    (c)  Successive grants may be made to the same Eligible Employee whether or not any Option Rights previously granted to such Eligible Employee remain unexercised. No Eligible Employee may, however, be granted under this plan, in the aggregate, more than 1,500,000 Option Rights or Appreciation Rights, subject to adjustment pursuant to Section 8 of this Plan over any ten year period.    (d)  Option Rights granted under this Plan may be (i) options which are intended to qualify under particular provisions of the Internal Revenue Code, as in effect from time to time, (ii) options which are not intended so to qualify, or (iii) combinations of the foregoing.    (e)  The date of grant of each Option Right shall be the date of its authorization by the Board of Directors or such later date designated by the Board of Directors, except that the date of grant of an Additional Option shall be the date of exercise of the underlying Option Right. No Option Right shall be exercisable more than ten years from such date of grant. --------------------------------------------------------------------------------    (f)  Upon exercise of an Option Right, the option price shall be payable (i) in cash, (ii) by the transfer to National Processing by the Optionee of shares of Common Stock with a value (Market Value per Share times the number of shares) equal to the total option price, or (iii) by a combination of such methods of payment.    (g)  Each grant of Option Rights shall be evidenced by an agreement executed on behalf of National Processing by any officer designated by the Board of Directors for this purpose and delivered to and accepted by the Eligible Employee and shall contain such terms and provisions, consistent with this Plan, as the Board of Directors may approve.    (h)  No Option Rights, intended to be an Incentive Stock Option, shall be granted hereunder to any Optionee which would allow the aggregate fair market (determined at the time the Option Rights are granted) of the stock subject of Option Rights, including the Incentive Stock Option in question, which such Optionee may exercise for the first time during any calendar year, to exceed $100,000. Any Option Rights intended to be Incentive Stock Options granted by any “parent,” as such term is used in Section 422A of the Internal Revenue Code, as amended, of National Processing pursuant to such parent’s Stock Option plans, shall be included in the definition of Option Rights for the purpose of determining the $100,000 limitation.    5.  Additional Option.    (a)  The Board of Directors may, at or after the date of grant of Option Rights, grant Additional Options.    (b)  If an Optionee exercises an Outstanding Option that has an Additional Option Feature by transferring already owned shares of Common Stock and/or when shares of Common Stock are tendered or relinquished as payment of the amount to be withheld under applicable federal, state and local income tax laws (at withholding rates not to exceed the Optionee’s applicable marginal tax rates) in connection with the exercise of an option, the Optionee shall automatically be granted an Additional Option. The Additional Option shall be subject to the following provisions:    (1)  The Additional Option shall cover the number of shares of Common Stock equal to the sum of (A) the number of shares of Common Stock delivered as consideration upon the exercise of the previously granted Outstanding Option to which such Additional Option Feature relates and (B) the number of shares of Common Stock tendered or relinquished as payment of the amount to be withheld under applicable federal, state and local income tax laws in connection with the exercise of the option to which such Additional Option Feature relates;    (2)  The Additional Option will not have an Additional Option Feature unless the Board of Directors directs otherwise;    (3)  The Additional Option option price shall be 100% of the Market Value per Share on the date the employee delivers shares of Common Stock to exercise the Option that has the Additional Option Feature and/or delivers or forfeits shares of Common Stock in payment of income tax withholding on the exercise of an Option that has the Additional Option Feature;    (4)  The Additional Option shall have the same termination date and other termination provisions as the underlying Option that had the Additional Option Feature.    6.  Grants of Appreciation Rights.  The Board of Directors may from time to time authorize the granting of Appreciation Rights in respect of any or all of the Option Rights under any Outstanding Option (including Options Rights simultaneously granted) to the Optionee thereunder. An Appreciation Right shall be a right in the Optionee to receive from National Processing an amount which shall be determined by the Board of Directors and shall be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. To the extent such Optionee elects to exercise such Appreciation Right instead of the related Option Right, the related Option Right shall be cancelled, and vice versa. Each such grant may utilize any or all of the authorizations, and shall be subject to all of the limitations, contained in the following provisions: --------------------------------------------------------------------------------    (a)  Any grant may permit the exercise of an Appreciation Right with respect to the value of shares of Common Stock covered by the related Option Rights.    (b)  Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by National Processing in cash, in shares of Common Stock or in any combination thereof, and may either grant to the Optionee or retain in the Board of Directors the right to elect among those alternatives.    (c)  Each grant shall provide that the maximum number of shares of Common Stock deliverable upon exercise of an Appreciation Right may not exceed the number of shares of Common Stock purchasable upon exercise of the related Option Rights.    (d)  Any grant may specify waiting periods before exercise and permissible exercise dates or periods. No Appreciation Right shall be exercisable except at a time when the related Option Right is also exercisable.    (e)  Each grant of an Appreciation Right shall be evidenced by an agreement executed on behalf of National City by any officer designated by the Board of Directors for this purpose and delivered to and accepted by the Optionee, which agreement shall describe such Appreciation Right, identify the related Option Rights, state that such Appreciation Right is subject to all the terms and conditions of this Plan, including the right of the Board of Directors to amend, suspend or terminate such Appreciation Right as set forth in Paragraph 11(c) of this Plan, and contain such other terms and provisions, consistent with this Plan, as the Board of Directors may approve (the “Option Agreement”). A failure by the Optionee to execute and deliver to National Processing the Option Agreement within 60 days after the grant of Option Rights may terminate the Option Rights upon the determination of the Board of Directors.    7.  Transferability.  Except as otherwise provided for by the Board of Directors, no Option Right including any related Appreciation Right shall be transferable by an Optionee other than by will or the laws of descent and distribution. Unless the Board of Directors directs otherwise, Option Rights and Appreciation Rights shall be exercisable during the Optionee’s lifetime only by the Optionee or by the Optionee’s guardian or legal representative.    8.  Adjustments.  The Board of Directors may make or provide for such adjustments in the maximum numbers and kind of shares of Common Stock specified in Paragraphs 3(b) and (c) and 4(c) of this Plan, in the numbers and kind of shares of Common Stock covered by Option Rights and Appreciation Rights granted hereunder, and in the prices per share applicable under such Option Rights and Appreciation Rights, as such Board in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Optionees that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of National Processing, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities, or other corporate transaction or event having an effect similar to any of the foregoing.    9.  Fractional Shares.  National Processing shall not be required to issue any fractional share of Common Stock pursuant to this Plan. The Board of Directors may provide for the elimination of fractions or for the settlement of fractions in cash.    10.  Administration of the Plan.    (a)  This Plan shall be administered by the Board of Directors, which may from time to time delegate all or any part of its authority under this Plan to a Compensation Committee of the Board of Directors, a subcommittee of the Compensation Committee, or another committee of directors of National Processing appointed by the Board of Directors to serve as the committee responsible for administering this Plan (the “Committee”). To the extent of such delegation, references herein to the “Board of Directors” shall include the Committee. The Board of Directors may name assistants who may be, but need not be, members of the Committee. Such assistants shall serve at the pleasure of the -------------------------------------------------------------------------------- Board of Directors, and shall perform such functions as are provided for herein and such other functions as may be assigned by the Board of Directors.    (b)  The interpretation and construction by the Board of Directors of any provision of this Plan or of any agreement evidencing the grant of Option Rights or Appreciation Rights and any determination by the Board of Directors pursuant to any provision of this Plan or of any such agreement shall be final and conclusive. No member of the Board of Directors or any assistant shall be liable for any action taken or omitted in connection with the interpretation or administration of this Plan or any grant unless attributable to his or her own willful misconduct or lack of good faith.    11.  Amendments, Etc.    (a)  This Plan may be amended from time to time by the Board of Directors but without further approval by the shareholders of National Processing no such amendment shall (i) increase the maximum numbers of shares of Common Stock specified in Paragraphs 3(b) and (c) and 4(c) of this Plan (except that adjustments authorized by Section 8 of this Plan shall not be limited by this provision), (ii) change the definition of “Eligible Employees”, or (iii) materially increase the benefits accruing to Optionees hereunder.    (b)  Except as provided in Section 8 of the Plan, the Committee shall not, without the further approval of shareholders of National City, authorize the amendment of any outstanding Option Right to reduce the option price. Furthermore, no Option Rights shall be cancelled and replaced with awards having a lower option price (except as provided by Sections 5 and 8 of this Plan) without the further approval of the shareholders of National Processing.    (c)  The Board of Directors may at any time amend, suspend or terminate any agreement evidencing Appreciation Rights granted under this Plan; in the case of an amendment, the amended Appreciation Right shall conform to the provisions of this Plan.    (d)  In the case of any Option or Appreciation Right not immediately exercisable in full, the Board of Directors in its discretion may accelerate the time at which Option or Appreciation Rights may be exercised.    12.  Assumptions.    (a)  In the event that a corporation is merged into National Processing, and National Processing is the survivor of such merger, the Board of Directors may elect, in its sole discretion, to assume under this Plan any or all outstanding options granted by such corporation to its officers and employees under any stock option plan adopted by it prior to such merger. Such assumptions shall be on such terms and conditions as the Board of Directors may determine in its sole discretion, provided, however, that the options as assumed do not provide or contain any terms, conditions or rights which an Option Right may not provide or contain under Sections 2 through 10 hereunder.    13.  Miscellaneous.    (a)  All expenses and costs in connection with the operation of the Plan shall be borne by National Processing.    (b)  This Plan shall be construed in accordance with and governed by the internal substantive laws of the State of Ohio.    (c)  This Plan shall be binding upon and inure to the benefit of National Processing, its successors and assigns and each Participant and his or her beneficiaries, heirs, executors, administrators and legal representatives.

EXHIBIT 10.1 AMENDMENT NUMBER ONE TO THE CHANGE OF CONTROL AGREEMENT BETWEEN GEORGIA-PACIFIC CORPORATION AND GARY A. MYERS, DATED MARCH 15, 1999           WHEREAS, the Board of Directors of Georgia-Pacific Corporation (the "Board") desires to amend the Change of Control Agreement between Georgia-Pacific Corporation and Gary A. Myers, dated March 15, 1999 ("Agreement") to expand the definition of "Change in Control."           NOW THEREFORE, the Board hereby amends the Agreement as follows:                     1.    Section 1(c) of the Agreement is amended by adding the following to the end thereof: "(v)    Consummation of the Transaction as defined in the Board Resolution approving Project Forest dated July 18, 2000, and as contemplated in the Agreement and Plan of Merger by and among Plum Creek Timber Company, Inc., Georgia-Pacific Corporation, and the Spincos (as defined therein) dated July 18, 2000."

QuickLinks -- Click here to rapidly navigate through this document REDACTED VERSION SUBLEASE AGREEMENT     This Sublease Agreement ("Sublease") dated as of July 24, 2000, is made between F5 Networks, Inc., a Washington corporation ("Sublandlord"), and NeoRx Corporation Inc., a Washington corporation ("Subtenant"). RECITALS     A.  Pursuant to the Amended and Restated Office Lease Agreement dated April 3, 2000 between 401 Elliott West, LLC, a Washington limited liability corporation, as lessor ("Landlord") and Sublandlord as lessee (together with all modifications, amendments, riders and exhibits thereto, the "Master Lease"), a copy of which is attached hereto as Exhibit A, Landlord leased to Sublandlord approximately 110,111 rentable square feet of space in Building 3 located at 401 Elliott Avenue West in Seattle, Washington (the "Building").     B.  Sublandlord wishes to sublease to Subtenant 28,854 rentable square feet of the Building located on the second floor of the Building shown cross-hatched on Exhibit B attached hereto (the "Subleased Premises").     NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows: AGREEMENT 1.  Sublease       Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord, for the Term, at the rental, and upon all of the conditions set forth herein, the Subleased Premises, together with the right to use, in common with others entitled thereto, the hallways, stairways and elevators necessary for access to the Subleased Premises and the lavatories nearest to the Subleased Premises. 2.  Term and Possession   2.1  Term       The term of this Sublease ("Term") shall commence on November 1, 2000 ("Commencement Date"). The Term shall expire on October 31, 2003 ("Expiration Date"). Effective at the end of the initial 24 months of the Sublease term, Sublandlord and Subtenant shall have the right to cancel the Sublease with nine months prior notice. 2.2  Condition of Subleased Premises       Sublandlord shall deliver to Subtenant possession of the Subleased Premises on the Commencement Date in a turnkey condition ("Possession") pursuant to Sublandlord's construction documents. If for any reason Sublandlord does not deliver Possession to Subtenant on the Commencement Date, Base Rent, as defined in Section 3.1, shall abate until delivery of Possession. Attached is a plan that shows the "scope and nature" of improvements that will be provided. 3.  Base Rent and Operating Expenses   3.1  Base Rent       Subtenant shall pay to Sublandlord Base Rent on or before the first day of each calendar month during the Term. The monthly installments of Base Rent shall be prorated on a per diem basis for the 31 -------------------------------------------------------------------------------- first or last month of the Term if the Commencement Date or Expiration Date is not the first day or last day of a calendar month. Period --------------------------------------------------------------------------------   Monthly --------------------------------------------------------------------------------   Annual -------------------------------------------------------------------------------- November 1, 2000 to October 31, 2001   [*]   [*] November 1, 2001 to October 31, 2002   [*]   [*] November 1, 2002 to October 31, 2003   [*]   [*] 3.2  Operating Expenses       Subtenant agrees to pay as Additional Rent its proportionate share of all expenses, as defined in Section 4 of the Master Lease, attributable to its lease of the Sublease Premises, including all increases in said expenses over the term of the lease. Subtenant's percentage of the building area of Building Three is 26.20%. 4.  Tenant Improvements       Sublandlord shall provide scale floor plans for floor 2 including dimensions of private offices, conference rooms, kitchen or break rooms, cubicles, etc. Subtenant may make modifications to the attached plan, and will restore the Subleased Premises to its original condition at the end of the Sublease term at Subtenant's expense. 5.  Parking       Subtenant shall have the right to 1.9 stalls per 1,000 square feet of space leased throughout the term of the Sublease on an unreserved basis in the Building parking garage. The cost for the stalls shall be at market rate. 6.  Early Access       Subtenant and Subtenant's contractors shall have early access to the Subleased Premises one month prior to occupancy by Subtenant, for Subtenant's installation of furniture, equipment, telephone lines, data network wiring and security. 7.  Security Deposit       Contemporaneously with the execution hereof, Subtenant shall deposit with Sublandlord the sum of the first month's rent and the last three months' due (which equates to [*]) as security for Subtenant's faithful performance of Sublandlord's obligations hereunder ("Security Deposit"). The Security Deposit shall be applied to Subtenant's last month's rent due; provided, however, if Subtenant fails to pay rent or other charges when due under this Sublease, or fails to perform any of its obligations hereunder, Sublandlord may use or apply all or any portion of the Security Deposit for the payment of any rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Sublandlord may become obligated by reason of Subtenant's default or breach, or for any loss or damage sustained by Sublandlord as a result of Subtenant's default or breach. 8.  Use of Subleased Premises       The Subleased Premises shall be used and occupied only for general office purposes and for any other purpose permitted under the Master Lease. 9.  Assignment and Sublease       Subtenant shall be permitted to sublease individual offices to any subagents and/or clients without obtaining Sublandlord's consent. Subtenant shall be permitted to sublease or assign all or portion of the Subleased Premises subject to Sublandlord's and Landlord's consent per the terms and conditions of the Master Lease. 32 -------------------------------------------------------------------------------- 10.  Incorporation by Reference   10.1  Subject to Lease       This Sublease is subject to all of the terms and condition of the Master Lease by and between Sublandlord and Landlord. Subtenant shall obtain insurance for the Subleased Premises and name Sublandlord as an additional insured in the policy. 10.2  Interpretation       The terms, conditions and respective obligations of Sublandlord and Subtenant to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease, in which event the terms of this Sublease shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word "Lessor" is used it shall be deemed to mean the Sublandlord herein and wherever in the Master Lease the word "Lessee" is used it shall be deemed to mean the Subtenant herein. 11.  Sublandlord's Representations and Warranties       Sublandlord represents and warrants to Subtenant as follows:     11.1  The Master Lease is in full force and effect and has not been modified, supplemented or amended.     11.2  Sublandlord has the right to and is in full and complete possession of the Master Premises.     11.3  Sublandlord has fulfilled all its duties under the Master Lease and is not in default under the Master Lease.     11.4  To the best of Sublandlord's knowledge, Landlord has fulfilled all its duties under the Master Lease and is not in default under the Master Lease.     11.5  Sublandlord has not assigned, transferred or delegated any of its right or duties under the Master Lease or pledged or encumbered any of its interest in, or right under the Master Lease.     11.6  Sublandlord has reviewed the Master Lease (as that term is defined in the Master Lease), the Master Lease does not in any way prohibit this Sublease, the consent of the lessor under the Master Lease is not required for this Sublease, and no provision of the Master Lease could adversely affect the Subleased Premises or Subtenant's rights or obligations under this Sublease.     11.7  Landlord has consented to the Sublease pursuant to the letter agreement attached hereto as Exhibit C.     11.8  Sublandlord has all right, power and authority necessary to enter into and deliver this Sublease and to perform its obligations hereunder. 12.  Covenants Regarding Lease       12.1  Sublandlord shall not commit or suffer any act or omission that will result in a violation of or a default under any of the provisions of the Lease.     12.2  Sublandlord shall exercise commercially reasonable efforts in attempting to cause Landlord to perform its obligations and give any required consents under the Master Lease for the benefit of Subtenant. 33 --------------------------------------------------------------------------------     12.3  Sublandlord agrees to deliver to Subtenant a copy of any notice received from Landlord relating to the Subleased Premises within three (3) days of its receipt thereof.     12.4  In the event that Sublandlord defaults under its obligations to be performed under the Master Lease, Subtenant shall have the right to cure the default before the date Sublandlord's applicable cure period expires. If such default is cured by Subtenant, Sublandlord shall reimburse Subtenant for such amounts within ten (10) days after notice and demand therefor from Subtenant, together with interest at the interest rate specified in the Master Lease. If Sublandlord fails to reimburse Subtenant within such ten (10) day period, Subtenant may deduct such amounts from subsequent installments of rent due to Sublandlord under this Sublease.     12.5  Sublandlord shall not voluntarily terminate the Master Lease without Subtenant's prior written consent.     12.6  Sublandlord shall not amend the Master Lease in any way that would affect the Subleased Premises or Subtenant's rights or obligations under this Sublease without Subtenant's prior written consent. 13.  Indemnification   13.1  Subtenant's Indemnification       Subtenant shall indemnify, defend and hold harmless Sublandlord from and against all losses, costs, damages, expenses and liabilities, including, without limitation, reasonable attorneys' fees and disbursements, which Sublandlord may incur or pay out (including, without limitation, to Landlord) by reason of (a) any accidents, damages or injuries to persons or property occurring in, on or about the Subleased Premises (unless the same shall have been caused by Sublandlord's negligence or wrongful act or the negligence or wrongful act of Landlord), (b) any breach or default hereunder on Subtenant's part, (c) the successful enforcement of Sublandlord's rights under this Section or any other Section of this Sublease, (d) any work done after the date hereof in or to the Subleased Premises except if done by Sublandlord or Landlord, or (e) any act, omission or negligence on the part of Subtenant and/or its officers, partners, employees, agents, customers and/or invitees, or any person claiming through or under Subtenant. 13.2  Sublandlord's Indemnification       Sublandlord shall indemnify, defend and hold harmless Subtenant from and against all losses, costs, damages, expenses and liabilities, including, without limitation, reasonable attorneys' fees and disbursements, which Subtenant may incur or pay out (including, without limitation, to Landlord) by reason of (a) any accidents, damages or injuries to persons or property occurring in, on or about any portion of the Master Premises other than the Subleased Premises (unless the same shall have been caused by Subtenant's negligence or wrongful act), (b) any breach or default hereunder or under the Master Lease on Sublandlord's part, (c) the successful enforcement of Subtenant's rights under this Section or any other Section of this Sublease, or (d) any act, omission or negligence on the part of Sublandlord and/or its officers, partners, employees, agents, customers and/or invitees, or any person claiming through or under Sublandlord. 14.  Notices       All notices and demands that may or are to be required or permitted are to be given by either party on the other hereunder shall be in writing. All notices and demands by Sublandlord to Subtenant shall be personally delivered or sent by a nationally recognized private carrier of overnight mail (e.g. FedEx) or by United States Certified Mail, return receipt requested and postage prepaid, to the parties 34 -------------------------------------------------------------------------------- at the addresses listed below or at such other addresses as the parties may designate by notice from time to time. To Sublandlord:   F5 Networks, Inc 401 Elliott Ave West Seattle, Washington 98119 Attention: Joann Reiter, General Counsel   To Subtenant:       NeoRx Corporation 410 West Harrison Street Seattle, Washington 98119 Attention: Paul Abrams, CEO 15.  Quiet Enjoyment       Provided that Subtenant is not in default of any term or provision of the Master Lease or this Sublease, Subtenant shall have peaceful and quiet enjoyment of the Subleased Premises without interference from Sublandlord or any person or entity claiming by, through or under Sublandlord. 15.  Attorney's Fees       If Sublandlord or Subtenant shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney's fees. 16.  Entire Agreement       This Sublease, the Exhibits attached hereto and the Master Lease, which is incorporated herein by reference, constitute the entire agreement between Sublandlord and Subtenant with respect to the Subleased Premises and may not be amended or altered except by written agreement executed by both parties. 17.  Binding on Successors       This Sublease shall bind the parties' heirs, successors, representatives and permitted assigns.     IN WITNESS WHEREOF, the parties hereto hereby execute this Sublease as of the day and year first above written.   SUBLANDLORD: F5 Networks, Inc.       SUBTENANT: NeoRx Corporation Inc.   By       /s/ Robert J. Chamberlain       By       /s/ Paul G. Abrams   Name       Robert J. Chamberlain       Name       Paul G. Abrams   Title       CFO       Title       CEO                             35 -------------------------------------------------------------------------------- STATE OF WASHINGTON   )         ) ss.     COUNTY OF KING   )         On this 24th day of July, 2000, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Robert J. Chamberlain, to me known to be the person who signed as CFO of F5 NETWORKS, INC., the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was duly elected, qualified and acting as said officer of the corporation, that he was authorized to execute said instrument and that the seal affixed, if any, is the corporate seal of said corporation.     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.     (Not Legible) G. Gilbert -------------------------------------------------------------------------------- Signature           NOTARY PUBLIC in and for the State of Washington, residing at Snohomish County. My appointment expires: 6/1/02 STATE OF WASHINGTON COUNTY OF KING     On this 14 day of July, 2000, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Paul G. Abrams, to me known to be the person who signed as CEO of NEORX CORPORATION INC., the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was duly elected, qualified and acting as said officer of the corporation, that he was authorized to execute said instrument and that the seal affixed, if any, is the corporate seal of said corporation.     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.     /s/ T. H. Craven -------------------------------------------------------------------------------- Signature NOTARY PUBLIC in and for the State of Washington, residing at Redmond, WA. My appointment expires: 9/4/2003 36 -------------------------------------------------------------------------------- QUICKLINKS SUBLEASE AGREEMENT

EXHIBIT 10.2 SUMMER 2000-01 ENERGY EFFICIENCY INITIATIVE REFRIGERATOR/FREEZER RECYCLING PROGRAM AGREEMENT Between APPLIANCE RECYCLING CENTERS OF AMERICA, INC. And SOUTHERN CALIFORNIA EDISON COMPANY TABLE OF CONTENTS 1 DEFINITIONS 1 2 GENERAL TERMS 3 3 CONTRACT DOCUMENTS 3 4 SCOPE OF WORK 4 5 CUSTOMER AND APPLIANCE ELGIBILITY 9 6 OWNERSHIP AND CONFIDENTIALITY 10 7 COMMERCIAL TERMS 12 8 BILLING 13 9 RESPONSIBILITIES OF ADMINISTRATOR AND ARCA 14 10 RIGHT TO AUDIT 14 11 CHANGES 14 12 PERMITS, CODES AND STATUTES 15 13 WARRANTY 15 14 TITLE 17 15 INSURANCE 17 16 INDEMNITY 19 17 TERM AND TERMINATION 20 18 WRITTEN NOTICES 21 19 SUBCONTRACTS 21 20 CALIFORNIA PUBLIC UTILITIES COMMISSION 22 21 NON-WAIVER 22 22 ASSIGNMENT 22 TABLE OF CONTENTS 23 FORCE MAJEURE 22 24 GOVERNING LAW 23 25 SECTION HEADINGS 23 26 SURVIVAL 23 27 NONRELIANCE 23 28 ATTORNEYS' FEES 23 29 COOPERATION 23 30 ENTIRE AGREEMENT 23 THIS AGREEMENT ("Agreement") is made and entered into as of the 11th day of September, 2000, by and between, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation ("ARCA"), and SOUTHERN CALIFORNIA EDISON COMPANY, a California corporation ("Administrator"). Administrator and ARCA are also each individually referred to herein as "Party" and collectively as "Parties." RECITALS WHEREAS, the California Public Utilities Commission ("CPUC"), by ruling of the Assigned Commissioners and Administrative Law Judge on the Summer 2000 Energy Efficiency Initiative, D. 00-07-017, dated August 21, 2000, and in subsequent rulings (collectively referred to as the "Ruling"), approved with modifications ARCA's proposal, dated July 21, 2000 ("Proposal"), and directed that Administrator enter into a contract with ARCA for Refrigerator/Freezer Early Retirement and Recycling Program services ("Program") to Jurisdictional electric service customers in the specified counties in the service territories of Pacific Gas & Electric ("PG&E") and San Diego Gas & Electric ("SDG&E"). AGREEMENT NOW THEREFORE, in consideration of the foregoing Recital, the mutual covenants contained herein, the payments and agreement to be made and performed by Administrator as set forth herein, the Parties agree as follows: 1. DEFINITIONS 1.1 Basic Recycling Charge: Per-unit charge described in Section 7.2.l. 1.2 Refrigerants: Chlorofluorocarbon and hydrochlorofluorocarbon and hydrofluorocarbon refrigerants contained in the cooling systems of refrigerators and freezers. 1.2.1 CFCs: Chlorofluorocarbons. 1.2.2 CFC-11: Chlorofluorocarbons contained in refrigerator and freezer insulting foam. 1.3 Change Order: Document issued by Administrator to Contractor, executed by ARCA and Administrator, to change a Purchase Order. 1.4 Contact Period: September 11, 2000 to December 31, 2001, or as extended by mutual agreement of the Parties. 1.5 CPUC: the California Public Utilities Commission. 1.6 Documentation: Specifications, procedures, instructions, reports, test results, analyses, calculations, manuals, and other data specified in the Purchase Order, Change Order, this Agreement, and any amendment to this Agreement, as required by any legal entity having jurisdiction over the Work. 1.7 Eligible Appliances: Freezers or Refrigerators (as such terms are defined below) that meet the Program appliance eligibility criteria set forth in Section 5.3. 1.7.1 Refrigerator: A Primary or a Secondary Refrigerator. 1.7.2 Primary Refrigerator: Refrigerator currently in use by Customer as the main refrigeration appliance. 1.7.3 Secondary Refrigerator: Surplus or spare refrigerator utilized by Customer concurrently with Primary Refrigerator. 1.7.4 Freezer: A free-standing freezer utilized by a Customer concurrently with a Primary Refrigerator. 1.8 Eligible Customers: Customers who take distribution service from PG&E or SDG&E in accordance with the respective utility's applicable CPUC-approved rules of service, and who reside within the Territories. 1.9 Hazardous Materials: Any substance or material which has been designated as hazardous or toxic by the U.S. Environmental Protection Agency, the California Department of Toxic Substances Control and/or any other governmental agency now or hereinafter authorized to regulate materials in the environment, including, but not limited to "Materials which require special handling" as defined in California Public Resources Code Section 42167, which is contained in or is derived from the Eligible Appliance. 1.10 Mercury: Mercury found in switches and temperature control devices in refrigerators and freezers. 1.11 PCBS: Polychlorinated Biphenyls. 1.12 Pilot Program: A sub-program within the overall Program designed to demonstrate the feasibility of certain program elements prior to full implementation of a program including such program elements. 1.13 Program Participants: Eligible Customers who turn in Eligible Appliances. 1.14 Purchase Order: Document issued by the Administrator to ARCA and executed by the Parties, which contains the terms and conditions for the Work described herein. 1.15 Recycling Center: The site at which ARCA will process refrigerators and freezers, remove CFCs, Refrigerants, PCBS, Mercury and Used Oils, and recycle or legally dispose of Hazardous Materials. 1.16 Refrigerator/Freezer Early Retirement and Recycling Program: That program ordered by the CPUC in its Ruling which requires Administrator to contract with ARCA for implementation of a refrigerator/freezer early retirement and recycling program in the Territories of PG&E and SDG&E (also referred to herein as the "Program"). 1.17 Ruling: as defined in the Recital to this Agreement and any subsequent rulings. 1.18 Subcontractor: Either an entity contracting directly with ARCA to furnish services or materials as part of or directly related to, the Work; or an entity contracting with Subcontractor of any tier to furnish services or materials as a part of, or directly related to, the Work. 1.19 Territories: The regions defined by the zip codes set forth in Attachment C located in the following counties in the service territories of SDG&E and PG&E: San Diego and portions of Orange County, San Francisco, San Mateo, and Santa Clara. Beginning January 1, 2001, the regions defined by the zip codes set forth in Attachment C located in the following counties will be added: Alameda, Contra Costa, Santa Cruz and Marin, and any additional regions as directed by the CPUC. 1.20 Used Oils: Used refrigeration compressor oil. 1.21 Work: Any and all obligations of ARCA to be performed pursuant to this Agreement. 2. GENERAL TERMS 2.1 ARCA shall perform the work and its associated obligations described below as an independent contractor. 2.2 This Agreement is appended to, and part of a Purchase Order executed by the Parties. 2.3 The Program is subject to spending limits, and ARCA shall not invoice SCE for an aggregate amount in excess of $5.5 million to be spent in only PG&E's Territory, or an aggregate amount in excess of $3.0 million to be spent in only SDG&E's Territory. 3. CONTRACT DOCUMENTS 3.1 This Agreement shall consist of the following documents: this Agreement, any amendments to this Agreement, the Purchase Order, and Change Orders. Except as provided below in Section 13 (Year 2000 warranty provision), in the event of any conflict or apparent conflict between any of the provisions of the documents comprising this Agreement, the following order of construction of the documents shall apply: 3.1.1 Amendments to the Agreement in chronological order from the most recent to the earliest; 3.1.2 Change Orders incorporating and reflecting any Amendments to the Agreement in chronological order from the most recent to the earliest. 3.1.3 This Agreement. 3.1.4 Purchase Order incorporating this Agreement. 3.2 Each Party shall notify the other immediately upon the identification of any such conflict or inconsistency. 4. SCOPE OF WORK 4.l. Advertising and Marketing. ARCA shall: o Submit to the Administrator all advertising and other marketing materials for approval prior to publishing or distributing. o Implement a multi-media advertising/marketing campaign (i.e., brochures, print, cable television advertisements, truck signs, 800 number, web site address) for each Target Area which focuses on system load impacts of operating inefficient refrigerators and freezers, operating costs and potential private energy savings, and environmental benefits. o Provide local print and television media with program information, press kits, facility tours, collection ride-along events, press releases, and other opportunities to feature the Program. o As appropriate, solicit marketing affiliate participation from major retailers (i.e., Sears, Circuit City, Home Depot) including point-of-sale displays, and provide program information to consumer groups (particularly those assisting under-served segments of the residential electric customer base), community-based organizations, local governments, property owner/manager's associations, homeowner and tenant organizations, environmental organizations, and civic groups. o Provide a per-unit "bounty" to the authorized marketing affiliate for each participant referred to the program who turns in an Eligible Appliance for recycling. o Ensure that all advertising and promotional materials include program guidelines and restrictions, duration of the program, incentive amount, public and private program benefits, the 800 number and web site address; and will clearly state that the program is funded by California electric utility customers under the auspices of the Commission. o Explore adding program information to the Commission's web site and creating links from other sites to direct potentially Eligible Customers to the Program web site. 4.2 Customer Services. ARCA shall: o Establish an 800 telephone number and provide trained customer service staff to assist residential consumers Monday through Friday from 6:00 a.m. to 6:00 p.m. Pacific time with questions about the program and to schedule their participation. o Verify customer eligibility (i.e., live in the Territory, own a working refrigerator/freezer).’ o Schedule in-home appliance removal appointments (choices of service dates and morning/afternoon collection, handle reschedule and cancellation requests). o Provide customers with information about preparing their refrigerator for removal (appliance must be plugged in and working at the time of pickup, empty and defrosted). o Conduct a brief customer survey, using questions provided by Administrator, with a randomly selected 20% of customers who schedule a collection appointment. o Produce written confirmation of appliance collection. o Provide customers with a day-ahead confirmation call. o Fulfill incentive payments (checks are sent approximately 3 weeks after collection of the refrigerator/freezer). 4.3 Collection. ARCA shall: o Hire and train drivers in the program service territory, provide collection vehicles and trailers, and establish a local transfer site. o Collect all Eligible Appliances from customers' residences or facilities within 20 days from the date of initial customer contact unless otherwise requested by the customer, and secure customer signature. o Contact customers a day ahead of their collection appointment as a reminder and assist customers needing to reschedule appointments. o Ask program participants to have their old refrigerator/freezer plugged in at the time of collection, or located within 50 feet of an outlet, so that the operational condition of the appliance can be confirmed. o Remove refrigerators and freezers and transfer to trailers to be shipped to ARCA's center in Compton, CA for processing and recycling. 4.4 Refrigerator Processing. ARCA shall: o Operate a center in compliance with all federal, state and local hazardous waste management and recycling regulations. o Ensure that all Refrigerants are recovered and recycled. o Recover and recycle CFC-11 blowing agents in the polyurethane foam insulation of refrigerators and freezers. o Ensure that all hazardous components, such as capacitors containing polychlorinated biphenyls (PCBS) or mercury-containing switches, are removed and properly stored prior to shipment for disposal or recycling. o Ensure that used compressor oil is recovered and processed to reduce the level of hazardous halogens before the oil is collected by a licensed oil recycler. o Ensure that PCB components are incinerated at a federally licensed hazardous waste incineration facility. o Ensure that mercury is recovered by a licensed mercury reclamation facility for recycling. o Ensure that Refrigerants and non-CFC refrigerants are sold to a certified refrigerant reclamation facility for recycling. o Ensure that processed refrigerators and freezers are sold to a metals recovery facility for recycling. 4.5 Records. ARCA shall document and maintain records for services under this Agreement as follows: 4.5.1 A Customer Comment Tracking System for recording customer inquiries, complaints, and positive feedback. 4.5.2 Appliance Turn-in Order Form ("ATO") to collect data such as customer name, address, home and work phone numbers; Appliance manufacturer's name; Appliance model and style; defrost type; color, size, and estimated age of unit; location of Appliance within the residence; final disposition code (which indicates operating condition of Appliance and/or Incentive received); special pick-up instructions (if applicable); and other information as needed to provide required reports under this Agreement. 4.5.3 Compilation of data in subsection 4.5.2 in electronic mode, employing a software program suitable for exchange of information with Administrator, subject to the approval of Administrator's Program Manager. 4.6 Customer Survey. ARCA shall conduct a customer survey, shown in Exhibit A, which is attached and incorporated by reference herein, using a stratified purposeful sample of 5% to 20% of the Program Participants. The purpose of the survey shall be to elicit information such as appliance use, customer demographics and customer satisfaction. Administrator may modify the information collected or reported in the survey, or the stratification and frequency of the survey, provided the modified survey is comparable to Exhibit A. 4.7 Incentives. ARCA shall establish and implement a financial incentive service as follows: 4.7.1 Each Program Participant will be entitled to receive a check in an amount to be determined by ARCA, not to exceed seventy-five Dollars ($75.00). The check is referred to as the "Incentive". 4.7.1.1 In the event ARCA determines the incentive amount will be less than $75.00, ARCA will notify SCE at least 30 days prior to implementing the lower incentive amount. 4.7.2 ARCA shall provide Administrator with a weekly listing of Customers who receive an Incentive. 4.7.3 Upon Administrator's payment to ARCA as described in Section 7 of this Agreement, Administrator shall be under no further obligation with respect to reimbursement of such amounts and such reimbursement shall constitute full payment to ARCA on behalf of the Program Participants entitled to Incentives. Upon Administrator's payment to ARCA of such reimbursement, ARCA shall be deemed the holder of such property as far as the interests of the Program Participants entitled thereto are concerned for any and all purposes, including, but not limited to, complying with the unclaimed property laws of California and any and all other applicable states. Administrator shall not assume any responsibility for other disposition of the Incentive after such payment is paid to ARCA and shall not be entitled to the reversion of any amounts so paid. 4.8 Reporting. ARCA shall provide Administrator with reports for the services performed under this Agreement as follows: 4.8.1 A monthly report, provided no later than the 15th day of the month, and a quarterly report, each which shall contain the following: (a) the number of Eligible Appliances processed under this Agreement during the previous month and the size in cubic feet, year of manufacture, style, and defrost type. (b) environmental data such as an estimated breakdown of amount of refrigerants recovered; number of pounds of Refrigerants, PCBs and Mercury removed; amount of Used Oils recycled; number of units containing CFC-11 foam; and weight of metals and non-recyclable materials sold for recycling. (c) monthly Customer Comment Tracking System information required pursuant to Section 4.5.1. (d) aging reports indicating the number of Eligible Appliances that were collected during the preceding month and that were scheduled for collection from Customers during that month, the date of the initial contact with the Customer, the date or dates the appliance was scheduled for collection, and the actual collection date. 4.8.2 A final report no later than thirty (30) days after the termination of this Agreement of all amounts paid by ARCA in compliance with any unclaimed property laws pursuant to Section 4.7.3 hereof. 4.8.3 Weekly invoices as provided in Section 8. 4.8.4 Upon reasonable written request from an authorized representative of Administrator, special and nonrecurring reports during the course of the Program. Such report content will be developed by the Parties and shall not necessitate unreasonable labor which would otherwise require the negotiation of a charge separate from the Basic Recycling Charge. 4.8.5 ARCA shall maintain records of its Program Participants. In all cases, when ARCA picks up an Eligible Appliance from a Program Participant, ARCA shall obtain the Program Participant's signature on the ATO. 4.8.6 ARCA shall submit to Administrator estimates of Program impact in the form of a final report at the end of the Contract Period. Such report shall include (but need not be limited to) the following: o a description of all activities undertaken as part of the Program o the number of units retired and recycled o a demonstration of the energy and demand savings achieved. 4.8.7 ARCA shall make all data used in the preparation of the final report of Program impact estimates, referred to in Section 4.8.6 above, available to Administrator for auditing or other verification purposes. 4.9 Website. ARCA shall design and, subject to the prior approval of Administrator, implement a website which enables Eligible Customers in the Territories to electronically submit information for prequalification and schedule appointments on a 24 hour, seven day a week basis. 4.10 Cooperation, ARCA will work cooperatively with the Administrator, the CPUC and other interested parties to provide feed-back, determine Program effectiveness and recommend modifications to the Program's design or procedures. 5. CUSTOMER AND APPLIANCE ELIGIBILITY 5.1 Customer eligibility for the Program shall depend on the following: 5.1.1 Customer is an Eligible Customer in the Territories listed in Section 1.9 and occupies a single-family residential (Domestic Rate) or multi-unit dwelling or mobile home, or other customers as determined eligible under the Pilot Programs described in Section 5.1.4. 5.1.2 Customer is the owner of the Eligible Appliance or possesses written consent from the actual owner to turn in the Eligible Appliance. 5.1.3 Customer turns in no more than two Eligible Appliances per year unless otherwise allowed pursuant to Pilot Programs described in Section 5.1.4. 5.1.4 The Pilot Programs to be implemented during the Contract Period of this Program shall include: i) acceptance of Eligible Appliances from landlords/multi-family unit owners; (ii) acceptance of Eligible Appliances from non-profit organizations located within the Territories; and (iii) acceptance and prequalifications of PG&E and SDG&E's customers who participate in Refrigerator Rebate Programs if linkages to the utility programs can be created. 5.2 Commercial customers do not qualify for the Program. Landlords are considered commercial customers unless otherwise determined eligible under the Pilot Programs described in Section 5.1.4. 5.3 An Eligible Appliance must be capable of cooling and/or freezing, as applicable, at time of collection and its size must be 10 cubic feet or more unless it is otherwise determined eligible under the Pilot Programs described in Section 5.1.4. 5.4 Commercial refrigerators, ammonia-containing gas refrigerators, commercial freezers, and room air conditioners do not qualify as Eligible Appliances. 6. OWNERSHIP AND CONFIDENTIALITY 6.1 All information disclosed by Administrator during meetings or negotiations with regard to the Program, and any information contained in drawings, specifications, technical reports, and data, provided by Administrator to ARCA during performance of this Agreement shall be held in confidence by ARCA and used only for the performance of the Work pursuant to this Agreement. 6.2 ARCA, its employees, and any subcontractors shall not disclose any information concerning SDG&E's or PG&E's customers to any person other than Administrator's personnel either during the term of this Agreement or after its completion, without ARCA having obtained the prior written consent of Administrator, except as provided by lawful court order or subpoena and provided ARCA gives Administrator advance written notice of such order or subpoena. Prior to any approved disclosure, persons receiving said information, including ARCA, its employees, or third parties, must enter into a nondisclosure agreement with Administrator. ARCA agrees to require its employees and subcontractors to execute a nondisclosure agreement prior to performing any services under this Agreement. This provision, however, does not prohibit ARCA from disclosing non-confidential information concerning this Agreement to the CPUC in any CPUC proceeding, or any CPUC-sanctioned meeting or proceeding or other public forum. 6.3 All materials provided by Administrator to ARCA during the performance of this Agreement shall be returned to Administrator after this Agreement is terminated or at the request of Administrator. ARCA shall not duplicate any material furnished by Administrator without prior written approval from Administrator. 6.4 Except as required by the CPUC, Administrator, its employees and any subcontractors of Administrator shall not disclose any confidential or proprietary information provided by ARCA ("ARCA's Confidential Information") to any person other than ARCA's personnel, either during the term of the Agreement, or after its completion, without having obtained the prior written consent of ARCA. By way of example, ARCA's Confidential Information shall include, without limitation, ARCA's systems for oil degassing, Refrigerant recovery and ARCA's computer software. Administrator agrees to require its employees to comply with the non-disclosure requirements of this Section prior to any contact with, or evaluation of ARCA's Confidential Information. 6.5 Administrator agrees that, without the prior written consent of ARCA, it will not, during the term or after termination of this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity, or use for its own or such other's benefit, any of ARCA's Confidential Information, whether reduced to written or other tangible form, which: 6.5.1 Is not generally known to the public or in the industry; 6.5.2 Has been treated by ARCA or any of its subsidiaries as confidential or proprietary; and 6.5.3 Is of a competitive advantage to ARCA or any of its subsidiaries and in the confidentiality of which ARCA or any of its subsidiaries has a legally protectable interest. 6.6 ARCA's Confidential Information which becomes generally known to the public or in the industry, or, in the confidentiality of which, ARCA and its subsidiaries cease to have a legally protectable interest, shall cease to be subject to the restrictions of this Section 6. 7. COMMERCIAL TERMS 7.1 Payment Administrator shall pay to ARCA, as full compensation for completing the Work, the prices set forth in Exhibit B as described in this Section 7. 7.2 Summary of Charges 7.2.1 Basic Recycling Charge. Administrator shall pay to ARCA a per-unit Basic Recycling Charge for the number of units collected and recycled pursuant to this Agreement at the price or prices set forth on Line C of Exhibit B. The Basic Recycling Charge covers the scope of work described in Section 4, excluding: the Incentive charge, CFC-11 Charge, Advertising Charge, and any Financing Charge. 7.2.1.1 True-Up. The pricing in line C of Exhibit B assumes a total volume for the Project of 20,001 to 40,000 units. In the event the total number of units collected and recycled under the Program at any time exceeds 40,000, then the pricing under Exhibit B shall be based on line D for the 40,000 units previously processed, and for all subsequent units processed (up to 60,000 units). In addition, ARCA shall provide Administrator with a credit, allocated based on the number of such 40,000 units attributable to PG&E's and SDG&E's Territory, in the total amount of $228,000. ARCA shall apply such credited amounts against future invoices for each of PG&E's and SDG&E's Territory, respectively, subject to the spending limitations in Section 2.3. ARCA shall refund to Administrator any unused credit within 30 days after termination of this Agreement. 7.2.2 Incentive Charge. Administrator shall pay to ARCA the per-unit Incentive charge in the amount set forth in line C of Exhibit B. 7.2.3 CFC-11 Charge. Administrator shall pay to ARCA the per-unit CFC-11 charge in the amount set forth in Line C of Exhibit B for all units collected. 7.2.4 Advertising Charge. Administrator shall pay to ARCA the perunit advertising charge in the amount set forth in line C of Exhibit B. 7.2.5 Financing Charges. Administrator shall pay to ARCA monthly interest at the rate of three-quarter of one percent (0. 75%) on the average monthly balance of any unpaid and overdue invoice over and above the charges set forth on Exhibit B. 7.3 ARCA agrees that any agreement it has, or in which it may enter with other utilities or agencies for a recycling program, shall not detrimentally affect ARCA's services under this Agreement. 8. BILLING 8.1 ARCA shall submit separate weekly invoices respectively relating to the Territories of SDG&E and PG&E, respectively, indicating the per-unit charges for the refrigerators and freezers collected, processed, and recycled. ARCA shall include with each invoice copies of all ATOs relating to invoiced amounts, and a summary, setting forth for each ATO included with the invoice, the ATO number, zip code, first unit price, additional units, and total price. Administrator shall have no obligation to pay any invoice unless all of the data and documents listed above have been received. ARCA shall apply a per-unit charge on units that have been disabled and only for the following transactions: 8.1.1 Collection of an Eligible Appliance. 8.1.2 Collection contact made for Eligible Appliance that cannot be removed due to obstruction because of size of structural barrier provided that ARCA obtains written permission from Customer to permanently disable said unit, and ARCA then permanently disables the unit. 8.2 ARCA shall apply a 25% per unit discount to the Basic Recycling Charge to any additional units when two Eligible Appliances are removed during a single collection appointment from a Customer's residence. Said discount shall be clearly documented and identified in ARCA's invoice. 8.3 Administrator shall make payment (less any unsubstantiated or incorrect charge) within thirty days of receipt of an invoice from ARCA. 8.4 ARCA acknowledges that Administrator will forward to SDG&E and PG&E, for their review, copies of the supporting documentation and reports ARCA submits to Administrator. In the event SDG&E or PG&E provides Administrator with evidence demonstrating that any invoiced amount paid by Administrator to ARCA was incorrect or improper, Administrator shall have the right to offset from current payments due ARCA the full amount of such incorrect or improper payment, pending resolution of the discrepancy. No Financing Charges shall accrue on any amount offset by Administrator unless the offset was improper or incorrect. 9. RESPONSIBILITIES OF ADMINISTRATOR AND ARCA 9.1 Administrator shall be responsible for making contractual arrangements to transfer funding from PG&E and SDG&E to Administrator for payment, for arranging for its cost sharing with PG&E and SDG&E, and shall administer the Program for purposes of streamlining administration and oversight. 9.2 ARCA shall work with the Administrator to ensure that the Program meets the test for cost-effectiveness, using the 1.0 minimum ratio total resource cost test, as set forth in the Rulings. ARCA shall provide Administrator with all documentation necessary to demonstrate such test is met. 9.3 ARCA shall provide Administrator with estimates of Program impact at the conclusion of this Contract. 9.4 Administrator and ARCA shall meet their respective directives pursuant to the Rulings. 10. RIGHT TO AUDIT During the Program and for 3 years after termination of the Agreement, Administrator, or its Authorized Representative, shall have the right and free access, at any reasonable time during normal business hours, to examine, audit, and copy all ARCA's records and books as related to ARCA's obligations under this Agreement, including, but not limited to, verification of costs to Administrator, as claimed by ARCA. 11. CHANGES Changes to this Agreement shall be made by mutual agreement of the Parties through a written amendment to the Agreement. Such written amendment may be incorporated into this Agreement through a subsequent Purchase Order or Change Order. 12. PERMITS, CODES, AND STATUTES 12.1 ARCA shall perform the Work set forth in this Agreement in accordance with all applicable federal, state, and local laws, rules, and/or ordinances. Prior to performance of any services, ARCA shall, at its own cost, have obtained, and shall have required all Subcontractors to obtain, all licenses and permits required by law, rule, regulation, and ordinance, or any of them, to engage in the activities required in connection with this transaction. Said licenses and permits shall be kept current at all times during the term of the Agreement. ARCA also represents and warrants that, to the best of its knowledge, based upon reasonable and prudent inquiry, any storage site and any disposal facility to which the Hazardous Materials may be moved are in compliance with any and all federal, state and local laws and regulations pertaining thereto and that such storage sites and disposal facilities are suitable and may lawfully receive and/or dispose of the Hazardous materials. 12.2 ARCA shall comply with all applicable local, state, and federal safety and health laws in effect an the date of this Agreement, including, but not limited to, EPA, California EPA, RCRA, the Occupational Safety and Health Act of 1970 (OSHA), and all standards, rules, regulations, and orders issued pursuant to such local, state, and federal safety and health laws. Should any such law, rule, or regulation be enacted or promulgated subsequent to the date of this Agreement, which renders ARCA's performance impractical, ARCA and Administrator shall, in good faith, negotiate an amendment to this Agreement reasonably compensating ARCA for its additional costs. 13. WARRANTY 13.1 ARCA warrants to Administrator that the Work shall be performed in a competent manner, in accordance with this Agreement, and that the acceptance, handling, storage, recycling, and disposal of the refrigerators and freezers and the Hazardous Materials shall be in accordance with (i) the requirements of this Agreement and (ii) the applicable local, state, and federal laws and regulations in effect at the time of the work performed. 13.2 ARCA represents and warrants (i) that it has knowledge of the California Public Resources Code and the California Health and Safety Code which require that refrigerators and freezers be processed to remove Refrigerants, PCBS, Mercury, and Used Oils prior to crushing for transport or transferring to a baler or shredder for recycling; (ii) that it has knowledge of the hazards associated with the removal, handling, storage, recycling, and legal disposal of Hazardous Materials; (iii) that it has experience and expertise in such removal, handling, storage, recycling, and legal disposal; (iv) that it uses only qualified personnel, (including subcontractor's and agent's personnel) who have been instructed and certified in the proper safety procedures to be used in such removal, handling, storage, recycling, or legal disposal; and (v) that it will continue to operate and maintain its Recycling Center. 13.3 Year 2000 Warranty. ARCA hereby represents and warrants to Administrator and agrees that its software, hardware and equipment, and any piece, part, component or system thereof, and/or work provided hereunder will (a) at the time of delivery or performance be and will remain Year 2000 Compliant and (b) not fail to meet, or to be delivered in accordance with, all the requirements and specifications of this Agreement, as a result of any failure of ARCA or of its operations, suppliers, software, hardware or equipment to be Year 2000 compliant. In order for the software to be Year 2000 Compliant, it must accurately process date/time data (including, but not limited to, calculating, comparing, sorting, sequencing and calendar generation), including single century formulas and multi-century formulas, from, into, within and between the twentieth and twenty-first centuries, including all dates and leap year calculations, and will not malfunction or generate abnormal endings, incorrect values or invalid results involving such date/time data; (ii) accurately interface with other software, hardware or equipment, as necessary and appropriate, in order to supply, receive, process or transmit date/time and other data; (iii) provide that date/time-related functionalities, date/time fields and any user input interfaces include a four digit year format and/or other appropriate indication of century; (iv) not cause any of Administrator's other software, hardware or equipment that Administrator deems to be otherwise Year 2000 compliant to fail to be Year 2000 compliant; and (v) not cause any of Administrator's other software, hardware or equipment that Administrator deems to be otherwise Year 2000 ready to fail to be Year 2000 ready. For purposes of this Agreement, Administrator shall deem software, hardware or equipment to be "Year 2000 compliant" if it has been or is determined by Administrator to accurately process date/time data from, into, within and between the twentieth and twenty-first centuries including all dates and leap year calculations. For purposes of this Agreement, Administrator shall deem software, hardware or equipment to be "Year 2000 ready" if it has been or is determined by Administrator to be suitable for continued use into the Year 2000 and beyond. 13.4 Year 2000 Warranty Controlling. In the event of any conflict or apparent conflict between any other provisions of this Agreement the terms and conditions of this Year 2000 Warranty shall control. Nothing in this Year 2000 Warranty shall be construed to limit any rights or remedies Administrator may otherwise have under any other provision of this Agreement, or under any other contract or agreement between the Parties. 14. TITLE 14.1 Title to the Hazardous Materials shall pass to ARCA when ARCA collects refrigerators and freezers from Customers. 14.2 Title of collected refrigerators and freezers shall pass to ARCA. 15. INSURANCE 15.1 Without limiting ARCA's liability to Administrator, including the requirements of Section 16 (Indemnity), ARCA shall maintain for the Work, and shall require that each Subcontractor of the first tier maintain, at all times during the Work and at its own expense, valid and collectible insurance as described below. This insurance shall not be terminated, expire, not be materially altered, except on thirty days written notice to Administrator. ARCA shall furnish Administrator with certificates of insurance and forms acceptable to Administrator and shall require each Subcontractor of the first tier to furnish ARCA with certificates of insurance, as evidence that policies do provide the required coverage and limits of insurance listed below. Such certificates shall be furnished to Administrator's Program Manager by ARCA upon receipt of the Purchase Order, and by Subcontractor for the first tier upon receipt of its subcontract, but in any event prior to start of its portion of the Work. Any other insurance carried by Administrator, its officers, agents, and employees, which may be applicable, shall be deemed to be excess insurance, and ARCA's insurance shall be deemed primary for all purposes notwithstanding any conflicting provision in ARCA's policies to the contrary. (i) Workers' Compensation Insurance with statutory limits, as required by the state in which the Work is performed, and Employer's Liability Insurance with limits of not less than $5,000,000. Carriers furnishing such insurance shall be required to waive all rights of subrogation against Administrator, its officers, agents, employees, and other contractors and subcontractors. (ii) Comprehensive Bodily Injury and Property Damage Liability Insurance, including owners, and contractors' protective liability, product/completed operations liability, contractual liability, and coverage for liability incurred as a result of sudden and accidental discharge, dispersal, release or escape of polluting materials, (excluding automobile) with a combined single limit of not less than $3,000,000 for each occurrence. Such insurance shall: (a) acknowledge Administrator and SDG&E or PG&E, as appropriate, their respective officers, agents, and employees, as additional insureds; (b) be primary for all purposes; and (c) contain standard cross-liability provisions. (iii) Automobile Bodily Injury and Property Damage Liability Insurance with a combined single limit of not less than $3,000,000 for each occurrence. Such insurance shall cover liability arising out of the use by ARCA and Subcontractors of owned, non owned and hired automobiles in the performance of the Work. As used herein, the term "automobile" means vehicles licensed or required to be licensed under the Vehicle Code of the state in which the Work is performed. Such insurance shall acknowledge Administrator and SDG&E or PG&E, as appropriate as additional insureds and be primary for all purposes. (iv) Environmental Impairment Expense Insurance with a combined single limit of not less than $5,000,000 for each occurrence and overall limits of $10,000,000. Such insurance shall provide coverage for necessary costs or expense of removing, cleaning up, transporting, nullifying, and rendering ineffective, or any of them, any substance which has caused environmental impairment and such insurance shall contain no exclusions for non-sudden and/or non-accidental discharge, release or escape of polluting materials. Such insurance shall acknowledge Administrator and SDG&E or PG&E, as appropriate, as additional insureds and be primary for all purposes. ARCA shall report immediately to Administrator and confirm in writing any injury, loss, or damage incurred by ARCA or Subcontractors in excess of $500.00, or its receipt of notice of any claim by a third party in excess of $500.00, or any occurrence that might give rise to such claim. If ARCA fails to comply with any of the provisions of this Section 15, ARCA shall, at its own cost, defend, indemnify, and hold harmless Administrator, its officers, agents, employees, assigns, and successors in interest, from and against any and all liability, damages, losses, claims, demands, actions, causes of action, costs, including in-house and outside attorney's fees and expenses, or any of them, resulting from the death or injury to any person or damage to any property to the extent that Administrator would have been protected had ARCA complied with all of the provisions of this Section. 16. INDEMNITY 16.1 ARCA shall, at its own cost, indemnify, defend, reimburse, and hold harmless Administrator, its officers, directors, employees, agents, assigns, and successors in interest, from and against any and all liability, damages, losses, claims, suits, demands, actions, causes of action, costs, expenses, including in-house and outside attorney's fees and expenses, or any of them resulting from the death or injury to any person or damage to or destruction of any property caused by ARCA, Subcontractors, and employees, officers and agents of either ARCA or Subcontractors, or any of them, and arising out of or attributable to the performance or nonperformance of ARCA's obligations under this Agreement and including, without limitation, failure to comply fully with any federal, state, or local law, statute, regulation, rule, ordinance, or government directive which directly or indirectly regulates or affects the handling, storage, recycling, or disposal of the Hazardous Materials to be managed by ARCA hereunder. In all cases of death or injury to employees, officers or agents of either ARCA or Subcontractors, whether or not caused by ARCA, Administrator shall be indemnified by ARCA for any and all liability except to the extent such death or injury results from the negligence of Administrator. 16.2 ARCA shall, at its own cost, indemnify, defend, reimburse, and hold harmless Administrator, its officers, directors, employees, and agents, assigns, and successors in interest, from and against any and all liability imposed upon, or to he imposed upon Administrator, under any law imposing liability for the environmental clean-up of the Hazardous Materials at any location (other than Administrator's property) where the Hazardous Materials have been placed, stored or disposed of in the performance or nonperformance of ARCA's obligations under this Agreement, or any other site to which the Hazardous Materials have migrated. 16.3 The indemnities set forth in this Section 16 shall not be limited by the insurance requirements set forth in Section 15. 17. TERM AND TERMINATION 17.1 This Agreement shall commence on the date first written above and shall continue in effect until the first to occur of (1) conclusion of the Contract Period, and (ii) ninety (90) days after ARCA has invoiced Administrator for a total aggregate amount of $8.5 million under this Agreement. In either event, ARCA shall complete all work associated with all amounts invoiced under this Agreement. This Agreement may be extended as agreed to in writing by the Parties, subject to approval by the CPUC. 17.2 Either Party may terminate the Agreement for cause by providing 60 days advance written notice to the other Party. If the default has not been cured within the 60 day notice period, the non-defaulting party may declare this Agreement terminated, effective on the last day of said notice period ("Termination Date"). ARCA shall be paid for all work performed prior to the Termination Date. 17.3 Administrator shall have the right to terminate this Agreement by providing 30 days advance written notice to ARCA upon CPUC mandate, or upon depletion of the amount of funding authorized by the CPUC for the Contract Period. In the event the Agreement is terminated upon CPUC mandate, Administrator shall pay ARCA all amounts owed under the Agreement as of 30 days after Administrator's written notice to ARCA of the CPUC's mandate (the "Termination Date"). In such event, Administrator shall only be obligated to pay contractor for such refrigerators and freezers actually collected by ARCA for recycling as of the Termination Date. 17.4 In the event of termination pursuant to this Section 17, ARCA and Administrator shall work cooperatively to facilitate the termination of the Summer Initiative. 17.5 Each Party shall immediately provide at no cost to the other, any report, testimony, or any communications with the CPUC, or any board, division, committee or member thereof, which could reasonably be anticipated to effect the Program or which addresses it in any manner. 18. WRITTEN NOTICES 18.1 Any written notice, demand or request required or authorized in connection with this Agreement, shall be deemed properly given if delivered in person or sent by facsimile, nationally recognized overnight courier, or first class mail, postage prepaid, to the address specified below, or to another address specified in writing by Administrator as follows: ADMINISTRATOR: Southern California Edison Company Attn: Jeannette Duvall-Ward 2244 Walnut Grove Avenue - Quad 2A Rosemead, CA 91770 (626) 302-8791 telephone (626) 302-8313 facsimile ARCA: Appliance Recycling Centers of America, Inc. Attention: Mr. Jack Cameron President 7400 Excelsior Boulevard Minneapolis, MN 55426 (952) 612-1717 telephone (952) 612-1801 facsimile 18.2 Notices shall be deemed received (a) if personally or hand-delivered, upon the date of delivery to the address of the person to receive such notice if delivered before 5:00 p.m., or otherwise on the Business Day following personal delivery; (b) if mailed, three Business Days after the date the notice is postmarked; (c) if by facsimile, upon electronic confirmation of transmission, followed by telephone notification of transmission by the noticing Party; or (d) if by overnight courier within the time limits set by that courier for next-day 19. SUBCONTRACTS. 19.1 ARCA shall contractually require each Subcontractor of the first tier providing service in connection with the Work to be bound by general terms and conditions protecting Administrator which are equivalent to the terms and conditions of this Agreement. 19.2 ARCA shall, at all times, be responsible for the work, and acts and omissions, of Subcontractors and persons directly or indirectly employed by them for services in connection with the Work. The Purchase Order and this Agreement shall not constitute a contractual relationship between any Subcontractor and Administrator nor any obligation for payment to any Subcontractor. 20. CALIFORNIA PUBLIC UTILITIES COMMISSION This Agreement and the Purchase Order incorporating this Agreement are entered into in furtherance of the Ruling, and shall at all times be subject to such changes or modifications by the CPUC as it may from time to time direct in the exercise of its jurisdiction. 21. NON-WAIVER None of the provisions of the Agreement shall be considered waived by either Party unless such waiver is specifically stated in writing. 22. ASSIGNMENT Administrator may be required to assign its rights, duties and obligations under this Agreement to the CPUC and/or its designee. ARCA and Administrator hereby consent to such assignment. Other than an assignment to the CPUC or the CPUC's administrator, neither Party shall delegate or assign this Agreement or any part or interest thereof, without the prior written consent of the other Party, and any assignment without such consent shall be void and of no effect. 23. FORCE MAJEURE Failure of ARCA to perform any of the provisions of this Agreement by reason of any of the following shall not constitute an event of default or breach of this Agreement: strikes, picket lines, boycott efforts, earthquakes, fires, floods, war (whether or not declared), revolution, riots, insurrections, acts of God, acts of government (including, without limitation, any agency or department of the United States of America), acts of the public enemy, scarcity or rationing of gasoline or other fuel or vital products, inability to obtain materials or labor, or other causes which are reasonable beyond the control of the ARCA. 24. GOVERNING LAW The contract shall be interpreted, governed, and construed under the laws of the State of California as if executed and to be performed wholly within the State of California. 25. SECTION HEADINGS Section headings appearing in this Agreement are for convenience only and shall not be construed as interpretations of text. 26. SURVIVAL Notwithstanding completion or termination of the Work, of this Agreement, any amendment to the Agreement, or of any Purchase Order or Change Order, the Parties shall continue to be bound by the provisions of this Agreement and any Purchase order incorporating this Agreement, Amendment to this Agreement and Change Orders, which by their nature shall survive such completion or termination. Such provisions shall include, but not be limited to, ARCA's indemnity protecting Administrator from any liability for environmental clean up as provided in Section 16 of this Agreement. 27. NO RELIANCE Neither Party has relied upon any representation, warranty, projection, estimate or other communication from the other not specifically so identified in this Agreement. 28. ATTORNEYS' FEES In the event of any legal action or other proceeding between the Parties arising out of this Agreement or the transactions contemplated herein, the prevailing Party in such legal action or proceeding shall be entitled to have and recover from the other Party all costs and expenses incurred therein, including reasonable in-house and outside attorneys' fees. 29. COOPERATION Each Party agrees to cooperate with the other Party in whatever manner reasonably required to facilitate the successful completion of the Agreement. 30. ENTIRE AGREEMENT This Agreement contains the entire agreement and understanding between the Parties and merges and supersedes all prior representations and discussions pertaining to the Agreement, including ARCA's proposal. Any changes, exceptions, or different terms and conditions proposed by ARCA are hereby rejected unless expressly stated in this Agreement. SIGNATURES Each of the persons signing this Agreement individually represents that he or she is duly authorized to execute this Agreement on behalf of the Party for whom he or she signs. SOUTHERN CALIFORNIA APPLIANCE RECYCLING EDISON COMPANY OF AMERICA, INC. By: /s/ Pamela A. Bass By: /s/ Edward R. Cameron Name: Pamela A. Bass Name: Edward R. Cameron Title: Sr. Vice President Title: President Date: October 5, 2000 Date: September 26, 2000

Exhibit 10-33 EMPLOYMENT AGREEMENT          EMPLOYMENT AGREEMENT, dated as of May 19, 2000 (the "Agreement"), by and between Energy East Corporation, a New York corporation (the "Company"), and Wesley W. von Schack (the "Executive").          The Board of Directors of the Company (the "Board") desires to provide for the employment of the Executive as a member of the management of the Company, in the best interest of the Company and its shareholders. The Executive is willing to commit himself to serve the Company, on the terms and conditions herein provided.          In order to effect the foregoing, the Company and the Executive wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:          1.    Defined Terms. The definitions of capitalized terms used in this Agreement, unless otherwise defined herein, are provided in the last Section hereof.          2.    Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein, during the term of this Agreement (the "Term").          3.    Term of Agreement. The Term will commence on May 19, 2000 and end on May 18, 2003, unless further extended as hereinafter provided. Commencing on May 19, 2001 and each May 19, thereafter, the Term of this Agreement shall automatically be extended for one (1) additional year unless, not later than the February 18, immediately preceding each such May 19, the Company (upon authorization by the Board) or the Executive shall have given notice not to extend this Agreement.          4.    Position and Duties. The Executive shall serve as Chairman, President and Chief Executive Officer of the Company and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to the Executive by the Board. In addition, the Executive shall serve as Chairman of the NYSEG Board until removed or not re-elected. Notwithstanding the foregoing, the Executive shall cease to be President of the Company when and if David Flanagan assumes such position upon the consummation of the transactions contemplated by the Agreement and Plan of Merger by and among CMP Group, Inc., the Company and EE Merger Corp. dated June 14, 1999, as the same may be amended from time to time. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company and its subsidiaries; provided, however, that the Executive may also serve on the boards of directors or trustees of other companies and organizations, as long as such service does not substantially interfere with the performance of his duties hereunder.          5.    Compensation and Related Matters.                   5.1    Base Salary. The Company shall pay the Executive a base salary ("Base Salary") during the period of the Executive's employment hereunder, which shall be at an initial rate of Seven Hundred Thousand Dollars ($700,000.00) per annum. The Base Salary shall be paid in substantially equal bi-weekly installments, in arrears. The Base Salary may be discretionarily increased by the Board from time to time as the Board deems appropriate in its reasonable business judgment. The Base Salary in effect from time to time shall not be decreased during the Term. During the period of the Executive's employment hereunder, the Board shall make an annual review of the Executive's compensation.                   Compensation of the Executive by Base Salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The Base Salary payments (including any increased Base Salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's Base Salary hereunder.                   5.2    Benefit and Incentive Plans. The Executive shall be entitled to participate in or receive compensation and/or benefits, as applicable, under all "employee benefit plans" (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA")), all incentive compensation plans, and all employee benefit arrangements made available by the Company now or during the period of the Executive's employment hereunder to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements; provided, however, that there shall be no duplication of the compensation and benefits created by this Agreement. The Executive's participation in such plans and arrangements shall be on an appropriate level, as determined by the Board.                   Notwithstanding any provision of NYSEG's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, if the Executive's service with the Company or NYSEG from September 9, 1996 exceeds five full years, there shall be paid to the Executive under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by giving the Executive, for purposes of that plan, service credit for three years of service for each of the Executive's actual years of service. Notwithstanding the foregoing sentence of this Section 5.2, and any provision of NYSEG's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, if the Executive Retires from the Company subsequent to April 15, 2004, there shall instead be paid to the Executive under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by (i) giving the Executive, for purposes of that plan, service credit for 40 years of service, (ii) deeming the Executive to be a "Key Person" as defined in, and for all purposes under, that plan and (iii) deeming the Executive's "highest three years of earnings within the last ten years of employment" for purposes of that plan to be equal to the Executive's Base Salary at the rate in effect at the time he Retires.                   During the Term of this Agreement, the Company will, on each January 5, beginning January 5, 2001, pay the premium on a Whole Life Insurance Policy issued by The Guardian Life Insurance Company of New York, Policy No. 3813573, on the life of the Executive (the "Life Insurance Policy"); provided that in no event shall the Company pay on any such date more than $96,000 toward payment of such premium and provided that the Company shall not pay such premium if the Executive's employment has been terminated for any reason prior to such January 5, except as otherwise provided in Sections 6 and 9.1(E) hereof.                   5.3    Expenses. Upon presentation of reasonably adequate documentation to the Company, the Executive shall receive prompt reimbursement from the Company for all reasonable and customary business expenses incurred by the Executive in accordance with the Company policy in performing services hereunder. The Company agrees to reimburse the Executive for any expenses he incurs in moving himself and his family from Pittsburgh, PA to any state in the Northeast.                   5.4    Vacation. The Executive shall be entitled to five (5) weeks of vacation during each year of this Agreement, or such greater period as the Board shall approve, without reduction in salary or other benefits.                   5.5    Bonuses. In recognition of the Executive's performance and for services rendered or to be rendered to the Company, the Company shall pay to the Executive on April 30, 2001 a bonus of $700,000.00, provided the Executive remains employed by the Company on April 23, 2001. If at any time prior to April 23, 2001, the Executive's employment is terminated due to the Executive's death or Disability, or by the Company without Cause or by the Executive for Good Reason, the Company shall pay to the Executive, within five (5) days of the Date of Termination, the unpaid amount due pursuant to this Section 5.5.          6.    Compensation Related to Disability. During the Term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's Base Salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability; provided, however, that such Base Salary payments shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such Base Salary payment under disability benefit plans of the Company or under the Social Security disability insurance program, which amounts were not previously applied to reduce any such Base Salary payment; and provided further, however, that if the Executive's employment is terminated by the Company for Disability, the Company will pay through the end of the Term of this Agreement, the amount the Company agreed to pay in connection with the Life Insurance Policy referred to in the third paragraph of Section 5.2 hereof and any unpaid amount the Company agreed to pay pursuant to Section 5.5 hereof. Subject to Sections 8 and 9 hereof, after completing the expense reimbursements required by Section 5.3 hereof and making the payments and providing the benefits required by this Section 6, the Company shall have no further obligations to the Executive under this Agreement.          7.    Compensation Related to Termination. If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's Base Salary (to the Executive or in accordance with Section 13.2 if the Executive's employment is terminated by his death) through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period. If the Executive's employment is terminated in connection with the Executive's death, the Company shall pay any unpaid amount it agreed to pay pursuant to Section 5.5 hereof. Subject to Sections 6, 8 and 9 hereof, after completing the expense reimbursements required by Section 5.3 hereof and making the payments and providing the benefits required by this Section 7, the Company shall have no further obligations to the Executive under this Agreement.          8.    Normal Post-Termination Payments Upon Termination of Employment. If the Executive's employment shall be terminated for any reason during the Term of this Agreement, the Company shall pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due. Subject to Section 9.1 hereof and the second paragraph of Section 5.2 hereof, such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements (other than this Agreement).          9.    Severance Payments.                   9.1    The Company shall pay the Executive the payments described in this Section 9.1 (the "Severance Payments") upon the termination of the Executive's employment prior to the end of the Term, in addition to the payments and benefits described in Sections 7 and 8 hereof and any unpaid amount the Company agreed to pay pursuant to Section 5.5 hereof, unless such termination is (i) by the Company for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason.          (A)   In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the sum of: (i)    the Executive's annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based, and (ii)    the average of the three most recent incentive compensation awards earned by the Executive under the Company's Annual Executive Incentive Plan (the "AEIP"), or any successor annual executive incentive compensation plan, before the Date of Termination.          (B)   Notwithstanding any provision of the AEIP or any successor annual executive incentive compensation plan, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year preceding the Date of Termination under the AEIP, or any successor annual executive incentive compensation plan, but has not yet been either (x) paid (pursuant to Section 7 hereof or otherwise) or (y) deferred pursuant to the Company's Deferred Compensation Plan for Salaried Employees, and (ii) a pro-rata portion to the Date of Termination of the aggregate value of any contingent incentive compensation award to the Executive for any uncompleted fiscal year under the AEIP or any successor annual executive incentive compensation plan, calculated by assuming that the Maximum Earnings Level (as defined in the AEIP) had been achieved and that the Executive's Level of Achievement (as defined in the AEIP) were one hundred percent (or in the case of any such successor plan, that maximum performance with respect to all applicable performance goals had been achieved), with such pro-rata amount being reduced (but not below zero) by any amounts paid to the Executive with respect to such uncompleted fiscal year pursuant to Article XI(A)(iii) of the AEIP, or any comparable provision of any such successor plan, as a result of a Change-in-Control that occurs during such uncompleted fiscal year.          (C)   The second paragraph of Section 5.2 hereof shall be inapplicable, and notwithstanding any provision of NYSEG's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, the Company shall pay to the Executive under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) an amount that shall be determined by (i) deeming the Executive (a) to have 40 years of service credit, for purposes of that plan, (b) to be at least 60 years of age and (c) to be a "Key Person" as defined in, and for all purposes under, that plan and (ii) deeming the Executive's "highest three years of earnings within the last ten years of employment" for purposes of that plan to be equal to the Executive's Base Salary as determined pursuant to Section 9.1(A)(i) hereof; and such benefits shall be determined without regard to any amendment to NYSEG's Supplemental Executive Retirement Plan (or any successor plan) made subsequent to a Change-in-Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder.          Notwithstanding any provision in NYSEG's Supplemental Executive Retirement Plan (or any successor plan) that may be to the contrary, the benefits otherwise payable to the Executive pursuant to this Section 9.1(C) shall be paid to the Executive in a lump sum payment that is equal in amount to the present value (calculated under generally accepted actuarial methods that are consistent with the actuarial methods used in producing the tables of Appendix A of NYSEG's Retirement Benefit Plan (or any successor plan)) of such benefits and such payment shall be in lieu of any payments to which the Executive otherwise would have been entitled under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) and shall satisfy any obligations that the Company would otherwise have to the Executive under NYSEG's Supplemental Executive Retirement Plan (or any successor plan). Such lump sum payment shall be paid to the Executive no later than the due date of the first payment that is or would be due to the Executive under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) assuming that the Executive were entitled to receive payments thereunder.          Notwithstanding the immediately preceding paragraph of this Section 9.1(C), the Executive may elect to have the benefits otherwise payable to the Executive pursuant to this Section 9.1(C) be paid to the Executive in the manner provided for under NYSEG's Supplemental Executive Retirement Plan (or any successor plan) and such method of payment shall be in lieu of a lump sum payment. The Executive shall make such election by sending a letter to the Company in which he states that he has decided to make such election. The election shall not be effective unless the letter is received by the Company (i) at least 90 days prior to the Date of Termination and (ii) prior to the first day of the calendar year in which the Date of Termination occurs. The Executive shall have the right to revoke any such election by sending a letter to the Company in which he states that he has decided to revoke such election. The revocation of such election shall not be effective unless the letter is received by the Company (i) at least 90 days prior to the Date of Termination and (ii) prior to the first day of the calendar year in which the Date of Termination occurs. If the Executive revokes an election, he can make a new election (in the manner, and subject to the timing requirements, set forth in this paragraph), and he can revoke any such new election (in the manner, and subject to the timing requirements, set forth in this paragraph).          (D)   For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life (other than the Life Insurance Policy), disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits constituting a basis for a termination by the Executive of his employment for Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 9.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). If the benefits provided to the Executive under this Section 9.1(D) shall result in a Gross-Up Payment pursuant to Section 9.2, and these Section 9.1(D) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Gross-Up Payment shall be recalculated so as to reflect that reduction, and the Executive shall refund to the Company an amount equal to any calculated reduction in the Gross-Up Payment, but only if, and to the extent, the Executive receives a refund of any Excise Tax previously paid by the Executive pursuant to Section 9.2 hereof.          (E)   The Company shall pay to The Guardian Life Insurance Company of New York such lump-sum amount as is necessary to result in the Life Insurance Policy being a policy upon which no future premiums are due.                   9.2     (A)   Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to or on behalf of the Executive an additional payment ("Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.                           (B)   Subject to the provisions of Section 9.2(C) hereof, all determinations required to be made under this Section 9.2, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by the Company's principal outside accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Board and the Executive within fifteen (15) business days of the Date of Termination and/or such earlier date(s) as may be requested by the Company or the Executive (each such date and the Date of Termination shall be referred to as a "Determination Date," for purposes of this Section 9.2(B) and Section 9.3 hereof). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9.2(B), shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm under this Section 9.2(B) shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9.2(C) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.                           (C)   The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of an Underpayment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i)    give the Company any information reasonably requested by the Company relating to such claim, (ii)   take such action in connection with contesting such claim as the Company 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 Company, (iii)   cooperate with the Company in good faith in order effectively to contest such claim, and (iv)   permit the Company to participate in any proceeding relating to such claim; provided, however, that the Company 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 Executive 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 9.2(C), the Company 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 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 shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall 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 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 Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive 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.                   (D)   If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9.2(C) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9.2(C) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9.2(C) hereof, a determination is made that the Executive shall 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 of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid.                   9.3    Except as otherwise specifically provided in Sections 9.1 and 9.2, the payments provided for in Sections 9.1 and 9.2 hereof shall be made not later than the fifth day following the relevant Determination Date, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive or to The Guardian Life Insurance Company as applicable, on such day an estimate, as determined by the Executive, of the minimum amount of such payments to which the Executive or The Guardian Life Insurance Company, as applicable, is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the relevant Determination Date. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code).                   9.4    The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of an event which entitles the Executive to the Severance Payments or any Gross-Up Payments (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.          10.    Termination Procedures.                   10.1    Notice of Termination. During the Term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice 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. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.                   10.2    Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment during the Term of this Agreement, shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (iii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).          11.    No Mitigation. The Company agrees that, if the Executive's employment hereunder is terminated during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company hereunder. Further, the amount of any payment or benefit provided for hereunder (other than pursuant to Section 9.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.          12.    Confidentiality and Noncompetition.                   12.1    The Executive will not, during or after the Term, disclose to any entity or person any information which is treated as confidential by the Company or any of its subsidiaries or affiliates and is not generally known or available in the marketplace, and to which the Executive gains access by reason of his position as an employee or director of the Company or any of its subsidiaries or affiliates (each, an "EE Entity").                   12.2    If, at any time prior to the end of the Term, the Executive terminates his own employment without Good Reason (and not in connection with his Disability, Retirement or death) or the Company terminates his employment with Cause, then for a twelve-month period immediately following his Date of Termination, the Executive shall not, except as permitted by the Company upon its prior written consent, enter, directly or indirectly, into the employ of or render or engage in, directly or indirectly, any services to any person, firm or corporation within the "Restricted Territory," which is a major competitor of any EE Entity with respect to products which any EE Entity is then producing or services any EE Entity is then providing (a "Competitor"). However, it shall not be a violation of the immediately preceding sentence for the Executive to be employed by, or render services to, a Competitor, if the Executive renders those services only in lines of business of the Competitor which are not directly competitive with the primary lines of business of any EE Entity, or are outside of the Restricted Territory. For purposes of this Section 12.2, the "Restricted Territory" shall be the states of Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.                   If, at any time in connection with or following a Change-in-Control, and prior to the end of the Term, the Executive terminates his own employment with Good Reason (and not in connection with his Disability or Retirement) or the Company terminates his employment without Cause, then for a twelve month period immediately following his Date of Termination, the Executive shall not enter into the employ of any person, firm or corporation or any affiliate thereof (as such term is defined in Rule 12b-2 of the Exchange Act) that caused the Change-in-Control.          13.    Successors; Binding Agreement.                   13.1    In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate 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.                   13.2    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 shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) 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 executors, personal representatives or administrators of the Executive's estate.          14.    Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Energy East Corporation Post Office Box 1196 Stamford, Connecticut 06904-1196 Attention: Corporate Secretary To the Executive: Wesley W. von Schack 404 Beaver Road Sewickly, PA 15143          15.    Miscellaneous.                   15.1    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 Executive and such officers as may be specifically designated by the Board. No waiver by any party hereto at any time of any breach by any 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 any party which are not expressly set forth in this Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein, including without limitation the Employment Agreement between the Company and the Executive dated as of April 23, 1999, is hereby terminated and cancelled. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. There shall be withheld from any payments provided for hereunder any amounts required to be withheld under federal, state or local law and any additional withholding amounts to which the Executive has agreed. The obligations under this Agreement of the Company or the Executive which by their nature and terms require satisfaction after the end of the Term shall survive such event and shall remain binding upon such party.                   15.2    References in this Agreement to employee benefit plans, compensation plans, incentive plans, pension plans, disability policies or similar plans, programs or arrangements of the Company include such plans, programs or arrangements of NYSEG if maintained for the benefit of employees of the Company.          16.    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.          17.    Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.          18.    Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York 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.          19.    Definitions. For purposes of this Agreement, the following terms shall have the meaning indicated below:                   (A)    "AEIP" shall have the meaning stated in Section 9.1(A)(ii) hereof.                   (B)    "Base Salary" shall have the meaning stated in Section 5.1 hereof.                   (C)    "Beneficial Owner" shall have the meaning defined in Rule 13-d-3 under the Exchange Act.                   (D)    "Board" shall mean the Board of Directors of the Company.                   (E)    "Cause" for termination by the Company of the Executive's employment, for purposes of this Agreement, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 10.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company.                   (F)    A "Change-in-Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied during the Term: (I)    any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (II)   during any period of two consecutive years (not including any period prior to the date of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph (I), (III) or (IV) of this Change-in-Control definition or a director whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitations of proxies or consents by or on behalf of a Person other than the Board) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (III)   the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, 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), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (IV)   the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets.                   (G)    "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.                   (H)    "Company" shall mean Energy East Corporation and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 19(F) hereof, whether or not any Change-in-Control of the Company has occurred in connection with such succession).                   (I)    "Date of Termination" shall have the meaning stated in Section 10.2 hereof.                   (J)    "Determination Date" shall have the meaning stated in Section 9.2(B) hereof.                   (K)    "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for the maximum number of months applicable to the Executive under the Company's Disability Policy for Salaried Employees (or any successor policy) (but in no event for less than six (6) consecutive months), the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.                   (L)    "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.                   (M)    "Excise Tax" shall have the meaning stated in Section 9.2(A) hereof.                   (N)    "Executive" shall mean the individual named in the first paragraph of this Agreement.                   (O)    "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following: (I)    the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect on the date hereof (including, without limitation, any such alteration after a Change-in-Control attributable to the fact that the Company may no longer be a public company), other than as a result of the change contemplated by the third sentence of Section 4 hereof; (II)   a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III)   the relocation of the Company's Stamford, Connecticut executive offices to a location more than fifty (50) miles from the location of such offices on the date hereof or the Company's requiring the Executive to be based anywhere other than the Company's Stamford, Connecticut executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (IV)   the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's compensation (including compensation pursuant to Section 5.5 hereof), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (V)    any other material breach of this Agreement by the Company; (VI)   after a Change-in-Control, the failure by the Company to continue the Executive's participation in any compensation plan in which the Executive participates on the date of the Change-in-Control which is material to the Executive's total compensation, including but not limited to the AEIP, NYSEG's Long Term Executive Incentive Share Plan, and NYSEG's Supplemental Executive Retirement Plan, or any successor plan, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed on the date of the Change-in-Control; (VII)  after a Change-in-Control, the failure by the Company to continue to provide the Executive with benefits not less favorable in the aggregate than those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating on the date of the Change-in-Control, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits; (VIII) the giving by the Company to the Executive of a notice pursuant to Section 3 hereof that the Term shall not be extended; or (IX)   any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 10.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. In addition, a termination of the Executive's employment by the Executive, regardless of the reason, during the 30-day period immediately following the first anniversary of a Change-in-Control shall be deemed to be a termination for Good Reason for all purposes of this Agreement.                   (P)    "Gross-Up Payment" shall have the meaning stated in Section 9.2(A) hereof.                   (Q)    "Life Insurance Policy" shall have the meaning stated in the third paragraph of Section 5.2 hereof.                   (R)    "Notice of Termination" shall have the meaning stated in Section 10.1 hereof.                   (S)    "NYSEG" shall mean New York State Electric & Gas Corporation.                   (T)    "NYSEG Board" shall mean the Board of Directors of NYSEG.                   (U)    "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.                   (V)    "Retirement" shall be deemed the reason for the termination by the Company or the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, not including early retirement, generally applicable to its salaried employees, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive.                   (W)    "Retires" shall, for purposes of the second paragraph of Section 5.2 hereof, refer to the termination of the Executive's employment in accordance with the Company's retirement policy, not including early retirement (except that, on April 15, 2004, and thereafter, the Executive shall be deemed to have satisfied any normal retirement age requirement of that retirement policy), generally applicable from time to time to its salaried employees, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive.                   (X)    "Severance Payments" shall mean those payments described in Section 9.1 hereof.                   (Y)    "Term" shall have the meaning stated in Section 3 hereof.              IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. ENERGY EAST CORPORATION By:  /s/ Kenneth M. Jasinski               Kenneth M. Jasinski      Executive Vice President and      General Counsel   /s/ Wesley W. von Schack                WESLEY W. VON SCHACK

LASALLE NATIONAL LEASING CORPORATION MASTER LEASE AGREEMENT     THIS MASTER LEASE AGREEMENT (the "Lease") is made as of the 24th day of March, 2000, by and between LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), and LABOR READY PROPERTIES, INC., its successors and permitted assigns ("Lessee").     The parties agree that Lessee shall lease from Lessor the property (the "Equipment") described in the Equipment Schedule(s) to be executed pursuant hereto (collectively, the "Equipment Schedule"), subject to the terms set forth herein, in the Riders annexed hereto and in the Equipment Schedule. Certain definitions and construction of certain of the terms used herein are provided in Section 19 hereof. Each Equipment Schedule shall incorporate by reference the terms and conditions of this Lease. Each Equipment Schedule, incorporating by reference the terms and conditions of this Lease, shall constitute a separate instrument of lease.     1.  TERM.  The term of lease with respect to any item of the Equipment shall consist of the term set forth in the Equipment Schedule relating thereto; provided, however, that this Lease shall be effective from and after the date of execution hereof.     2.  RENT.  Lessee shall pay Lessor the rental installments in the aggregate amounts specified in the Equipment Schedule, without prior notice or demand, and all other amounts payable pursuant to this Lease (such installments and other amounts, the "rent"). Each Equipment Schedule constitutes a non-cancelable net lease, and Lessee's obligation to pay rent, and to otherwise perform its obligations under this Lease, each such Equipment Schedule and all of the other documents and agreements entered in connection herewith (collectively, the "Lease Documents"), are and shall be absolute and unconditional and shall not be affected by any right of setoff, counterclaim, recoupment, deduction, defense or other right which Lessee may have against Lessor, the manufacturer or vendor of the Equipment (the "Suppliers"), or anyone else, for any reason whatsoever. Rental installments are payable as and when specified in the Equipment Schedule by mailing the same to Lessor at its address specified pursuant to this Lease; and payments of rent shall be effective upon receipt. Timeliness of Lessee's payment and its other performance under the Lease Documents is of the essence. If any rent is not paid within five (5) days of the due date, Lessor may collect, and Lessee agrees to pay, a charge (the "Late Charge") calculated as the product of the late charge rate specified in the Equipment Schedule (the "Late Charge Rate") and the amount in arrears for the period such amount remains unpaid after the original due date.     3.  REPRESENTATIONS AND WARRANTIES OF LESSEE.  Lessee represents and warrants that: (a) Lessee is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction specified below the signature of Lessee. (b) The execution, delivery and performance of the Lease Documents: (1) have been duly authorized by all necessary corporate action on the part of Lessee; (2) do not require the approval of any stockholder, trustee or holder of any obligations of Lessee except such as have been duly obtained; and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound. (c) Each of the Lease Documents, when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee, in accordance with the terms thereof. (d) There are no pending actions or proceedings to which Lessee is a party, and there are no other pending or threatened actions or proceedings of which Lessee has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would have a Material Adverse Effect. As used herein, "Material Adverse Effect" shall mean (1) a materially adverse effect on the business, condition (financial or otherwise), operations, performance or properties of Lessee, or (2) a material impairment of the ability of Lessee to perform its obligations under or to remain in compliance with the Lease Documents. Further, Lessee is not in default under any obligation for borrowed money, for the deferred purchase price of property or any -------------------------------------------------------------------------------- lease agreement which, either individually or in the aggregate, would have the same such effect. (e) Under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures. (f) The financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and fairly present Lessee's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations. (g) The address stated below the signature of Lessee is the chief place of business and chief executive office of Lessee.     4.  FINANCIALS FURTHER ASSURANCES AND NOTICES.  Lessee covenants and agrees as follows: (a) Lessee will furnish upon request by Lessor (1) within one hundred twenty (120) days after the end of each fiscal year of Lessee, a balance sheet of Lessee as at the end of such year, and the related statement of income and statement of cash flows of Lessee for such fiscal year, prepared in accordance with GAAP, all in reasonable detail and certified by independent certified public accounts of recognized standing selected by Lessee and reasonably acceptable to Lessor; (2) within sixty (60) days after the end of each quarter, a balance sheet of Lessee as at the end of such quarter, and the related statement of income and statement of cash flows of Lessee for such quarter, prepared in accordance with GAAP; and (3) within thirty (30) days after the date on which they are filed, all regular periodic reports, forms and other filings required to be made by Lessee to the Securities and Exchange Commission, if any. (b) Lessee will promptly execute and deliver to Lessor such further documents, instruments and assurances and take such further action as Lessor from time to time may reasonably request in order to carry out the intent and purpose of this Lease and to establish and protect the right and remedies created or intended to be created in favor of Lessor under the Lease Documents. (c) Lessee shall provide written notice to Lessor: (1) thirty (30) days prior to any contemplated change in the name or address of the chief executive office of the Lessee; (2) promptly upon the occurrence of any Event of Default (as hereinafter defined) or event which, with the lapse of time or the giving of notice, or both, would become an Event of Default (a "Default"); and (3) promptly upon Lessee becoming aware of any alleged violation of applicable law relating to the Equipment or this Lease.     5.  CONDITIONS PRECEDENT.  Lessor's obligations under each Equipment Schedule, including its obligation to purchase and lease any Equipment to be leased thereunder, are conditioned upon Lessors determination that all of the following have been satisfied: (a) Lessor having received the following, in form and substance satisfactory to Lessor (1) evidence as to due compliance with the insurance provisions hereof; (2) Uniform Commercial Code financing statements and all other filings and recordings as required by Lessor, (3) certificate of Lessee's Secretary certifying: (i) resolutions of Lessee's Board of Directors duly authorizing the leasing of the Equipment hereunder and the execution, delivery and performance of this Lease and the Equipment Schedule and all related instruments and documents, and (ii) the incumbency and signature of the officers of Lessee authorized to execute such documents; (4) the only manually executed original of the Equipment Schedule and all other Lease Documents; (5) all purchase documents pertaining to the Equipment (collectively, the "Supply Contract"); and (6) such other documents, agreements, instruments, certificates, opinions, assurances, as Lessor reasonably may require. (b) All representations and warranties provided in favor of Lessor in any of the Lease Documents shall be true and correct on the effective date of such Equipment Schedule with the same effect as though made as of such date (Lessee's execution and delivery of the Equipment Schedule shall constitute an acknowledgment of the same). (c) There shall be no Default or Event of Default under the Equipment Schedule or any other Lease Documents. The Equipment shall have been delivered to and accepted by Lessee, and shall be in the condition and repair required hereby; and on the effective date of the Equipment Schedule, Lessor shall have received good title to the Equipment to be leased thereunder, free and clear of any lien, claim or encumbrance of any kind.     6.  DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE.  Upon delivery, Lessee shall inspect and, to the extent the Equipment conforms to the condition required by the applicable Supply -------------------------------------------------------------------------------- Contract, accept the Equipment and shall execute and deliver to Lessor an Equipment Schedule containing a complete description of the item of Equipment accepted; whereupon, as between Lessor and Lessee, the same shall be deemed to have been finally accepted by Lessee pursuant to this Lease. All expenses incurred in connection with Lessors purchase of the Equipment (including shipment, delivery and installation) shall be the responsibility of Lessee and shall be paid upon demand. If Lessee shall, for reasonable cause, refuse to accept delivery of any item of the Equipment, Lessee will be assigned all rights and shall assume all obligations as purchaser of such items of Equipment which it does not accept.     7.  USE AND MAINTENANCE.   (a) Lessee shall: (1) use the Equipment solely in the Continental United States and in the conduct of its business, for the purpose for which the Equipment was designed, in a careful and proper manner, and shall not permanently discontinue use of the Equipment; (2) operate, maintain, service and repair the Equipment, and maintain all records and other materials relating thereto, (i) in accordance and consistent with (A) the Supplier's recommendations and all maintenance and operating manuals or service agreements, whenever furnished or entered into, including any subsequent amendments or replacements thereof, issued by the Supplier or service provider, (B) the requirements of all applicable insurance policies, (C) the Supply Contract, so as to preserve all of Lessee's and Lessor's rights thereunder, including all rights to any warranties, indemnities or other rights or remedies, (D) all applicable laws, and (E) the prudent practice of other similar companies in the same business as Lessee, but in any event, to no lesser standard than that employed by Lessee for comparable equipment owned or leased by it; (ii) without limiting the foregoing, so as to cause the Equipment to be in good repair and operating condition and in at least the same condition as when delivered to Lessee hereunder, except for ordinary wear and tear resulting despite Lessee's full compliance with the terms hereof; and (iii) shall not discriminate against the Equipment with respect to scheduling of maintenance, parts or service; (3) provide written notice to Lessor not less than thirty (30) days after any change of the location of any Equipment (or the location of the principal garage of any Equipment to the extent that such Equipment is mobile equipment) as specified in the Equipment Schedule; and (4) not attach or incorporate the Equipment to or in any other item of equipment in such a manner that the Equipment may be deemed to have become an accession to or a part of such other item of equipment. (b) Within a reasonable time, Lessee will replace any parts of the Equipment which become worn out, lost, destroyed, damaged beyond repair or otherwise permanently rendered unfit for use, by new or reconditioned replacement parts which are free and clear of all liens, encumbrances or rights of others and have a value, utility and remaining useful life at least equal to the parts replaced. Any modification or addition to the Equipment which is required by law shall be made by Lessee, at its expense. Title to all parts, improvements and additions to the Equipment immediately shall vest in Lessor, without cost or expense to Lessor or any further action by any other person, and such parts, improvements and additions shall be deemed incorporated in the Equipment and subject to the terms of this Lease as if originally leased hereunder, if such parts are required by law or are otherwise essential to the operation of the Equipment or cannot be detached from the Equipment without materially interfering with the operation of the Equipment or adversely affecting the value, utility and remaining useful life which the Equipment would have had without the addition thereof. Lessee shall not make any material alterations to the Equipment without the prior written consent of Lessor. (c) Upon forty-eight (48) hours' notice, Lessee shall afford Lessor access to the premises where the Equipment is located for the purpose of inspecting such Equipment and all applicable maintenance or other records at any reasonable time during normal business hours; provided, however, if a Default or Event of Default shall have occurred and then be continuing, no notice of any inspection by Lessor shall be required. If any discrepancies are found as they pertain to the general condition of the Equipment, Lessor will communicate these discrepancies to Lessee in writing. Lessee shall then have thirty (30) days to rectify these discrepancies at its sole expense. Lessee shall pay all expenses of a re-inspection by Lessor's appointed representative, if corrective measures were required.     8.  DISCLAIMER OF WARRANTIES.  LESSOR IS NOT A SELLER, SUPPLIER OR MANUFACTURER (AS SUCH TERMS ARE DEFINED OR USED, AS THE CASE MAY BE, IN THE UNIFORM COMMERCIAL CODE), OR DEALER, NOR A SELLER'S OR A DEALER'S -------------------------------------------------------------------------------- AGENT. THE EQUIPMENT IS LEASED HEREUNDER "AS IS", AND LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS AGAINST LESSOR RELATING TO, ANY AND ALL WARRANTIES, REPRESENTATIONS OR OBLIGATIONS OFANY KIND WITH RESPECT TO THE EQUIPMENT, EITHER EXPRESS OR IMPLIED, ARISING BY APPLICABLE LAW OR OTHERWISE, INCLUDING ANY OF THE SAME RELATING TO OR ARISING IN OR UNDER (a) MERCHANTABILITY OR FITNESS FOR PAR77CULAR USE OR PURPOSE, (b) COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OR TRADE, OR (c) TORT (WHETHER OR NOT ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT LIABILITY) OR THE UNIFORM COMMERCIAL CODE (INCLUDING ARTICLE 2A, AS HEREINAFTER DEFINED) OR OTHER APPLICABLE LAWWITH RESPECT TO THE EQUIPMENT, INCLUDING ITS TITLE OR FREEDOM FROM LIENS, FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT INFRINGEMENT, FREEDOM FROM LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION, MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW; it being agreed that all such risks, as between Lessor and Lessee, are to be borne by Lessee; and Lessor's agreement to enter into this Lease and any Equipment Schedule is in reliance upon the freedom from and complete negation of liability or responsibility for the matters waived and disclaimed herein. Lessor is not responsible for any direct, indirect, incidental or consequential damage to or losses resulting from the installation, operation or use of the Equipment or any products manufactured thereby. All assignable warranties made by the Supplier to Lessor are hereby assigned to Lessee for and during the term of this Lease and Lessee agrees to resolve all such claims directly with the Supplier. Provided that no Default or Event of Default has occurred and is then continuing, Lessor fully shall cooperate with Lessee with respect to the resolution of such claims, in good faith and by appropriate proceedings at Lessee's expense. Any such claim shall not affect in any manner the unconditional obligation of Lessee to make rent payments hereunder.     9.  FEES AND TAXES.  (a) To the extent permitted by law, Lessee shall file any necessary report and return for, shall pay promptly when due, shall otherwise be liable to reimburse Lessor (on an after-tax basis) for, and agrees to indemnify and hold Lessor harmless from: (i) all titling, recordation, documentary stamp and other fees; and (ii) taxes (other than taxes calculated solely on the basis of net income), assessments and all other charges or withholdings of any nature (together with any penalties, fines or interest thereon); arising at any time upon or relating to the Equipment or this Lease or the delivery, acquisition, ownership, use, operation or leasing or sale of the Equipment, or upon the rent, whether the same be assessed to Lessor or Lessee (any of the foregoing, an "Imposition"). (b) If any report, return or property listing, or any Imposition is, by law, required to be filed by, assessed or billed to, or paid by, Lessor, Lessee at its own expense will do all things required to be done by Lessor (to the extent permitted by law) in connection therewith and is hereby authorized by Lessor to act on behalf of Lessor in all respects, including the contest or protest, in good faith and by appropriate proceedings, of the validity of any Imposition, or the amount thereof. Lessor agrees fully to cooperate with Lessee in any such contest, and Lessee agrees promptly to indemnify Lessor for all reasonable expenses incurred by Lessor in the course of such cooperation. An Imposition or Claim (as hereinafter defined) therefor shall be paid, subject to refund proceedings, if failure to pay would adversely affect the title or rights of Lessor. Provided that no Default or Event of Default has occurred and is continuing, if Lessor obtains a refund of any Imposition which has been paid (by Lessee, or by Lessor and for which Lessor has been reimbursed by Lessee), Lessor shall promptly pay to Lessee the amount of such refund to the extent actually received. If a Default or Event of Default has occurred and is continuing, if Lessor obtains a refund of any Imposition which has been paid (by Lessee, or by Lessor and for which Lessor has been reimbursed by Lessee), Lessor shall promptly apply the net amount of such refund to Lessee's obligations under this Lease and, to the extent of any excess, will promptly pay to Lessee the amount of any excess in accordance with the terms and conditions of this Lease and, specifically, Section 16 hereof. Lessee will cause all billings of such charges to Lessor to be made to Lessor in care of Lessee and will, in preparing any report or return required by law, show the ownership of the Equipment in Lessor, and shall send a copy of any such report or return to Lessor. If -------------------------------------------------------------------------------- Lessee fails to pay any such charges when due, except any Imposition being contested in good faith and by appropriate proceedings as above provided for a reasonable period of time, Lessor at its option may do so, in which event the amount so paid (including any penalty or interest incurred as a result of Lessee's failure), plus interest thereon at the Late Charge Rate, shall be paid by Lessee to Lessor with the next periodic payment of rent.     10.  INTENT, TITLE AND LIENS.  (a) The parties intend and agree that the Equipment shall remain personal property, and that Lessor's title thereto not be impaired, notwithstanding the manner in which it may be affixed to any real property. If requested by Lessor, Lessee shall obtain and deliver to Lessor, from any person having an interest in the property where the Equipment is to be located, waivers of any lien, encumbrance or interest which such person might have or hereafter obtain or claim with respect to the Equipment. (b) It is the express intention of the parties hereto that (1) each Equipment Schedule, incorporating by reference the terms of this Lease, constitutes a true "lease" and a "finance lease" as such terms are defined in the Uniform Commercial Code Article 2A—Leases ("Article 2A") (whether or not Article 2A is then in effect in the State) and not a sale or retention of a security interest; and (2) title to the Equipment shall at all times remain in Lessor, and Lessee shall acquire no ownership, property, rights, equity, or interest other than a leasehold interest, solely as Lessee subject to the terms and conditions hereof. If, notwithstanding the express intent of the parties, a court of competent jurisdiction determines that any Equipment Schedule is not a true lease, but is rather a sale and extension of credit, a lease intended for security, a loan secured by the Equipment specified in such Equipment Schedule, or other similar arrangement, the parties agree that in such event: (i) (A) in order to secure the prompt payment and performance as and when due of all of Lessee's obligations (both now existing and hereafter arising) hereunder and under e ach such Equipment Schedule, Lessee shall be deemed to have granted, and it hereby grants, to Lessor a first priority security interest in the following (whether now existing or hereafter created): the Equipment leased pursuant to such Equipment Schedule and all replacements, substitutions, accessions, and proceeds (cash and non-cash; but without power of sale), including the proceeds of all insurance policies, thereof, and (B) Lessee agrees that with respect to the Equipment, in addition to all of the other lights and remedies available to Lessor hereunder upon the occurrence of an Event of Default, Lessor shall have all of the rights and remedies of a first priority secured party under the UCC; and (ii) (A) the principal amount of any such obligation shall be an amount equal to the aggregate Total Invoice Cost of all Equipment, (B) the term of any such obligation shall be the same as the term specified for such Equipment in the related Equipment Schedule, (C) the payments under any such obligation shall be the regular installments of rent specified in the Equipment Schedule for such Equipment, and (D) any such obligation shall be at an interest rate that is equal to the lesser of the maximum lawful rate permitted by applicable law or the effective interest rate calculated on the basis of the foregoing principal amount, term and payments as if the principal amount were fully amortized over the term of the obligation. For purposes of this sub-part (b), this Lease, the Equipment Schedule, or a photocopy of either thereof may be filed as a financing statement under the UCC. (c) Lessee may not dispose of any of the Equipment except to the extent expressly provided herein, notwithstanding the fact that proceeds constitute a part of the Equipment. (d) Lessee further agrees to maintain the Equipment free from all claims, liens, attachments, rights of others and legal processes ("Liens") of creditors of Lessee or any other persons, other than Liens for fees, taxes, levies, duties or other governmental charges of any kind, Liens of mechanics, materialmen, laborers, employees or suppliers and similar Liens arising by operation of law incurred by Lessee in the ordinary course of business for sums that are not yet delinquent or are being contested in good faith by negotiations or by appropriate proceedings which suspend the collection thereof (provided, however, that such proceedings do not involve any substantial danger (as determined in Lessor's sole reasonable discretion) of the sale, forfeiture or loss of the Equipment or any interest therein). Lessee will defend, at its own expense, Lessor's title to the Equipment from such claims, Liens or legal processes. Lessee shall also notify Lessor promptly upon receipt of notice of any Lien affecting the Equipment in whole or in part.     11.  INSURANCE.  Lessee shall obtain and maintain all-risk insurance coverage with respect to the Equipment insuring against, among other things: casualty coverage, including loss or damage due to fire and the risks normally included in extended coverage, malicious mischief and vandalism, for not -------------------------------------------------------------------------------- less than the full replacement value; "and general liability coverage, including both bodily injury and property damage with a combined single limit per occurrence of not less than the amount specified in the Equipment Schedule, having a deductible reasonably satisfactory to Lessor. All said insurance shall be in form (including all endorsements required by Lessor) and amount and with companies reasonably satisfactory to Lessor. All insurance for loss or damage shall provide that losses, if any, shall be payable to Lessor as loss payee and Lessee shall utilize its best efforts to have all checks relating to any such losses delivered promptly to Lessor. Lessor shall be named as an additional insured with respect to all such liability insurance. Lessee shall pay the premiums therefor and deliver to Lessor evidence satisfactory to Lessor of such insurance coverage. Lessee shall cause to be provided to Lessor, prior to the scheduled expiration or lapse of such insurance coverage, evidence satisfactory to Lessor of renewal or replacement coverage. Each insurer shall agree, by endorsement upon the policy or policies issued by it or by independent instrument furnished to Lessor, that (a) it will give Lessor thirty (30) days' prior written notice of the effective date of any material alteration or cancellation of such policy; and (b) insurance as to the interest of any named additional insured or loss payee other than Lessee shall not be invalidated by any actions, inactions, breach of warranty or conditions or negligence of Lessee or any person other than Lessor with respect to such policy or policies. The proceeds of such insurance payable as a result of loss of or damage to the Equipment shall be applied as required by the provisions of Section 12 hereof.     12.  LOSS AND DAMAGE.  Lessee assumes the risk of direct and consequential loss and damage to the Equipment. Except as provided in this Section for discharge upon payment of Stipulated Loss Value, no loss or damage to the Equipment or any part thereof shall release or impair any obligations of Lessee under this Lease. Lessee agrees that Lessor shall not incur any liability to Lessee for any loss of business, loss of profits, expenses, or any other Claims resulting to Lessee by reason of any failure of or delay in delivery or any delay caused by any non-performance, defective performance, or breakdown of the Equipment, nor shall Lessor at any time be responsible for personal injury or the loss or destruction of any other property resulting from the Equipment. In the event of loss or damage to any item of Equipment which does not constitute a Total Loss (as hereinafter defined), Lessee shall, at its sole cost and expense, promptly repair and restore such item of the Equipment to the condition required by this Lease. Provided that no Default or Event of Default has occurred and is continuing, upon receipt of evidence reasonably satisfactory to Lessor of completion of such repairs, Lessor will apply any insurance proceeds received by Lessor on account of such loss to the cost of repairs. Upon the occurrence of the actual or constructive total loss of any item of the Equipment, or the loss, disappearance, theft or destruction of any item of the Equipment or damage to any item of the Equipment to such extent as shall make repair thereof uneconomical or shall render any item of the Equipment permanently unfit for normal use for any reason whatsoever, or the condemnation, confiscation, requisition, seizure, forfeiture or other taking of title to or taking of use of any item of the Equipment or the imposition of any Lien thereon by any governmental authority (as established to the reasonable satisfaction of Lessor, any such occurrence being herein referred to as a "Total Loss"), during the term of this Lease, Lessee shall give prompt notice thereof to Lessor. On the next date for the payment of rent, Lessee shall pay to Lessor the rent due on that date plus the Stipulated Loss Value of the item or items of the Equipment with respect to which the Total Loss has occurred and any other sums due hereunder with respect to that Equipment (less any insurance proceeds or condemnation award actually paid). Upon making such payment, this Lease and the obligation to make future rental payments shall terminate solely with respect to the Equipment or items thereof so paid for and (to the extent applicable) Lessee shall become entitled thereto AS IS WHERE IS without warranty, express or implied, with respect to any matter whatsoever. Lessor shall deliver to Lessee a bill of sale transferring and assigning to Lessee without recourse or warranty, all of Lessor's right, title and interest in and to such Equipment. Lessor shall not be required to make and may specifically disclaim any representation or warranty as to the condition of the Equipment or any other matters. As used in this Lease, "Stipulated Loss Value" shall mean the product of the Total Invoice Cost (designated on the appropriate Equipment Schedule) of the Equipment and the applicable percentage factor set forth on the Schedule of Stipulated Loss Values attached to the Equipment Schedule. Stipulated Loss Value shall be determined as of the next date on which a payment of rent is or would -------------------------------------------------------------------------------- be due after a Total Loss or other termination of an Equipment Schedule, after payment of any rent due on such date, and the applicable percentage factor shall be that which is set forth with respect to such rent payment. After payment of the final payment of rent due under the original term of this Lease and during any renewal term thereof, Stipulated Loss Value shall be determined as of the date of termination of such Equipment Schedule (absent any renewal thereof) or, if during a renewal term, on the next date on which a payment of rent is or would be due after a Total Loss or other termination of such renewal term, after payment of any rent due on such date, and the applicable percentage factor shall be the last percentage factor set forth on the Schedule of Stipulated Loss Values attached to such Equipment Schedule.     13.  REDELIVERY.  Upon the expiration or earlier termination of the term of any Equipment Schedule (or of any renewal thereof, if applicable), Lessee shall, at its own expense, return the Equipment to Lessor within ten (10) days (a) in the same condition as when delivered to Lessee hereunder, ordinary wear and tear resulting from proper use thereof excepted, (b) in such operating condition as is capable of performing its originally intended use, (c) having been used, operated, serviced and repaired in accordance with, and otherwise complying with, Section 7 hereof, and (d) free and clear of all Liens whatsoever except Liens resulting from claims against Lessor not relating to the ownership of such Equipment. Lessee shall return the Equipment by delivering it to such place within the Continental United States as Lessor shall specify. In addition to Lessors other rights and remedies hereunder, if the Equipment is not returned in a timely fashion, or if repairs are necessary to place any items of Equipment in the condition required in this Section, Lessee shall continue to pay to Lessor per them rent at the last prevailing lease rate under the applicable Equipment Schedule with respect to such items of Equipment, for the period of delay in redelivery, or for the period of time reasonably necessary to accomplish such repairs together with the cost of such repairs, as applicable. Lessor's acceptance of such rent on account of such delay or repair does not constitute a renewal of the term of the related Equipment Schedule or a waiver of Lessor's right to prompt return of the Equipment in proper condition.     14.  INDEMNITY.  Lessee assumes and agrees to indemnify, defend and keep harmless Lessor, and any assignee of Lessor's rights, obligations, title or interests under any Equipment Schedule, its agents and employees ("Indemnitees"), from and against any and all Claims (other than such as may directly and proximately result from the negligence or willful misconduct of, such Indemnitees), by paying (on an after-tax basis) or otherwise discharging same, when and as such Claims shall become due. It is the express intention of both Lessor and Lessee, that the indemnity provided for in this Section includes the agreement by Lessee to indemnify the Indemnitees with respect to Claims for which the Indemnitees are strictly liable as a result of such Indemnitees' legal title to the Equipment. Lessor shall give Lessee prompt notice of any Claim hereby indemnified against and Lessee shall be entitled to control the defense thereof, so long as no Default or Event of Default has occurred and is then continuing; provided, however, that Lessor shall have the right to approve defense counsel selected by Lessee. For the purposes of this Lease, the term "Claims" shall mean all claims, allegations, harms, judgments, good faith settlements entered into, suits, actions, debts, obligations, damages (whether incidental, consequential or direct), demands (for compensation, indemnification, reimbursement or otherwise), losses, penalties, fines, liabilities (including strict liability), charges that Lessor has incurred or for which it is responsible, in the nature of interest, Liens, and costs (including attorneys' fees and disbursements and any other legal or non-legal expenses of investigation or defense of any Claim, whether or not such Claim is ultimately defeated or enforcing the rights, remedies or indemnities provided for hereunder, or otherwise available at law or equity to Lessor), of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, by or against any person, arising on account of (a) any Lease Document, or (b) the Equipment, or any part thereof, including the ordering, acquisition, delivery, installation or rejection of the Equipment, the possession, maintenance, use, condition, ownership or operation of any item of Equipment, and by whomsoever owned, used or operated, during the term of any Equipment Schedule with respect to that item of Equipment, the existence of latent and other defects (whether or not discoverable by Lessor or Lessee), any claim in tort for negligence or strict liability, and any claim for patent, trademark or copyright -------------------------------------------------------------------------------- infringement, or the loss, damage, destruction, removal, return, surrender, sale or other disposition of the Equipment, or any item thereof.     15.  DEFAULT.  (a) A default shall be deemed to have occurred hereunder and under an Equipment Schedule upon the occurrence of any of the following (each, an "Event of Default"): (1) Lessee shall fail to make any payment of rent hereunder or under an Equipment Schedule within five (5) Business Days after written notice from Lessor that the same shall have become due; or (2) Lessee shall fail to obtain and maintain the insurance required herein; or (3) Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by ft under any Lease Document and such failure shall continue unremedied for a period of thirty (30) days after written notice thereof to Lessee by Lessor, or (4) Lessee shall (i) be generally not paying its debts as they become due; or (ii) take action for the purpose of invoking the protection of any bankruptcy or insolvency law, or any such law is invoked against or with respect to Lessee or its property, and any such petition filed against Lessee is not dismissed within sixty (60) days; or (5) Lessee shall make or permit any unauthorized Lien against, or assignment or transfer of, this Lease, an Equipment Schedule, the Equipment, or any interest therein; or (6) any certificate, statement, representation, warranty or audit contained herein or furnished with respect hereto by or on behalf of Lessee proving to have been false in any material respect at the time as of which the facts therein set forth were stated or certified, or having omitted any substantial contingent or unliquidated liability or Claim against Lessee; or (7) Lessee shall be in default under any (i) loan, lease, guaranty, installment sale or other financing agreement or contract, of which Lessor, or any of its affiliates, is a party or beneficiary, or (ii) material obligation for the payment of borrowed money, for the deferred purchase price of property or any payment under any lease agreement, and such default shall have been declared; or (8) Lessee shall have terminated its corporate existence, consolidated with, merged into, or conveyed or leased substantially all of its assets as an entirety to any person (such actions being referred to as an "Event"), unless: (i) such person executes and delivers to Lessor an agreement satisfactory in form and substance to Lessor, in its sole discretion, containing such person's effective assumption, and its agreement to pay, perform, comply with and otherwise be liable for, in a due and punctual manner, all of Lessee's obligations having previously arisen, or then or thereafter arising, under any and all of the Lease Documents; and (ii) Lessor is satisfied as to the creditworthiness of such person, and as to such person's conformance to the other standard criteria then used by Lessor for such purposes; or (9) if Lessee is a privately held corporation and effective control of Lessee's voting capital stock, issued and outstanding from time to time, is not retained by the present stockholders (unless Lessee shall have provided thirty (30) days'prior written notice to Lessor of the proposed disposition of stock and Lessor shall have consented thereto in writing); or (110) if Lessee is a publicly held corporation fifty (50) percent or more of Lessee's capital stock is not owned or controlled by Lessee or its affiliates, unless Lessor is satisfied as to the creditworthiness of Lessee and as to Lessee's conformance to the other standard criteria then used by Lessor for such purpose immediately after such change of ownership. (b) The occurrence of an Event of Default with respect to any Equipment Schedule shall, at the sole discretion of Lessor, constitute an Event of Default with respect to any or all Equipment Schedules to which it is then a party. Notwithstanding anything set forth herein, Lessor may exercise all rights and remedies hereunder independently with respect to each Equipment Schedule.     16.  REMEDIES.  Upon the occurrence of any Event of Default under the provisions of Section 15 hereof, Lessor may, at its option, declare this Lease and any Equipment Schedule to be in default. At any time after cancellation of an Equipment Schedule or after declaration by Lessor that such Equipment Schedule is in default. Lessor may, in addition to any other remedies provided herein or by applicable law, upon five (5) days' prior notice to Lessee, exercise one or more of the following remedies as Lessor in its sole discretion shall elect:     (a) Require Lessee to assemble any or all of the Equipment at the location to which the Equipment was delivered or the location to which such Equipment may have been moved by Lessee or such other location in reasonable proximity to either of the foregoing as Lessor shall designate; and/or to return promptly, at Lessee's expense, any or all of the Equipment to Lessor at the location, in the condition and otherwise in accordance with all of the terms of Section 13 -------------------------------------------------------------------------------- hereof; and/or take possession of and render unusable by Lessee any or all of the Equipment, wherever it may be located, without any court order or other process of law and without liability for any damages occasioned by such taking of possession (other than to premises) (any such taking of possession shall constitute an automatic cancellation of the Equipment Schedule pertaining thereto, as it applies to those items taken without further notice, and such taking of possession shall not prohibit Lessor from exercising its other remedies hereunder).     (b) Sell, re-lease or otherwise dispose of any or all of the Equipment, whether or not in Lessor's possession, in a commercially reasonable manner at public or private sale with notice to Lessee (the parties agreeing that ten (10) days' prior written notice shall constitute adequate notice of such sale), with the right of Lessor to purchase and apply the net proceeds of such disposition, after deducting all costs incurred by Lessor in connection with such Event of Default and all costs of such sale, re-lease or other disposition (including but not limited to costs of transportation, possession, storage, refurbishing, advertising and brokers' fees), to the obligations of Lessee pursuant to this sub-part (b), with Lessee remaining liable for any deficiency and with any excess being retained by Lessor; or retain any or all of the Equipment; and recover from Lessee damages, not as a penalty, but herein liquidated for all purposes as follows:     (1) if Lessor elects to dispose of the Equipment under an Equipment Schedule pursuant to a lease which is substantially similar to this Lease and such Equipment Schedule: an amount equal to the sum of (A) any accrued and unpaid rent and other sums then due under this Lease and such Equipment Schedule as of the date of commencement (the "Commencement Date") of the term of the new lease, and (B) (i) the present value as of the Commencement Date of the total rent for the then remaining term of such Equipment Schedule, minus (ii) the present value as of the Commencement Date of the rent under the new lease applicable to that period of the new lease term which is comparable to the then remaining term of such Equipment Schedule, and (C) any incidental damages allowed under Article 2A, less expenses saved by Lessor in consequence of the Event of Default CIncidental Damages");     (2) if Lessor elects to retain the Equipment or to dispose of the Equipment under an Equipment Schedule by sale, by re-lease (pursuant to a lease which is not substantially similar to this Lease and such Equipment Schedule), or otherwise: an amount equal to the sum of (A) any accrued and unpaid rent and other sums then due as of the date Lessor repossesses the Equipment or such earlier date as Lessee tenders possession of the Equipment to Lessor, (B) (i) the present value as of the date determined under clause (A) of the total rent for the then remaining term of such Equipment Schedule, minus (H) the present value, as of that certain date which may be determined by taking a reasonable opportunity to repossess and remarket the Equipment, of the "market rent" (as computed pursuant to Article 2A) at the place where the Equipment was located on that date, computed for the same lease term, and (C) any Incidental Damages (provided, however, that if the measure of damages provided is inadequate to put Lessor in as good a position as performance would have, the damages shall be the present value of the profit, including reasonable overhead, Lessor would have made from full performance by Lessee, together with any Incidental Damages allowed under Article 2A, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition);     (3) if, with respect to an Equipment Schedule, Lessor has not repossessed the Equipment, or if Lessor has repossessed the Equipment or Lessee has tendered possession of the Equipment to Lessor and Lessor is unable after reasonable effort to dispose of the Equipment at a reasonable price or the circumstances reasonably indicate that such an effort will be unavailing: an amount equal to the sum of (A) accrued and unpaid rent and other sums then due as of the date of entry of judgment in favor of Lessor, (B) the present value as of the date determined under clause (A) of the rent for the then remaining term of such Equipment Schedule, and (C) any Incidental Damages. Lessor may dispose of the Equipment at any time before collection of a judgment for damages. If the disposition is before the end -------------------------------------------------------------------------------- of the remaining term of such Equipment Schedule, Lessor's recovery against Lessee for damages will be governed by sub-part (b)(1) or (2) (as applicable), and Lessor will cause an appropriate credit to be provided against any judgment for damages to the extent that the amount of the judgment exceeds the applicable recovery pursuant to sub-part (b)(1) or (2).     Notwithstanding anything to the contrary set forth in this Section 16(b), in addition to the liquidated damages specified in sub-parts (1) and (2) hereof, Lessee shall also pay to Lessor all reasonable legal fees and other expenses incurred by reason of any Event of Default or the exercise of Lessor's remedies, including all reasonable expenses incurred in connection with the return of any Equipment in accordance with the terms of Section 13 hereof or in placing such Equipment in the condition required by said Section, and all pre-judgment and post-judgment enforcement-related activities.     (c) In lieu of the damages specified in sub-part (b), with respect to each applicable Equipment Schedule, Lessor may recover from Lessee, as liquidated damages for loss of a bargain and not as a penalty, an amount calculated as the sum of: (1) the greater of either (A) the Stipulated Loss Value of the Equipment (determined as of the next date on which a payment is or would have been due after the occurrence of the subject Event of Default), together with all other sums due under such Equipment Schedule as of such determination date, or (B) all sums due and to become due under such Equipment Schedule for the full term thereof (including any tax indemnities becoming due as a result of the Event of Default, and any mandatory purchase or renewal options which Lessee has contracted to pay) (provided that all sums becoming due after the occurrence of such Event of Default shall be discounted to present value as of the date of payment by Lessee) plus Lessor's estimated residual interest in the Equipment; plus (2) the amount of all commercially reasonable costs and expenses incurred by Lessor in connection with repossession, recovery, storage, repair, sale, re-lease or other disposition of the Equipment, including reasonable attorneys' fees and costs incurred in connection therewith or otherwise resulting from the Event of Default; minus (3) if Lessor has repossessed the Equipment, the amount calculated pursuant to clause (B) (ii) of sub-part (b)(1) or (2) (as applicable).     (d) Cancel such Equipment Schedule as to any or all of the Equipment.     (e) Proceed by appropriate court action, either at law or in equity (including an action for specific performance), to enforce performance by Lessee or to recover damages associated with such Event of Default; or exercise any other right or remedy available to Lessor at law or in equity.     All amounts to be present valued shall be discounted at the implicit rate of the Equipment Schedule. Unless otherwise provided above, a cancellation of any Equipment Schedule shall occur only upon written notice by Lessor toLessee and only with respect to such items of the Equipment as Lessor specifically elects to cancel in such notice. Except as to such items of the Equipment with respect to which there is a cancellation, this Lease and the Equipment Schedules not so cancelled shall remain in full force and effect and Lessee shall be and remain liable for the full performance of all its obligations hereunder and thereunder. Lessee shall be liable for all reasonable legal fees and other expenses incurred by reason of any Default or Event of Default or the exercise of Lessors rights or remedies, including all expenses incurred in connection with the return of any Equipment in accordance with the terms of Section 13 hereof and this Section or in placing such Equipment in the condition required by said Sections, and all other pre-judgment and post-judgment enforcement related actions taken by Lessor. Lessee shall also be liable for Late Charges which shall accrue and be payable with respect to all amounts becoming due pursuant to this Section from and after the due date therefor until payment of the full amount thereof is made. No right or remedy referred to in this Section is intended to be exclusive, but each shall be cumulative and shall be in addition to any other remedy referred to above or otherwise available at law or in equity, and may be exercised concurrently or separately from time to time. The failure of Lessor to exercise the rights granted hereunder upon any Event of Default by Lessee shall not constitute a waiver of any such right upon the continuation or reoccurrence of any -------------------------------------------------------------------------------- such Event of Default. In no event shall the execution of an Equipment Schedule constitute a waiver by Lessor of any pre-existing Event of Default in the performance of the terms and conditions hereof.     17.  ASSIGNMENT.  (a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH SHALL NOT UNREASONABLY BE WITHHELD), LESSEE WILL NOT ASSIGN, TRANSFER OR ENCUMBER ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER OR UNDER ANY EQUIPMENT SCHEDULE, OR ITS LEASEHOLD INTEREST, SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANYONE BUT LESSEE. No assignment or sublease, whether authorized in this Section or in violation of the terms hereof, shall relieve Lessee of its obligations, and Lessee shall remain primarily liable, hereunder and under each Equipment Schedule. Any unpermitted assignment, transfer, encumbrance, delegation or sublease by Lessee shall be void ab initio. (b) Lessor may assign any or all of its rights, obligations, title and interest hereunder, or the right to enter into any Equipment Schedule, or may resell (through syndication, assignment, participation or placement) an interest in any or all of the Equipment, this Lease or any Equipment Schedule. Lessee agrees that it will pay all rent and other amounts payable under each Equipment Schedule to the "Lessor" named therein; provided, however, if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and other amounts payable under any assigned Equipment Schedule to such assignee or as instructed by Lessor and such assignee. Each Equipment Schedule, incorporating by reference the terms and conditions of this Lease, constitutes a separate instrument of lease, and the "Lessor" named therein or its assignee shall have all rights as "Lessor" thereunder separately exercisable by such named Lessor or assignee as the case may be, exclusively and independently of Lessor or any assignee with respect to other Equipment Schedules executed pursuant hereto. Lessee agrees to confirm in writing receipt of any notice of assignment, syndication, participation or placement, as reasonably may be requested by Lessor or any such assignee or participant (collectively, the "Assignee"). Lessee hereby waives and agrees not to assert against any such Assignee any defense, setoff, recoupment, claim or counterclaim which Lessee has or may at any time hereafter have against Lessor or any person other than such Assignee, for any reason whatsoever. Lessee will provide reasonable assistance to Lessor in whatever manner necessary in order to permit Lessor to complete any resale, syndication, assignment, participation or placement of the transaction contemplated by this Lease. Lessee agrees that any such assignment shall not materially change Lessee's duties or -obligations under the Lease or any Equipment Schedule nor materially increase Lessee's risks or burdens. Upon such assignment and except as may otherwise be provided therein all references in this Lease to Lessor shall include such assignee. (c) Subject always to the foregoing, this Lease and each Equipment Schedule inure to the benefit of, and are binding upon, the successors and assigns of the parties hereto and thereto, as the case may be.     18.  MISCELLANEOUS.  (a) This Lease, the Riders annexed hereto, each Equipment Schedule and any commitment letter between the parties, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall not be rescinded, amended or modified in any manner except by a document in writing executed by both parties. (b) Any provision of this Lease 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (c) The representations, warranties and covenants of Lessee herein shall be deemed to be continuing and to survive the execution and delivery of this Lease, each Equipment Schedule and any other Lease Documents. Each execution by Lessee of an Equipment Schedule shall be deemed a reaffirmation and warranty that there shall have been no material adverse change in the business or financial condition of Lessee from the date of execution hereof. With respect to each Equipment Schedule, the obligations of Lessee under Sections 7, 8, 9, 10, 13 and 14 hereof, together with any of Lessee's obligations under the other provisions of this Lease (as incorporated therein) which have accrued but not been fully satisfied, performed or complied with prior to the cancellation or termination of such Equipment Schedule, shall survive the cancellation or termination thereof to the extent necessary for the full and complete performance of such obligations. (d) Lessor represents and covenants to Lessee that Lessor has full authority to enter into this Lease -------------------------------------------------------------------------------- and any other Lease Documents to which it may become a party, and so long as no Default or Event of Default occurs with respect to an Equipment Schedule, neither Lessor nor any person authorized by Lessor shall interfere with Lessee's right to peaceably and quietly possess and use the Equipment during the term thereof, subject to the terms and provisions hereof. (e) Expenses incurred by Lessor in connection with (1) the filing or recording of real property waivers and Uniform Commercial Code statements, and (2) lien search reports and copies of filings with respect to Lessee and/or the Equipment, shall be for the account of Lessee and shall be payable by Lessee upon demand. (0 If Lessee fails to perform any of its obligations hereunder with respect to an Equipment Schedule, Lessor shall have the right, but shall not be obligated, to effect such performance, and the amount of any out of pocket and other reasonable expenses of Lessor incurred in connection with such performance, together with interest thereon at the Late Charge Rate, shall be payable by Lessee upon demand. Lessors effecting such compliance shall not be a waiver of Lessee's default. (g) Lessee irrevocably appoints Lessor as Lessee's attorney-in-fact (which power shall be deemed coupled with an interest) to execute, endorse and deliver any UCC statements and any documents and checks or drafts relating to or received in payment for any loss or damage under the policies of insurance required by the provisions of Section 11 hereof, but only to the extent that the same relates to the Equipment. (h) LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSEE AND/OR LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE. LESSEE AUTHORIZES LESSOR TO FILE THIS PROVISION WITH THE CLERK- OR JUDGE OF ANY COURT HEARING ANY SUCHCLAIM. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS LEASE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE PARTIES AND THE PARTIES HEREBY ACKNOWLEDGE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. LESSOR AND LESSEE FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. (i) All notices (excluding billings and communications in the ordinary course of business) hereunder shall be in writing, personally delivered, delivered by overnight courier service or sent by certified mail, return receipt requested, addressed to the other party at its respective address stated below the signature of such party or at such other address as such party shall from time to time designate in writing to the other party; and shall be effective from the date of receipt. 0) This Lease and all of the other Lease Documents shall not be effective unless and until accepted by execution by an officer of Lessor at the address, in the State of Maryland (the "State"), as set forth below the signature of Lessor. THIS LEASE AND ALL OF THE OTHER LEASE DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER'AND THEREUNDER, SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF THE STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT. The parties agree that any action or proceeding arising out of or relating to this Lease may be commenced in any state or Federal court in the State, and agree that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served personally or by certified mail to it at its address hereinbelow set forth, or as it may provide in writing from time to time, or as otherwise provided under the laws of the State. (k) This Lease and all of the other Lease Documents may be executed in any number of counterparts and by different parties hereto or thereto on separate counterparts, each of—which, when so executed and delivered, shall be an original, but all such counterparts shall together consist of but one and the same instrument; provided, however, that to the extent that this Lease and/or the Equipment Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable -------------------------------------------------------------------------------- jurisdiction, no security interest herein or therein may be created through the transfer or possession of this Lease in and of itself without the transfer or possession of the original of such Equipment Schedule and incorporating the Lease by reference; and no security interest in this Lease and an Equipment Schedule may be created by the transfer or possession of any counterpart of such Equipment Schedule other than the original thereof, which shall be identified as the document marked "Original" and all other counterparts shall be marked "Duplicate".     19.  DEFINITIONS AND RULES OF CONSTRUCTION.  (a) The following terms when used in this Lease or in any of the Equipment Schedules have the following meanings: (1) "applicable law" or "law": any law, rule, regulation, ordinance, order, code, common law, interpretation, judgment, directive, decree, treaty, injunction, writ, determination, award, permit or similar norm or decision of any governmental authority; (2) "business day": any day, other than a Saturday, Sunday, or legal holiday for commercial banks under the laws of the State; (3) "UCC" or "Uniform Commercial Code": the Uniform Commercial Code as in effect in the State or in any other applicable jurisdiction; and any reference to an article (including Article 2A) or section thereof shall mean the corresponding article or section (however termed) of any such other applicable version of the Uniform Commercial Code; (4) "governmental authority": any federal, state, county, municipal, regional or other governmental authority, agency, board, body, instrumentality or court, in each case, whether domestic or foreign: and (5) "person": any individual, corporation, partnership, joint venture, or other legal entity or a governmental authority, whether employed, hired, affiliated, owned, contracted with, or otherwise related or unrelated to Lessee or Lessor. (b) The following terms when used herein or in any of the Equipment Schedules shall be construed as follows: "herein," "hereof,""hereunder," etc.: in, of, under, etc. this Lease or such other Lease Document in which such term appears (and not merely in, of, under, etc. the section or provision where the reference occurs); "including": containing, embracing or involving all of the enumerated items, but not limited to such items unless such term is followed by the words "and limited to," or similar words; and "or": at least one, but not necessarily only one, of the alternatives enumerated. Any defined term used in the singular preceded by "any" indicates any number of the members of the relevant class. Any Lease Document or other agreement or instrument referred to herein means such agreement or instrument as supplemented and amended from time to time. Any reference to Lessor or Lessee shall include their permitted successor's and assigns. Any reference to a law shall also mean such law as amended, superseded or replaced from time to time. Unless otherwise expressly provided herein to the contrary, all actions that Lessee takes or is required to take under any Lease Document shall be taken at Lessee's sole cost and expense, and all such costs and expenses shall constitute Claims and be covered by Section 14 hereof. To the extent Lessor is required to give its consent or approval with respect to any matter, the reasonableness of Lessor's withholding of such consent shall be determined based on the then existing circumstances; provided, that Lessor's withholding of its consent shall be deemed reasonable for all purposes if (i) the taking of the action that is the subject of such request, might result (in Lessor's discretion), in (A) an impairment of Lessors rights, title or interests hereunder or under any Equipment Schedule or other Lease Document, or to the Equipment, or (B) expose Lessor to any Claims, or (ii) to the extent Lessee fails to provide promptly to Lessor any filings, certificates, opinions or indemnities specified by Lessor to Lessee in writing. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Master Lease Agreement to be duly executed, under seal, -as of the day and year first above set forth.   LASALLE NATIONAL LEASING CORPORATION Lessor           By: /s/ Name: Thomas M. Jaschik Title: Group Senior Vice President       (SEAL)   502 Washington Avenue Suite 800 Towson, Maryland 21204 Facsimile: (410) 769-9313           LABOR-READY PROPERTIES, INC.           By: /s/ Name: Robert H. Sovern Title: Assistant Treasurer       (SEAL)   1016 South 281hStreet Attn: CDM Department Tacoma, Washington 98409 Federal Employer Identification No.: 22-3606728 Jurisdiction of Organization: Nevada           with a copy to: General Counsel         -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION MASTER LEASE GUARANTY     This Master Lease Guaranty is executed and delivered by LABOR READY, INC. ("Guarantor") in favor of LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), in connection with that certain Master Lease Agreement dated as of March 24, 2000, together with all Equipment Schedules executed or to be executed pursuant thereto (the "Lease"), by and between Lessor and Labor Ready Properties, Inc., its successors and assigns ("Lessee").     In order to induce Lessor to enter into the Lease (execution and delivery hereof being a condition precedent to Lessor's obligations under the Lease), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby UNCONDITIONALLY GUARANTEES (a) to pay Lessor in lawful money of the United States all rents and other sums reserved in the Lease, or any substitutions therefor, in the amounts, at the times and in the manner set forth in the Lease; and (b) to perform, at the time and in the manner set forth in the Lease, all of the terms, covenants and conditions therein required to be kept, observed or performed by Lessee (collectively, the "Obligations").     1.  This Guaranty is a continuing one and shall terminate only upon full payment of all rents and all other sums due under the Lease and the performance of all of the terms, covenants and conditions therein required to be kept, observed or performed by Lessee, including such payment and performance under all schedules made a part of said Lease, whether to be performed before or after the last rent payment has been made under the Lease. This Guaranty is a guaranty of prompt payment and performance (and not merely a guaranty of collection).     2.  Guarantor authorizes Lessor, with Lessee's consent where required, without notice or demand, and without affecting its liability hereunder, from time to time to: (a) change the amount, time or manner of payment of rent or other sums reserved in the Lease; (b) change any of the terms, covenants, conditions or provisions of the Lease; (c) amend, modify, change or supplement the Lease; (d) consent to Lessee's assignment of the Lease or to the sublease of all, or any portion, of the, equipment covered by the Lease; (e) receive and hold security for the payment of this Guaranty or the performance of the Lease, and exchange, enforce, waive and release any such security; and (f) apply such security and direct the order or manner of sale thereof as Lessor in its discretion may determine.     3.  Guarantor waives any right to require Lessor to: (a) proceed against Lessee: (b) proceed against or exhaust any security held from Lessee; (c) pursue any other remedy in Lessor's power whatsoever, or (d) notify Guarantor of any default by Lessee in the payment of any rent or other sums reserved in the Lease or in the performance of any term, covenant or condition therein required to be kept, observed or performed by Lessee. Guarantor waives any defense arising by reason of any disability or other defense of Lessee, any lack of authority of Lessee with respect to the Lease, the invalidity, illegality or lack of enforceability of the Lease from any cause whatsoever, the failure of Lessor to acquire title to the equipment subject to the Lease or to perfect or maintain perfection of any interest therein or the cessation from any cause whatsoever of the liability of Lessee; provided, however, that Guarantor does not waive any defense arising from the due performance by Lessee of the terms and conditions of the Lease. Upon demand, Guarantor agrees to pay and perform the Obligations regardless of any existing or future offset or claim which may be asserted by Guarantor. This Guaranty and Guarantors payment obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment of any of the Obligations is rescinded or must otherwise be restored or returned by Lessor, all as though such payment had not been made. Lessor's good faith determination as to whether a payment must be restored or returned shall be binding on Guarantor. Until the payment of all rents and all other sums due under the Lease and the performance of all of the terms, covenants and conditions therein required to be kept, observed or performed by Lessee, Guarantor shall have no right of subrogation against Lessee, and waives any right to enforce any remedy which Lessor now has or hereafter may have against Lessee, and waives any benefit of, and any right to participate in, any security now or hereafter held by Lessor. Guarantor waives all -------------------------------------------------------------------------------- presentments, demands for performance, notices of nonperformance, protests, notices of dishonor, and notices of acceptance of this Guaranty.     4.  Guarantor represents and warrants to Lessor that:     (a) (1) Guarantor is a corporation duly organized and validly existing in good standing under the laws of the state U its incorporation. (2) The execution, delivery and performance hereof: (x) have been duly authorized by all necessary corporate action on the part of Guarantor; (y) do not require the approval of any stockholders, trustee or holder of any obligations of Guarantor except such as have been duly obtained; and (z) do not and will not contravene any law, governmental rule, regulation or order now binding on Guarantor, or the charter or by-laws of Guarantor, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Guarantor under, any indenture, mortgage, contract or other agreement to which Guarantor is a party or by which it or its property is bound. (3) The financial statements of Guarantor (copies of which have been furnished to Lessor) have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and fairly present Guarantor's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations.     (b) This Guaranty constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with the terms hereof, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and by applicable laws (including any applicable common law and equity) and judicial decisions which may affect the remedies provided herein.     (c) There are no pending actions or proceedings to which Guarantor is a party, and there are no other pending or threatened actions or proceedings of which Guarantor has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would have a Material Adverse Effect. As used herein, "Material Adverse Effect"shall mean (1) a materially adverse effect on the business, condition (financial or otherwise), operation's, performance or properties of Guarantor, or (2) a material impairment of the ability of Guarantor to perform its obligations under or to remain in compliance with this Guaranty. Further, Guarantor is not in default under any material obligation for borrowed money, for the deferred purchase price of property or any lease agreement which, either individually or in the aggregate, would have the same such effect.     (d) Guarantor acknowledges and agrees that it will enjoy a substantial economic benefit by virtue of the extension of credit by Lessor to Lessee pursuant to the Lease.     5.  Guarantor covenants and agrees that: (a) R will provide to Lessor: (1) within one hundred twenty (120) days after the end of each fiscal year of Guarantor, the balance sheet and related statement of income and statement of cash flows of Guarantor, prepared in accordance with GAAP, all in reasonable detail and certified by independent certified public accountants of recognized standing selected by Guarantor and reasonably acceptable to Lessor, (2) within sixty (60) days after the end of each quarter of Guarantors fiscal year, the balance sheet and related statement of income and statement of cash flows of Guarantor for such quarter, prepared in accordance with GAAP; and (3) within thirty (30) days after the date on which they are filed, all regular periodic reports, forms and other filings required to be made by Guarantor to the Securities and Exchange Commission, if any; and (b) it will promptly execute and deliver to Lessor such further documents, instruments and assurances and take such further action as Lessor from time to time may reasonably request in order to carry out the intent and purpose of this Guaranty and to establish and protect the rights and remedies created or intended to be created in favor of Lessor hereunder.     6.  Guarantor shall be deemed to be in default hereunder ("Default') if: (a) Guarantor shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it hereunder and such failure shall continue unremedied for a period of thirty (30) days after the earlier -------------------------------------------------------------------------------- of the actual knowledge of Guarantor or written notice thereof to Guarantor by Lessor, or (b) Guarantor shall (1) be generally not paying its debts as they become due, (2) take action for the purpose of invoking the protection of any bankruptcy or insolvency law, or any such law is invoked against or with respect to Guarantor or its property, and such petition filed against Guarantor is not dismissed within sixty (60) days; or (c) there is an anticipatory repudiation of Guarantor's obligations pursuant to this Guaranty; or (d) any certificate, statement, representation, warranty or audit contained herein or heretofore or hereafter furnished with respect to this Guaranty by or on behalf of Guarantor proving to have been false in any material respect at the time as of which the facts therein set forth were stated or certified, or having omitted any substantial contingent or unliquidated liability or claim against Guarantor, or (e) Guarantor shall be in default under any material obligation for borrowed money, for the deferred purchase price of property or any lease agreement, and the applicable grace period with respect thereto shall have expired; or (0 Guarantor shall have terminated its corporate existence, consolidated with, merged into, or conveyed or leased substantially all of its assets as an entirety to any Person (such actions being referred to as an "Event"), unless not less than sixty (60) days prior to such Event: (i) such person executes and delivers to Lessor an agreement satisfactory in form and substance to Lessor, in its sole discretion, containing such person's effective assumption, and its agreement to pay, perform, comply with and otherwise be liable for, in a due and punctual manner, all of Guarantor's obligations having previously arisen, or then or thereafter arising, under this Guaranty; and (ii) Lessor is satisfied as to the creditworthiness of such person, and as to such person's conformance to the other standard criteria then used by Lessor for such purposes; or (g) fifty (50) percent or more of Lessee's capital stock is not owned or controlled by Guarantor or its affiliates, unless Lessor is satisfied as to the creditworthiness of Guarantor and as to Guarantor's conformance to the other standard criteria then used by Lessor for such purpose immediately after such change of ownership.     Upon a Default hereunder, Lessor may, at its option, declare this Guaranty to be in default by written notice to Guarantor (without election of remedies), and at any time thereafter, may do any one or more of the following, all of which are hereby authorized by Guarantor:     A.  declare the Lease to be in default and thereafter sue for and recover all liquidated damages, accelerated rentals and/or other sums otherwise recoverable from Lessee thereunder; and/or     B.  sue for and recover all damages then or thereafter incurred by Lessor as a result of such Default; and/or     C.  seek specific performance of Guarantors obligations hereunder.     In addition, Guarantor shall be liable for all reasonable attorneys' fees and other costs and expenses incurred by reason of any Default or the exercise of Lessor's remedies hereunder and/or under the Lease. No right or remedy referred to in this Section is intended to be exclusive, but each shall be cumulative, and shall be in addition to any other remedy referred to above or otherwise available at law or in equity, and may be exercised concurrently or separately from time to time.     The failure of Lessor to exercise the rights granted hereunder upon any Default by Guarantor shall not constitute a waiver of any such right upon the continuation or reoccurrence of any such Default.     The obligations of the undersigned hereunder are independent of the obligations of Lessee. A separate action or actions may be brought and prosecuted against Guarantor (or any thereof) whether an action is brought against Lessee or whether Lessee be joined in any such action or actions.     7.  GUARANTOR AGREES THAT THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF LESSOR AND GUARANTOR HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MARYLAND (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE). Guarantor agrees that any action or proceeding arising out of or relating to this Guaranty may be commenced in any state or Federal court in the State of Maryland, -------------------------------------------------------------------------------- and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served personally or by certified mail to it at its address herein below set forth, or as it may provide in writing from time to time, or as otherwise provided under the laws of the State of Maryland.     8.  GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH GUARANTOR AND LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS GUARANTY QR THE LEASE. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS GUARANTY. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GUARANTOR AND GUARANTOR HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. GUARANTOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.      9. This Guaranty shall inure to the benefit of Lessor, its successors and assigns, and shall be binding upon the personal representatives, heirs, successors and assigns of Guarantor. The obligations of Guarantor hereunder may not be assigned or delegated without the prior written consent of Lessor.     10. All notices hereunder shall be in writing, personally delivered, delivered by overnight courier service or sent by certified mail, return receipt requested, addressed as follows: If to Guarantor:   Labor Ready, Inc. Attention: CDM Department 1016 South 28th Street Tacoma, Washington 98409   with a copy to:       General Cousel   If to Lessor:       LaSalle National Leasing Corporation 502 Washington Avenue, Suite 800 Towson, Maryland 21204 Facsimile: 410-769-9313 or to such other address as such party shall from time to time designate in writing to the other party; and shall be effective from the date of receipt.     11. This Guaranty constitutes the entire agreement between the parties with respect to the subject matter hereof and shall not be rescinded, amended or modified in any manner except by a document in writing executed by both parties. Any provision of this Guaranty 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Guarantor has caused this Master Lease Guaranty to be duly executed, under seal, as of the 24th day of March, 2000. ATTEST:   Labor Ready, Inc.   /s/ Ronald L. Junck       By: /s/ Name: Robert H. Sovern Title: Assistant Treasurer   WITNESS:         /s/ Tracy Woods   /s/ Joseph P. Sambataro -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION RIDER NO. 1     To and part of Master Lease Agreement dated as of the 24th day of March, 2000, (the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), and LABOR READY PROPERTIES, INC., its successors and permitted assigns ("Lessee").     A. LESSEE RENEWAL. (1) Provided that no Default or Event of Default has then occurred, unless Lessee shall have exercised its option to purchase the Equipment, Lessee shall renew this Lease, at the expiration of the original term of this Lease, with respect to all but not less than all of the Equipment. on the terms and conditions of this Lease, for the Renewal Term specified in the Equipment Schedule at the Renewal Term Rent specified in the Equipment Schedule.     (2) Provided that no Default or Event of Default has then occurred, Lessee shall have the option to renew this Lease, at the expiration of the initial renewal term of this Lease, with respect to all but not less than all of the Equipment, on the terms and conditions of this Lease, for a negotiated renewal term at 2 periodic rent equal to the Fair Market Rental Value of such Equipment determined at the time of renewal. If Lessee desires to exercise this option it shall give Lessor written notice of its election to renew at least two hundred forty (240) days before expiration of the initial renewal term of this Lease with respect to the first Equipment Schedule to be executed under this Lease. Such election shall be effective with respect to all Equipment [eased under all Equipment Schedules. Thereafter, Lessee shall engage in negotiations with Lessor to determine the additional renewal term and the periodic rent to be paid during the renewal term.     (3) For purposes of this Section, "Fair Market Rental Value" shall be deemed to be an amount equal to the rental, as installed and in use, obtainable in an arms' length transaction between a willing and informed lessor and a willing and informed lessee under no compulsion to lease (and assuming that, as of the date of determination, the Equipment is in at least the condition required by Section 13 and Rider No. 3 of this Lease). If (prior to one hundred eighty (180) days before expiration of the term of this Lease) the parties are unable to agree on the Fair Market Rental Value of the Equipment, then (at least one hundred twenty (120) days before expiration of the term of this Lease) Lessor and Lessee shall at Lessee's expense obtain appraisal values from three independent appraisers (other than American Appraisal Associates, Inc.) (one to be selected by Lessor, one by Lessee, and the other by the two selected by Lessor and Lessee; each of whom must be associated with a professional organization of equipment or personal property appraisers, such as the American Society of Appraisers) and the average Fair Market Rental Value as determined by such appraisers shall be binding on the parties hereto. If, prior to ninety (90) days before the expiration of the term of this Lease, the appraisers selected by Lessor and Lessee are unable to agree on the third appraiser, then American Appraisal Associates, Inc. will be selected to provide the third appraisal value.     B. OPTION TO PURCHASE. (1) Provided that no Default or Event of Default has then occurred, Lessee shall have the option to purchase, on the Early Termination Date specified in the Equipment Schedule, all but not less than all of the Equipment upon the following terms and conditions: If Lessee desires to exercise this option it shall give Lessor written notice of its election to purchase at least thirty (30) days and not more than ninety (90) days before the Early Termination Date with respect to the first Equipment Schedule to be executed under this Lease. Such election shall be effective with respect to all Equipment leased under all Equipment Schedules. On the Early Termination Date with respect to each Equipment Schedule, Lessee shall pay to Lessor in cash the purchase price for the Equipment so purchased, determined as hereinafter provided. The purchase price of the Equipment shall be an amount equal to the Early Termination Percentage specified in the Equipment Schedule of the original Total Invoice Cost of the Equipment (as specified on the Equipment Schedule), together with all taxes and charges upon sale. Lessor and Lessee agree that the purchase price represents a reasonable prediction of the Fair Market Value of the Equipment at the time the option is exercisable. --------------------------------------------------------------------------------     (2) Provided that Lessee is not then in Default, Lessee shall have the option to purchase, upon the expiration of the original term of this Lease, all but not less than all of the Equipment upon the following terms and conditions: if Lessee desires to exercise this option it shall give Lessor written notice of its election to purchase at least two hundred forty (240) days before expiration of the original term of this Lease with respect to the first Equipment Schedule to be executed under this Lease. Such election shall be effective with respect to all Equipment leased under all Equipment Schedules. Thereafter, Lessee shall engage in negotiations with Lessor to determine the purchase price for the Equipment. At the expiration of the -original term of this Lease, Lessee shall pay to Lessor in cash the purchase price forthe Equipment so purchased, determined as hereinafter provided. The purchase price of the Equipment shall be an amount equal to the greater of: (x) the Fixed Percentage specified in the Equipment Schedule of the original Total Invoice Cost of the Equipment (as specified on the Equipment Schedule), or (y) the Fair Market Value of the Equipment; together with all taxes and charges upon sale.     (3) Provided that Lessee is not then in Default, Lessee shall have the option to purchase, upon the expiration of any renewal term of this Lease, all but not less than all of the Equipment upon the following terms and conditions: If Lessee desires to exercise this option it shall give Lessor written notice of its election to purchase at least two hundred forty (240) days before expiration of the applicable renewal term of this Lease with respect to the first Equipment Schedule to be executed under this Lease. Such election shall be effective with respect to all Equipment leased under all Equipment Schedules. Thereafter, Lessee shall engage in negotiations with Lessor to determine the purchase price for the Equipment.. At the expiration of the applicable renewal term of this Lease, Lessee shall pay to Lessor in cash the purchase price for the Equipment so purchased, determined as hereinafter provided. The purchase price of the Equipment shall be an amount equal to its then Fair Market Value, together with all taxes and charges upon sale.     (4) For purposes hereof, "Fair Market Value" shall be deemed to be an amount equal to the sale price of the Equipment, as installed and in use, obtainable in an arms' length transaction between a willing and informed buyer and a willing and informed seller under no compulsion to sell (and assuming that, as of the date of determination, the Equipment is in at least the condition required by Section 13 and Rider No. 3 of this Lease). If (prior to one hundred eighty (180) days before expiration of the applicable renewal term of this Lease) the parties are unable to agree on the Fair Market Value of the Equipment, then (at least one hundred twenty (120) days before expiration of the applicable renewal term of this Lease) Lessor and Lessee shall at Lessee's expense obtain appraisal values from three independent appraisers (other than American Appraisal Associates, Inc.) (one to be selected by Lessor, one by Lessee, and the other by the two selected by Lessor and Lessee; each of whom must be associated with a professional organization of equipment or personal property appraisers, such as the American Society of Appraisers) and the average Fair Market Value as determined by such appraisers shall be binding on the parties hereto. If, prior to ninety (90) days before the expiration of the original term of this Lease, the appraisers selected by Lessor and Lessee are unable to agree on the third appraiser, then American Appraisal Associates, Inc. will be selected to provide the third appraisal value.     (5) Notwithstanding any election of Lessee to purchase, the provisions of this Lease shall continue in full force and effect until the passage of ownership of the Equipment upon the date of purchase. On the date of purchase, Lessor shall deliver to Lessee a bill of sale transferring and assigning to Lessee without recourse or warranty, except (with respect to the status of title conveyed) in respect of Lessor's acts, all of Lessors right, title and interest in and to the Equipment. Lessor shall not be required to make and may specifically disclaim any representation or warranty as to the condition of the Equipment or any other matters. -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION Lessor By:   /s/ Thomas M. Jaschik Group Vice President   LABOR READY PROPERTIES, INC. Lessee   By:       /s/ Robert H. Sovern Assistant Treasurer -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION RIDER NO. 2     To and part of Master Lease Agreement dated as of the 24th day of March, 2000 (the "Lease'), between LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), and LABOR READY PROPERTIES, INC., its successors and permitted assigns ("Lessee"). TAX INDEMNITY.     (1) Lessee represents and warrants that: (a) it believes that it is reasonable to estimate that the useful life of the Equipment exceeds the lease term (including any interim and fixed rental renewal periods) by the greater of one (1) year or twenty (20) percent of such estimated useful life, and that said Equipment will have a value at the end of the lease term, including any fixed rate renewal period, of at least twenty (20) percent of the Total Invoice Cost of the Equipment, without including in such value any increase or decrease for inflation or deflation during the original lease term; and (b) the Equipment is, and will be used by Lessee so as to remain, property eligible for the MACRS Deductions (as defined below).     (2) If (a) Lessor in computing its taxable income or liability for tax, shall lose, or shall not have, or shall lose the right to claim or there shall be disallowed or recaptured for Federal and/or state income tax purposes, in whole or in part, the benefit of MACRS Deductions; or (b) Lessor shall become liable for additional tax as a result of Lessee having added an attachment or made an alteration to the Equipment, including (without limitation) any such attachment or alteration which would increase the productivity or capability of the Equipment so as to violate the provisions of Rev. Proc. 75-21, 1975-1 C.B. 715, or Rev. Proc. 79-48, 1979-2 C.B. 529 (as either or both may hereafter be modified or superseded); or (c) the statutory full-year marginal Federal tax rate (including any surcharge) for corporations is other than thirty-five (35) percent; hereinafter referred to as a "Loss"; then Lessee shall pay Lessor the Tax Indemnification Payment as additional rent and Lessor shall revise the Schedule(s) of Stipulated Loss Values to reflect the Loss. It is the intent of the parties that Lessee shall only be responsible for a Loss as a result of a decrease in the statutory full-year marginal Federal tax rate (including any surcharge) prior to the initial funding Equipment under any Equipment Schedule. As used herein, "MACRS Deductions" shall mean the deductions under Section 167 of the Internal Revenue Code of 1986, as now or hereafter amended (the "Code"), determined in accordance with the modified Accelerated Cost Recovery System with respect to the Total Invoice Cost of any item of the Equipment using the accelerated method set forth in Section 168(b)(1) or 168(b)(2) of-the Code as in effect on the date of this Lease for property assigned to the class of property specified in the Equipment Schedule pertaining thereto, "Lessor" shall be deemed to include the consolidated Federal taxpayer group of which Lessor is a member; and "Tax Indemnification Payment" shall mean such amount as, after consideration of (i) all taxes required to be paid by Lessor in respect of the receipt thereof under the laws of any governmental or taxing authority in the United States, and (ii) the amount of any interest or penalty which may be payable by Lessor in connection with the Loss, shall be required to cause Lessor's after-tax net return (the "Net Return") to be equal to, but no greater than, the Net Return computed consistently with current tax laws (and with the assumption that Lessor is taxed at the highest marginal Federal and state tax rates) as of the date of this Lease that would have been available to Lessor had the Loss not occurred.     (3) Lessor shall be responsible for, and shall not be entitled to a Tax Indemnification Payment by Lessee on account of, any Loss arising solely as a direct result of the occurrence of any one or more of the following events: (a) the failure of Lessor to timely and properly claim MACRS Deductions in the tax return of Lessor other than as a result of c hanges; in the Code or applicable regulations unless in the reasonable opinion of Lessors tax counsel there is no basis for such claim; or ~b) the failure of Lessor to have sufficient taxable income before application of the MACRS Deductions to offset the full amount of such MACRS Deductions other than as a result of changes in the Code or applicable regulations; or (c) any event which by the terms of the Lease requires payment by Lessee of the Stipulated Loss Value if such payment is thereafter actually made to Lessor, to the extent that such payment reimburses Lessor for amounts otherwise payable by Lessee pursuant hereto; or (d) a -------------------------------------------------------------------------------- disqualifying disposition due to sale of any item of the Equipment or the Lease by Lessor prior to a Default.     (4) Lessor promptly shall notify Lessee in writing of such Loss and Lessee shall pay to Lessor the Tax Indemnification Payment within thirty (30) days of such notice. For these purposes, a Loss shall occur upon the earliest of: (a) the happening of any event (such as disposition or change in use of any item of the Equipment) which will cause such Loss, (b) the payment by Lessor to the Internal Revenue Service or state taxing authority of the tax increase (including an increase in estimated taxes) resulting from such Loss; (c) the date on which the Loss is realized by Lessor, or (d) the adjustment of the tax return of Lessor to reflect such Loss.     (5) The obligations of Lessee under this Section, which accrue during the term of the Lease, shall survive the expiration or termination of the Lease. LASALLE NATIONAL LEASING CORPORATION Lessor By:   /s/ Thomas M. Jaschik Group Senior Vice President   LABOR READY PROPERTIES, INC. Lessee   By:       /s/ Robert H. Sovern Assistant Treasurer -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION RIDER NO. 3     To and part of Master Lease Agreement dated as of the 24th day of March, 2000 (the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), and LABOR READY PROPERTIES, INC. its successors and permitted assigns ("Lessee"). RETURN PROVISIONS:     In addition to the provisions of Section 13 of this Lease, and provided that Lessee has not elected to exercise its option to purchase the Equipment, Lessee shall, at its expense:     A). At least one hundred eighty (1180) days prior to expiration or earlier termination of the Lease, provide to Lessor a detailed inventory of all components of the Equipment. The inventory should include, but not be limited to a listing of model, serial numbers and all hardware and software comprising the Equipment;     B). At least one hundred eighty (180) days prior to expiration or earlier termination of the Lease, upon receiving reasonable notice from Lessor, provide or cause the vendor(s) or manufacturer(s) to provide to Lessor the following documents: (1) one set of service and operating manuals including replacements and/or additions thereto; (2) one set of documents, detailing equipment configuration and other technical data concerning the set-up and operation of the Equipment, including replacements and/or additions thereto, such that all documentation is completely up-to-date; and a listing of all maintenance and/or repairs performed on the Equipment on a per unit basis as well as any up-grades that have been added to the Equipment.     C). At least ninety (90) days prior to expiration or earlier termination of the Lease, upon receiving reasonable notice from Lessor, make the Equipment available for on-site operational inspections by potential purchasers, under power, and provide personnel to demonstrate the Equipment;     D). At least thirty (30) days, but not more than ninety (90) days prior to the expiration or earlier termination of the Lease, cause the manufacturer's representative or a qualified equipment maintenance provider selected by Lessor, to perform a comprehensive physical inspection, testing all material and workmanship of the Equipment. Said inspection shall include an in-depth inspection report including an itemized listing or details of any deficiencies or excessive wear to the Equipment and the estimated costs for the necessary repairs or replacements so as to be in complete compliance with this lease. If during such inspection, examination and test, the authorized inspector finds any of the material or workmanship to be defective or the Equipment not operating within the manufacturers specifications, then the manufacturer's representative shall repair or replace such defective material using the manufacturer's recommended parts and procedures. After corrective measures are completed, Lessee will provide for a follow-up inspection of the Equipment by the authorized inspector as outlined in the preceding clause. The inspection report shall certify that the equipment has been properly inspected and is mechanically and structurally sound, capable of performing the functions for which the Equipment was originally designed, and meets or exceeds the manufacturers published or recommended original specifications.     E). Have each item of Equipment returned with an in-depth field service report detailing said inspection as outlined in Section D of this Rider. The report shall certify that the Equipment has been properly inspected, examined, tested and is operating within the manufacturer's specifications;     F). Provide that all Equipment will be cleaned and cosmetically acceptable, and in such condition so that it may be immediately installed and placed into use. There will be no structural or mechanical damage to the Equipment. The Equipment will be aesthetically complete, including but not limited to slot covers, doors, panels, computer screens, user buttons, knobs and signage; --------------------------------------------------------------------------------     G). All monitors and video screens shall not exhibit "burn-in":     H). Current up-to-date software will be installed (including any subsequent changes made to the microcode of the software) and shall be returned to Lessor with the Equipment. All cables, accessories and components from the original invoice(s) will remain in with the Equipment. Lessor will not be responsible for, and will be held harmless for, any proprietary information left on the hard drive by the Lessee. Lessee will remove any BIOS passwords or any and all passwords before any computer - equipment leaves Lessee's location. The Equipment will be at or above the configuration originally leased;     I).  Provide for the de-installation, packing, transporting, and certifying of the Equipment to include, but not be limited to, the following: (1) the manufacturer's representative shall de-install all Equipment (including all wire, cable and mounting hardware) in accordance with the specifications of the manufacturer; (2) each item of Equipment will be returned with a Maintenance Acceptance Qualification (MAQ) letter supplied by the manufacturer's representative certifying the Equipment to be in good condition and to be eligible for the manufacturer's maintenance plan; the certificate of eligibility, and software license shall be transferable to a third party; (3) the Equipment shall be packed properly and in accordance to the manufacturer's recommendations; and (4) Lessee shall transport the Equipment in a manner consistent with the manufacturer's recommendations and practices;     J).  Upon redelivery, provide transportation to not more than ten (10) individual locations anywhere in the continental United States as selected by Lessor;     K). Obtain and pay for a policy of transit insurance for the redelivery period in an amount equal to the replacement value of the Equipment and Lessor shall be named as the loss payee on all such policies of insurance;     L). Be responsible for the cost of all repairs, alterations, inspections, appraisals, storage charges, insurance costs, demonstration costs, and other related costs necessary to place the Equipment in such condition as to be in complete compliance with this Lease; and LASALLE NATIONAL LEASING CORPORATION Lessor By:   /s/ Thomas M. Jaschik Group Senior Vice President   LABOR READY PROPERTIES, INC. Lessee   By:       /s/ Robert H. Sovern Assistant Treasurer -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION RIDER NO. 4     To and part of Master Lease Agreement dated as of the 2401 day of March, 2000 (the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), and LABOR READY PROPERTIES, INC., its successors and permitted assigns ("Lessee").     A.  ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LESSEE FOR SALE-LEASEBACK Lessee represents and warrants that: (1) The sale of those certain items of equipment specified on the schedule attached to each Equipment Bill of Sale (collectively the "Bill of Sale') executed by Lessee, and the execution, delivery and performance of the Bill of Sale (a) have been duly authorized by all necessary corporate action on the part of Lessee; (b) do not require the consent of any stockholder, trustee or holders of any indebtedness of Lessee except such as have been duly obtained; and (c) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound. (2) The Bill of Sale transfers to Lessor valid title to the equipment described on the schedule attached thereto free and clear of any and all encumbrances, liens, charges or defects. No filing or recordation must be made, no notice must be given, and no other action must be taken with respect to any, state or local jurisdiction, or any person, in order to preserve to Lessor all the rights transferred by the Bill of Sale.     B.  ADDITIONAL AUTHORIZATION. Lessor's obligations under the Lease are further conditioned upon Lessor having received the Bill of Sale and an opinion of counsel for Lessee as to the matters set forth in paragraph A above. LASALLE NATIONAL LEASING CORPORATION Lessor By:   /s/ Thomas M. Jaschik Group Senior Vice President   LABOR READY PROPERTIES, INC. Lessee   By:       /s/ Robert H. Sovern Assistant Treasurer -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION CORPORATE CERTIFICATE OF RESOLUTIONS     I hereby certify to LASALLE NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), that I am the Secretary of LABOR READY PROPERTIES, INC., a corporation of the State of Nevada (the "Corporation"), and that the following is a true copy of resolutions duly adopted by the Board of Directors of the Corporationon the 24th day of March1 2000, and further that such resolutions are in conformity with the Charter and By-Laws of the Corporation and are in full force and effect on the date hereof and have not been modified or rescinded:     "RESOLVED, That the form, terms and provisions of the Master Lease Agreement and Equipment Schedules thereto to be or heretofore having been entered into by and between this Corporation and Lessor, copies of which have been submitted to this meeting, providing for the leasing of equipment by this Corporation be, and the same hereby are, in all respects approved; and     "FURTHER RESOLVED, That any officer of this Corporation be, and each of them hereby is, authorized in the name and on behalf of this Corporation (and all actions of any officer of this Corporation heretofore taken in connection therewith are hereby ratified and confirmed as and for actions of the Corporation) to lease from Lessor, under the terms of said Master Lease Agreement and any Equipment Schedule thereto, such equipment as such officer, in his sole discretion, may determine, and for this purpose to execute and deliver in the name and on behalf of this Corporation the Master Lease Agreement and any Equipment Schedule thereto, in substantially the form submitted to this meeting, with such changes, additions and amendments thereto as shall be approved by the officer who executes the same, and such other agreements, documents and instruments, and to do all such other acts and things as may be required to consummate this leasing arrangement; and     "FURTHER RESOLVED, That the Secretary of this Corporation is authorized and directed to deliver and certify to Lessor a certified copy of these resolutions and that the same are in conformity with the Charter and By-Laws of this Corporation."     I further certify that the following persons are duly elected, qualified and acting officers of the Corporation, holding the offices indicated opposite their respective names, and the signature appearing opposite their respective names are the genuine signatures of such persons, respectively: Name --------------------------------------------------------------------------------   Office --------------------------------------------------------------------------------   Signature -------------------------------------------------------------------------------- Ronald L. Junck   Vice President/Secretary   /s/ Joseph P. Sambataro   President   /s/ Robert Sovern   Director of Credit   /s/     IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this Corporation this 24th day of March, 2000. /s/ RONALD L. JUNCK    Secretary [CORPORATE SEAL]     I certify that the person having executed the foregoing Certificate as Secretary is the duly elected, qualified and acting Secretary of the Corporation, and the signature of such person set forth above is his/her genuine signature. Name: /s/ TIMOTHY J. ADAMS    Title: Director of Legal Services -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION CORPORATE CERTIFICATE OF RESOLUTIONS (GUARANTOR)     I hereby certify to LASALLE NATIONAL LEASING CORPORATION, Us successors and assigns ("Lessor"), that I am the Secretary of LABOR READY, INC., a corporation of the State of      (the "Corporation"), and that the following is a true copy of resolutions duly adopted by the Board of Directors of the Corporation on the   day of      , 2000, and further that such resolutions are in conformity with the Charter and By-Laws of the Corporation and are in full force and effect on the date hereof and have not been modified or rescinded:     "RESOLVED, That the form, terms and provisions of the Master Lease Guaranty to be or heretofore having been entered into by and between this Corporation and Lessor, copies of which have been submitted to this meeting, undertaking to guarantee the performance by Labor Ready Properties, Inc. ("Lessee"), as lessee under a Master Lease Agreement to be entered into by and between Lessee and Lessor. and all Equipment Schedules incorporating its terms and other related documents and agreements, be, and the same hereby are, in all respects approved; and     "FURTHER RESOLVED, That- any officer of this Corporation be, and each of them hereby is, authorized to execute and deliver in the name and on behalf of this Corporation (and all actions of any officer of this Corporation heretofore taken in connection therewith are hereby ratified and confirmed as and for actions of the Corporation) the Equipment Lease Guaranty in substantially the form submitted to this meeting with such changes, additions and amendments thereto as shall be approved by the officer who executes the same; and     "FURTHER RESOLVED, That the Secretary of this Corporation is authorized and directed to deliver and certify to Lessor a certified copy of these resolutions and that the same are in conformity with the Charter and By-Laws of this Corporation."     I further certify that the following persons are duly elected, qualified and acting officers of the Corporation, holding the offices indicated opposite their respective names, and the signature appearing opposite their respective names are the genuine signatures of such persons, respectively. Name --------------------------------------------------------------------------------   Office --------------------------------------------------------------------------------   Signature --------------------------------------------------------------------------------                                                                 IN WITNESS WHEREOF, I have hereunto Subscribed my name and affixed the seal of this Corporation this 1 day of August, 2000. [CORPORATE SEAL] /s/ RONALD L. JUNCK    Secretary     I certify that the person having executed the foregoing Certificate as Secretary is the duly elected, qualified and acting Secretary of the Corporation, and the signature of such person set forth above is his/her genuine signature. /s/ Name: Tracy Woods Title: Notary Executive Assistant -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION EQUIPMENT SCHEDULE NO. 1 executed pursuant to that certain Master Lease Agreement dated as of March 24 1h, 2000 (the "Lease"; which is incorporated herein by reference). This Equipment Schedule, incorporating by reference the terms and conditions of the Lease, constitutes a separate instrument of lease.     1.  EQUIPMENT. The Equipment leased hereunder shall be as set forth in the schedule attached hereto. TOTAL INVOICE COST: $2,152,849.65     2.  TERM. Upon and after the date of execution hereof, the Equipment shall be subject to the terms and conditions provided herein and in the Lease.     A full term of lease with respect to said Equipment shall commence on the date hereof and shall extend for sixty (60) months after the first day of August, 2000 (the "Base Lease Commencement Date").     The renewal term shall be eighteen (18) months (the "Renewal Term").     3.  RENT.     (a) During the period from the date hereof to the Base Lease Commencement Date (the "Interim Term"), the pro-rated daily rent for said Equipment shall be computed as the product of the Interest Rate and the Total Invoice Cost specified above, divided by three hundred sixty (360). This pro-rated payment shall be made on the last day of the month for each month during the Interim Term. As used herein, "Interest Rate" shall mean an amount computed as a percentage per annum equal to the sum of (a) two hundred (200) basis points, plus (b) the LIBOR Rate. As used herein, "LIBOR Rate" shall mean, with respect to each calendar month during the Interim Term, an interest rate per annurn (rounded upward to the next higher whole multiple of one-sixteenth percent if such rate is not such a multiple), equal at all times during such calendar month to the rate per annurn (rounded upwards to the next higher whole multiple of one-sixteenth percent if such rate is not such a multiple) as determined on the basis of the average of the rates offered by a majority of the banks in the London interbank market for deposits in U.S. Dollars for one (1) month, to the extent the rates offered by these banks appear in the "Money Rates" column of The Wall Street Journal on the Business Day next preceding the first day of the calendar month (provided, however, that with respect to the first calendar month during the Interim Term, on the third Business Day next preceding the date of execution of this Equipment Schedule). As used herein, "Business Day" shall mean any day other than a Saturday, a Sunday, and any day on which banking institutions located in the States of Maryland or Washington are authorized by law or other governmental action to close.     (b) From and after the Base Lease Commencement Date, the monthly rent for said Equipment during the term of this Lease shall be computed as the following specified percentage of the Total Invoice Cost specified above: installment one, 1.227543%; and installments two through sixty, 1.727543%. Rent payments shall be made, in advance, on the first day of the month for each month during the term of this Lease.     (c) During the Renewal Term, the monthly rent for said Equipment shall be $27,281.30, computed as 1.267218% of the Total Invoice Cost specified above (the "Renewal Term Rent") hereto.     4.  LESSEE'S CONFIRMATION. Lessee hereby confirms and warrants to Lessor that the Equipment: (a) was duly delivered to Lessee at the location specified in Section 5 hereof; (b) has been received, inspected and determined to be in compliance with all applicable specifications and that the Equipment is hereby accepted for all purposes of the Lease; and (c) is a part of the "Equipment" referred to in the Lease and is taken subject to all terms and conditions therein and herein provided. --------------------------------------------------------------------------------     5.  LOCATION OF EQUIPMENT. The location of the Equipment is specified on the Schedule of Equipment attached hereto.     6.  'LATE CHARGE RATE. The Late Charge Rate shall be two (2) percent per month of the amount in arrears for the period such amount remains unpaid (provided, however, that if such rate exceeds the highest rate permitted by applicable law, then the Late Charge Rate shall be the highest rate permitted by applicable law).     7.  SCHEDULE OF STIPULATED LOSS VALUES. The Schedule of Stipulated Loss Values attached hereto is incorporated herein by reference, and shall be applicable solely to the Equipment described in this Equipment Schedule.     8.  RECOVERY PROPERTY CLASS. The class of property to which the Equipment is assigned (as referenced in Sectio n 2 of Rider No. 2 to the Lease) is 5-year property.     9.  PUBLIC LIABILITY INSURANCE. The amount of public liability insurance referenced in Section 11 of the Lease is $10,000,000.00.     10. SPECIAL PURCHASE OPTION. The Early Termination Date referenced in Section B(1) of Rider No. 1 to the Lease is that date which is forty-eight (48) months after the Base Lease Commencement Date. The Early Termination Percentage referenced in Section B(1) of Rider No. 1 to the Lease is 41%.     11. PURCHASE OPTION. The Fixed Percentage referenced in Section B(2) of Rider No. 1 to the Lease is 20%. DATE OF EXECUTION: August 1, 2000 LASALLE NATIONAL LEASING CORPORATION Lessor By: /s/ H. Duane Steelberg Senior Vice President LABOR READY PROPERTIES, INC. Lessee By: /s/ Joseph P. Sambataro President -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION SCHEDULE OF EQUIPMENT Lessee:   Labor Ready Properties, Inc.       Approved By:       --------------------------------------------------------------------------------             (Lessee to initial each page)       Attached to Bill of Sale dated                             ,  2000       Equipment located at: Various     and/or   Street No.   Equipment Schedule No. 1       City    County    State    Zip Manufacturer and/or Vendor Name & Invoice No. -------------------------------------------------------------------------------- Description --------------------------------------------------------------------------------   Invoice Cost -------------------------------------------------------------------------------- Diebold, Incorporated P.O. Box 71358 Cleveland, OH 44191-0558 144-Diebold 1064 IX Front Load Cash Dispensing Machines;   $ 2,144,550.50   Invoice No: 01452880A   INVOICE TOTAL       $   2,144,550.50   Upfront Personal Property Tax for Hawaii   $ 76.76   Upfront Tax for Illinois   $ 924.34   Upfront Tax for Louisiana   $ 1,361.50   Upfront Tax for Maine   $ 1,478.95   Upfront Tax for New Jersey   $ 4,458.60       --------------------------------------------------------------------------------       TOTAL UPFRONT TAX       $   8,299.15       SCHEDULE TOTAL       $   2,152,849.65       -------------------------------------------------------------------------------- ATTACHMENT TO FORM UCC-1 1.LESSOR: LASALLE NATIONAL LEASING CORPORATION     LESSEE: LABOR READY PROPERTIES, INC. 2.DESCRIPTION OF PROPERTY:     The equipment leased pursuant to that certain Equipment Lease Agreement dated as of the 24 1h day of March, 2000, between Lessor, as lessor, and Lessee, as lessee, together with all accessions, substitutions and replacements therefor, and proceeds (including insurance proceeds) thereof (but without power of sale); more fully described on the attached schedules. 3.THIS FILING IS MADE FOR INFORMATIONAL PURPOSES ONLY AND IS INTENDED TO REPRESENT A TRUE LEASE. -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION SCHEDULE OF STIPULATED LOSS VALUES INCORPORATED IN AND MADE A PART OF EQUIPMENT SCHEDULE NO. 1 TO EQUIPMENT LEASE AGREEMENT DATED AS OF MARCH 24th 2000, BETWEEN LASALLE NATIONAL LEASING CORPORATION ("LESSOR") AND LABOR READY, INC. ("LESSEE") Rental Payment Number --------------------------------------------------------------------------------   Percent of Equipment Cost --------------------------------------------------------------------------------   Rental Payment Number --------------------------------------------------------------------------------   Percent of Equipment Cost -------------------------------------------------------------------------------- 1   102.25646259   31   65.12239233 2   101.21995444   32   63.69979372 3   100.16528574   33   62.26550730 4   99.09171421   34   60.82358765 5   98.00813397   35   59.37268533 6   96.90611011   36   57.91404986 7   95.78501222   37   56.44637128 8   94.65367698   38   54.96678802 9   93.51205516   39   53.47929913 10   92.35653423   40   51.98266283 11   91.18603362   41   50.47398254 12   90.00146024   42   48.95722162 13   88.80180216   43   47.43120749 14   87.59152879   44   45.89300804 15   86.36694346   45   44.34256464 16   85.12712880   46   42.78378946 17   83.87650566   47   41.21560918 18   82.61132790   48   39.63899044 19   81.33077406   49   38.05290211 20   80.03921577   50   36.45433945 21   78.73660007   51   34.84715562 22   77.42413329   52   33.23039170 23   76.10051467   53   31.60100588 24   74.76691865   54   29.96281352 25   73.42209441   55   28.31492897 26   72.06595653   56   26.65427282 27   70.69964567   57   24.98078360 28   69.32198834   58   23.30490135 29   67.93285940   59   21.62504256 30   66.53335909   60   20.00000000 Termination values are due in addition to any advance or arrears rent due on the same date. LASALLE NATIONAL LEASING CORPORATION Lessor By: /s/ H. Duane Steelberg LABOR READY PROPERTIES, INC. Lessee By: /s/ Joseph P. Sambataro -------------------------------------------------------------------------------- August 1, 2000 LaSalle National Leasing Corporation One West Pennsylvania Avenue Suite 1000 Towson, Maryland 21204 RE:   MASTER LEASE AGREEMENT DATED AS OF MARCH 24,2000, BETWEEN LASALLE NATIONAL LEASING CORPORATION AND LABOR READY PROPERTIES, INC. EQUIPMENT SCHEDULE NO. 1 Gentlemen:     This letter serves as the authorization for LaSalle National Leasing Corporation to insert certain specific information into the above-referenced Equipment Schedule and related documentation, including the actual payment amount(s) and factor(s), the Date of Execution, and any other factually correct information which is necessary to complete the required documentation. Additionally, you are hereby authorized to remit funds as follows: Vendor --------------------------------------------------------------------------------   Amount -------------------------------------------------------------------------------- Diebold, Incorporated P.O. Box 71358 Cleveland, OH 44191-0558   $ 2,144,550.50   Invoice No: 01452880A             Upfront Personal Property Tax for Hawaii   $ 76.76 Upfront Tax for Illinois   $ 924.34 Upfront Tax for Louisiana   $ 1,361.50 Upfront Tax for Maine   $ 1,478.95 Upfront Tax for New Jersey   $ 4,458.60       -------------------------------------------------------------------------------- TOTAL   $ 2,152,849.65       -------------------------------------------------------------------------------- LABOR READY PROPERTIES, INC. By: /s/ Joseph P. Sambataro -------------------------------------------------------------------------------- LASALLE NATIONAL LEASING CORPORATION EQUIPMENT BILL OF SALE     THIS EQUIPMENT BILL OF SALE is given by LABOR READY PROPERTIES, INC. (herein the "Seller"), to LASALLE NATIONAL LEASING CORPORATION, its successors and assigns (herein the "Buyer"). WITNESSETH:     THAT FOR TEN DOLLARS ($10.00) AND OTHER GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby bargain, sell, assign, transfer and set over to Buyer, its successors and assigns, the items of equipment listed on the schedule attached hereto (being referred to herein as the "Equipment").     TO HAVE AND TO HOLD said Equipment, unto Buyer, its successors and assigns, forever.     Seller represents and warrants that it has good and marketable title to said Equipment conveyed hereunder and does hereby transfer valid title thereto free and clear of any and all encumbrances, liens, charges or defects. Seller further represents and warrants that the Equipment sold hereunder is transferable by Seller by its sole act and deed and that all corporate action required to authorize, approve and validate such transfer has been duly and lawfully taken.     AND Seller covenants that it will from time to time on demand execute any and all such further instruments which Buyer, and its successors and assigns, may deem necessary, desirable or proper to effect the complete transfer of the Equipment or any interest therein unto Buyer, and its successors and assigns, or better to evidence the right, title and interest of Buyer, its successors and assigns.     AND Seller does hereby make, constitute and appoint Buyer, its successors and assigns, its true and lawful attorneys, irrevocably in its name or otherwise, to have, use and take all lawful ways and means for the recovery of any of said property or right or interest therein herein assigned to Buyer which Seller may have or could take if this Bill of Sale had not been made.     IN WITNESS WHEREOF, Seller has caused this instrument to be duly executed, under seal, as of the 1st day of August, 2000. LABOR READY PROPERTIES, INC. By: /s/ Joseph P. Sambataro President --------------------------------------------------------------------------------

LEASE AGREEMENT BETWEEN AETNA LIFE INSURANCE COMPANY, AS LANDLORD, AND TANISYS TECHNOLOGY, INC. AS TENANT, COVERING APPROXIMATELY 14,846 GROSS SQUARE FEET OF THE BUILDING KNOWN AS MCNEIL #3 LOCATED AT 12201 TECHNOLOGY BLVD. SUITES 120 & 125 AUSTIN, TEXAS, 78727. -------------------------------------------------------------------------------- STANDARD INDUSTRIAL LEASE AGREEMENT TRAMMELL CROW COMPANY - (AUS/91) Approximately 14,846 gross square feet 12201 Technology Blvd., Suites 120 & 125 AUSTIN, TEXAS 78727 (MCNEIL #3) LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into by and between Aetna Life Insurance Company, hereinafter referred to as “Landlord,” and, Tanisys Technology, Inc. hereinafter referred to as “Tenant.” 1. PREMISES AND TERM. In consideration of the mutual obligations of Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant hereby takes from Landlord, certain leased premises situated within the County of Travis, State of Texas, as more particularly described on EXHIBIT “A” attached hereto and incorporated herein by reference (the “Premises”), to have and to hold, subject to the terms, covenants and conditions in this Lease. The term of this Lease shall commence on the Commencement Date hereinafter set forth and shall end on the last day of the month that is thirty-six (36) months after the Commencement Date.      A. Existing Building and Improvements. If no material improvements are to be constructed to the Premises, the “Commencement Date” shall be April 24, 2000. In such event, Tenant acknowledges that (i) it has inspected and accepts the Premises in its “as is” condition, (ii) the buildings and improvements comprising the same are suitable for the purpose for which the Premises are leased, (iii) the Premises are in good and satisfactory condition, and (iv) no representations as to the repair of the Premises nor promises to alter, remodel or improve the Premises have been made by Landlord (unless otherwise expressly set forth in this Lease). 2. BASE RENT, SECURITY DEPOSIT AND ESCROW DEPOSITS. A. Base Rent. Tenant agrees to pay Landlord rent for the Premises, in advance, without demand, deduction or set off, at the rate of -------------------------------------------------------------------------------- Term   Base Rental Rate PSF/Mo. Total Monthly Base Rent --------------------------------------------------------------------------------     April 24, 2000 - August 15, 2000   $0.655   $9,724.13   --------------------------------------------------------------------------------     August 16, 2000 - April 30, 2003  $0.850  $12,619.10  -------------------------------------------------------------------------------- per month during the term hereof. One such monthly installment, plus the other monthly charges set forth in Paragraph 2C below, shall be due and payable on the date hereof, and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the Commencement Date, except that all payments due hereunder for any fractional calendar month shall be prorated.      B. Security Deposit. In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of Four Thousand Seven Hundred Seventy Three and 60/100 Dollars ($4,773.60) which shall be held by Landlord, without obligation for interest, as security for the performance of Tenant’s obligations under this Lease (the “Security Deposit”), it being expressly understood and agreed that the Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon occurrence of an Event of Default, Landlord may use all or part of the Security Deposit to pay past due rent or other payments due Landlord under this Lease or the cost of any other damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. On demand, Tenant shall pay Landlord the amount that will restore the Security Deposit to its original amount. The Security Deposit shall be deemed the property of Landlord, but any remaining balance of the Security Deposit shall be returned by Landlord to Tenant when all of Tenant’s present and future obligations under this Lease have been fulfilled.      C. Escrow Deposits. Without limiting in any way Tenant’s other obligations under this Lease, Tenant agrees to pay to Landlord its Proportionate Share (as defined in this Paragraph 2C below) of (i) Taxes (hereinafter defined) payable by Landlord pursuant to Paragraph 3A below, and the cost of any tax consultant to assist Landlord in determining the fair tax valuation of the building and land (ii) the cost of utilities payable by Landlord pursuant to Paragraph 8 below, (iii) Landlord’s cost of maintaining any insurance or insurance related expense applicable to the Building and Landlord’s personal property used in connection therewith including, but not limited to, insurance pursuant to Paragraph 9A below, and (iv) Landlord’s cost of maintaining the Premises which include but are not limited to (a) maintenance and repairs, (b) landscaping, (c) common area utilities, (d) water and sewer, (e) roof repairs, (f) management fees, (g) exterior painting, and (h) parking lot maintenance and repairs (collectively , the “Tenant Costs”). Escrow deposits shall not include the following expenses: (a) any costs for interest, amortization, or other payments on loans to Landlord; (b) expenses incurred in leasing or procurring tenants, (c) legal expenses other than those incurred for the general benefit of the Building’s tenants, (d) allowances, concessions, and other costs of renovating or otherwise improving space for occupants of the Building or vacant space in the Building, (e) rents under ground leases, and (f) costs incurred in selling, syndicating, financing, mortgaging, or hypothecating any of Landlord’s interests in the Building. During each month of the term of this Lease, on the same day that rent is due hereunder, Tenant shall deposit in escrow with Landlord an amount equal to one-twelfth (1/12) of the estimated amount of Tenant’s Proportionate Share of the Tenant Costs. Tenant authorizes Landlord to use the funds deposited with Landlord under this Paragraph 2C to pay such Tenant Costs. The initial monthly escrow payments are based upon the estimated amounts for the year in question and shall be increased or decreased annually to reflect the projected actual amount of all Tenant Costs. If the Tenant’s total escrow deposits for any calendar year are less than Tenant’s actual Proportionate Share of the Tenant Costs for such calendar year, Tenant shall pay the difference to Landlord within thirty (30) days after demand. If the total escrow deposits of Tenant for any calendar year are more than Tenant’s actual Proportionate Share of the Tenant Costs for such calendar year, Landlord shall retain such excess and credit it against Tenant’s escrow deposits next maturing after such determination. In the event the Premises constitute a portion of a multiple occupancy building (the “Building”), Tenant’s “Proportionate Share” with respect to the Building, as used in this Lease, shall mean a fraction, the numerator of which is the gross rentable area contained in the Premises and the denominator of which is the gross rentable area contained in the entire Building. In the event the Premises or the Building is part of a project or business park owned, managed or leased by Landlord or an affiliate of Landlord (the “Project”), Tenant’s “Proportionate Share” of the Project, as used in this Lease, shall mean a fraction, the numerator of which is the gross rentable area contained in the Premises and the denominator of which is the gross rentable area contained in all of the buildings (including the Building) within the Project. 3. TAXES      A. Real Property Taxes. Subject to reimbursement under Paragraph 2C herein, Landlord agrees to pay all taxes, assessments and governmental charges of any kind and nature (collectively referred to herein as “Taxes”) that accrue against the Premises, the Building and/or the land of which the Premises or the Building are a part. If at any time during the term of this Lease there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the land and improvements of which the Premises are a part, then all such taxes, assessments, levies or charges, or the part thereof so measured or based shall be deemed to be included within the term “Taxes” for the purposes hereof. “Taxes” shall not include a tax or levy based on net income unless an income tax is partially or fully levied in lieu of real property taxes. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 2 --------------------------------------------------------------------------------      B. Personal Property Taxes. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in or on the Premises. If any such taxes are levied or assessed against Landlord or Landlord’s property and (i) Landlord pays the same or (ii) the assessed value of Landlord’s property is increased by inclusion of such personal property and fixtures and Landlord pays the increased taxes, then Tenant shall pay to Landlord, upon demand, the amount of such taxes. 4. LANDLORD’S REPAIRS AND MAINTENANCE. Landlord, at its own cost and expense, shall maintain the foundation and the structural soundness of the exterior walls of the Building in good repair, reasonable wear and tear excluded. The term “walls” as used herein shall not include windows, glass or plate glass, any doors, special store fronts or office entries, and the term “foundation” as used herein shall not include loading docks. Tenant shall immediately give Landlord written notice of defect or need for repairs, after which Landlord shall have reasonable opportunity to effect such repairs or cure such defect. 5.   TENANT’S REPAIRS.      A. Maintenance of Premises and Appurtenances. Tenant, at its own cost and expense, shall (i) maintain all parts of the interior of the Premises and promptly make all necessary repairs and replacements to the interior of the Premises (except those for which Landlord is expressly responsible hereunder), and (ii) keep the parking areas, driveways and alleys surrounding the Premises free of trash and debris from Tenant’s use. Tenant’s obligation to maintain, repair and make replacements to the Premises shall cover, but not be limited to, pest control (including termites), trash removal and the maintenance, repair and replacement of all HVAC, electrical, plumbing, sprinkler and other mechanical systems.      B. Railroad Spur. Tenant agrees to maintain any spur track servicing the Premises and to sign a joint maintenance agreement with the railroad company servicing the Premises if requested by the railroad company. Landlord shall have the right to coordinate all repairs and maintenance of any rail tracks serving or intended to serve the Premises and, if Tenant uses such rail tracks, Tenant shall reimburse Landlord from time to time, upon demand, for its Proportionate Share of the costs of such repairs and maintenance and any other sums specified in any agreement respecting such tracks to which Landlord is a party.      C. Parking. Tenant and its employees, customers and licensees shall have the right to use only its Proportionate Share (which is forty-six (46) parking spaces) of any parking areas that have been designated for such use by Landlord in writing, subject to (i) all rules and regulations promulgated by Landlord, and (ii) rights of ingress and egress of other lessees. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, and Tenant expressly does not have the right to tow or obstruct improperly parked vehicles. Tenant agrees not to park on any public streets or private roadways adjacent to or in the vicinity of the Premises.      D. System Maintenance. Landlord shall service HVAC equipment within thirty (30) days of Tenant’s occupancy to ensure such HVAC equipment is in good working order. Tenant, at its own cost and expense, shall enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all hot water, heating and air conditioning systems and equipment within the Premises. The service contract must include the replacement of filters on a regular basis and all services suggested by the equipment manufacturer in its operations/maintenance manual and must become effective within thirty (30) days of the date Tenant takes possession of the Premises.      E. Option to Maintain Premises. Provided that such activities do not materially interfere with Tenant’s use of the Premises, Landlord reserves the right to perform, in whole or in part and without notice to Tenant, maintenance, repairs and replacements to the Premises, paving, common area, landscape, exterior painting, common sewage line plumbing and any other items that are otherwise Tenant’s obligations under this Paragraph 5, in which event, Tenant shall be liable for its Proportionate Share of the cost and expense of such repair, replacement, maintenance and other such items. 6. ALTERATIONS. Tenant shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord. Landlord shall not be required to notify Tenant of whether it consents to any alteration, addition or improvement until it (a) has received plans and specifications in a CAD disk format therefor which are sufficiently detailed to allow construction of the work depicted thereon to be performed in a good and workmanlike manner, and (b) has had a reasonable opportunity to review them. If the alteration, addition or improvement will affect the Building’s structure, HVAC system, or mechanical, electrical, or plumbing systems, then the plans and specifications therefor must be prepared by a licensed engineer reasonably acceptable to Landlord and provided to Landlord in a CAD disk format. Landlord’s approval of any plans and specifications shall not be a representation that the plans or the work depicted thereon will comply with law or be adequate for any purpose, but shall merely be Landlord’s consent to performance of the work. Upon completion of any alteration, addition, or improvement, Tenant shall deliver to Landlord accurate, reproducible as-built plans therefor in a CAD disk format. Tenant may erect shelves, bins, machinery and trade fixtures provided that such items (1) do not alter the basic character of the Premises or the Building; (2) do not overload or damage the same; and (3) may be removed without damage to the Premises. Unless Landlord specifies in writing otherwise, all alterations, additions, and improvements shall be Landlord’s property when installed in the Premises. All shelves, bins, machinery and trade fixtures installed by Tenant shall be removed on or before the earlier to occur of the day of termination or expiration of this Lease or vacating the Premises, at which time Tenant shall restore the Premises to their original condition. All work performed by a Tenant in the Premises (including that relating to the installations, repair replacement, or removal of any item) shall be performed in accordance with all applicable governmental laws, ordinances, regulations, and with Landlord’s specifications and requirements, in a good and workmanlike manner, and so as not to damage or alter the Building’s structure or the Premises. Tenant shall be responsible for compliance with The Americans With Disabilities Act of 1990. In connection with any such alteration, addition or improvement, Tenant shall pay to Landlord an administration fee of five percent (5%) of all costs incurred for such work. However, Tenant shall not have to pay Landlord an administration fee for non-structural work costing less than $10,000.00 7. SIGNS. Any signage Tenant desires for the Premises shall be subject to Landlord’s written approval and shall be submitted to Landlord prior to the Commencement Date of this Lease. Tenant shall repair, paint and/or replace the Building fascia surface to which its signs are attached upon Tenant’s vacating the Premises or the removal or alteration of its signage. Tenant shall not, without Landlord’s prior written consent, (i) make any changes to the exterior of the Premises, such as painting; (ii) install any exterior lights, decorations, balloons, flags, pennants or banners; or (iii) erect or install any signs, windows or door lettering, placards, decorations or advertising media of any type which can be viewed from the exterior of the Premises. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall conform in all respects to the criteria established by Landlord or shall be otherwise subject to Landlord’s prior written consent. 8. UTILITIES. Landlord agrees to provide normal water and electricity service to the Premises. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or at the Premises, together with any taxes, penalties, surcharges or the like pertaining to the Tenant’s use of the Premises and any maintenance charges for utilities. Landlord shall have the right to cause any of said services to be separately metered to Tenant, at Tenant’s expense. Tenant shall pay its pro rata share, of all charges for jointly metered utilities. Except for an interruption or failure caused by Landlord’s gross negligence or willful misconduct, Landlord shall not be liable for any interruption or failure of utility service on the Premises, and Tenant shall have no rights or claims as a result of any such failure. In the event water is not separately metered to Tenant, Tenant agrees that it will not use water and sewer capacity for uses other than normal domestic restroom and kitchen usage, and Tenant further agrees to reimburse Landlord for the entire amount of common water and sewer costs as additional rental if, in fact, Tenant uses water or sewer capacity for uses other than normal domestic restroom and kitchen uses without first obtaining Landlord’s written permission, including but not limited to the cost for acquiring additional sewer capacity to service Tenant’s excess sewer use. Furthermore, Tenant agrees in such event to install at its own expense a submeter to determine Tenant’s usage. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 3 -------------------------------------------------------------------------------- 9. INSURANCE.      A. Landlord’s Insurance. Subject to reimbursement under Paragraph 2C herein, Landlord shall maintain insurance covering the Building in an amount not less than eighty percent (80%) of the “replacement cost” thereof, insuring against the perils of fire, lightning, extended coverage, vandalism and malicious mischief.      B. Tenant’s Insurance. Tenant, at its own expense, shall maintain during the term of this Lease a policy or policies of workers’ compensation and comprehensive general liability insurance, including personal injury and property damage, with contractual liability endorsement, in the amount of Five Hundred Thousand Dollars ($500,000.00) for property damage and One Million Dollars ($1,000,000.00) per occurrence and One Million Dollars ($1,000,000.00) in the aggregate for personal injuries or deaths of persons occurring in or about the Premises. Tenant, at its own expense, shall also maintain during the term of this Lease fire and extended coverage insurance covering the replacement cost of (i) all alterations, additions, partitions and improvements installed or placed on the Premises by Tenant or by Landlord on behalf of Tenant; and (ii) all of Tenant’s personal property contained within the Premises. Said policies shall (i) name the Landlord and management company as additional insured and insure Landlord’s and management company’s contingent liability under or in connection with this Lease (except for the workers’ compensation policy, which instead shall include a waiver of subrogation endorsement in favor of Landlord); (ii) be issued by an insurance company which is acceptable to Landlord; and (iii) provide that said insurance shall not be cancelled unless thirty (30) days prior written notice has been given to Landlord. Said policy or policies or certificates thereof shall be delivered to Landlord by Tenant on or before the Commencement Date and upon each renewal of said insurance.      C. Prohibited Uses. Tenant will not permit the Premises to be used for any purpose or in any manner that would (i) void the insurance thereon, (ii) increase the insurance risk or cost thereof, or (iii) cause the disallowance of any sprinkler credits; including without limitation, use of the Premises for the receipt, storage or handling of any product, material or merchandise that is explosive or highly inflammable. If any increase in the cost of any insurance on the Premises or the Building is caused by Tenant’s use of the Premises or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord upon demand therefor. 10. FIRE AND CASUALTY DAMAGE.      A. Total or Substantial Damage and Destruction. If the Premises or the Building should be damaged or destroyed by fire or other peril, Tenant shall immediately give written notice to Landlord of such damage or destruction. If the Premises or the Building should be totally destroyed by any peril covered by the insurance to be provided by Landlord under Paragraph 9A above, or if they should be so damaged thereby that, in Landlord’s estimation, rebuilding or repairs cannot be completed within one hundred eighty (180) days after the date of such damage or after such completion there would not be enough time remaining under the terms of this Lease to fully amortize such rebuilding or repairs, then this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage.      B. Partial Damage or Destruction. If the Premises or the Building should be damaged by any peril covered by the insurance to be provided by Landlord under Paragraph 9A above and, in Landlord’s estimation, rebuilding or repairs can be substantially completed within one hundred eighty (180) days after the date of such damage, then this Lease shall not terminate and Landlord shall substantially restore the Premises to its previous condition, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements that may have been constructed, erected or installed in or about the Premises for the benefit of, by or for Tenant.      C. Lienholders’ Rights in Proceeds. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made known to Landlord by any such holder, whereupon all rights and obligations hereunder shall cease and terminate.      D. Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claims, actions or causes of action against each other, or their respective agents, officers and employees, for any loss or damage that may occur to the Premises, improvements to the Building or personal property (Building contents) within the Building and/or Premises, for any reason regardless of cause or origin. Each party to this Lease agrees immediately after execution of this Lease to give written notice of the terms of the mutual waivers contained in this subparagraph to each insurance company that has issued to such party policies of fire and extended coverage insurance and to have the insurance policies properly endorsed to provide that the carriers of such policies waive all rights of recovery under subrogation or otherwise against the other party. 11. LIABILITY AND INDEMNIFICATION. Except for any claims, rights of recovery and causes of action that Landlord has released, Tenant shall hold Landlord harmless from and defend Landlord against any and all claims or liability for any injury or damage (i) to any person or property whatsoever occurring in, on or about the Premises or any part thereof, the Building and/or other common areas, the use of which Tenant may have in accordance with this Lease, if (and only if) such injury or damage shall be caused in whole or in part by the act, neglect, fault or omission of any duty by Tenant, its agents, servants, employees or invitees; (ii) arising from the conduct or management of any work done by the Tenant in or about the Premises; (iii) arising from transactions of the Tenant; and (iv) all costs, counsel fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon. The provisions of this Paragraph 11 shall survive the expiration or termination of this Lease. Landlord shall not be liable in any event for personal injury or loss of Tenant’s property caused by fire, flood, water leaks, rain, hail, ice, snow, smoke, lightning, wind, explosion, interruption of utilities or other occurrences. Landlord strongly recommends that Tenant secure Tenant’s own insurance in excess of the amounts required elsewhere in this Lease to protect against the above occurrences if Tenant desires additional coverage for such risks. Tenant shall give prompt notice to Landlord of any significant accidents involving injury to persons or property. Furthermore, Landlord shall not be responsible for lost or stolen personal property, equipment, money or jewelry from the Premises or from the public areas of the Building or the Project, regardless of whether such loss occurs when the area is locked against entry. Landlord shall not be liable to Tenant or Tenant’s employees, customers or invitees for any damages or losses to persons or property caused by any lessees in the Building or the Project, or for any damages or losses caused by theft, burglary, assault, vandalism or other crimes. Landlord strongly recommends that Tenant provide its own security systems and services and secure Tenant’s own insurance in excess of the amounts required elsewhere in this Lease to protect against the above occurrences if Tenant desires additional protection or coverage for such risks. Tenant shall give Landlord prompt notice of any criminal or suspicious conduct within or about the Premises, the Building or the Project and/or any personal injury or property damage caused thereby. Landlord may, but is not obligated to, enter into agreements with third parties for the provision, monitoring, maintenance and repair of any courtesy patrols or similar services or fire protective systems and equipment and, to the extent same is provided at Landlord’s sole discretion, Landlord shall not be liable to Tenant for any damages, costs or expenses which occur for any reason in the event any such system or equipment is not properly installed, monitored or maintained or any such services are not properly provided. Landlord shall use reasonable diligence in the maintenance of existing lighting, if any, in the parking garage or parking areas servicing the Premises, and Landlord shall not be responsible for additional lighting or any security measures in the Project, the Premises, the parking garage or other parking areas. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 4 -------------------------------------------------------------------------------- 12. USE. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be directly incidental thereto. Outside storage, including without limitation storage of trucks and other vehicles, is prohibited without Landlord’s prior written consent. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in, upon or connected with the Premises, all at Tenant’s sole expense. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action that would constitute a nuisance or would disturb, unreasonably interfere with or endanger Landlord or any other lessees of the Building or the Project. 13. HAZARDOUS WASTE. The term “Hazardous Substances,” as used in this Lease, shall mean pollutants, contaminants, toxic or hazardous wastes, radioactive materials or any other substances, the use and/or the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law,” which term shall mean any federal, state or local statute, ordinance, regulation or other law of a governmental or quasi-governmental authority relating to pollution or protection of the environment or the regulation of the storage or handling of Hazardous Substances. Tenant hereby agrees that: (i) no activity will be conducted on the Premises that will produce any Hazardous Substances, except for such activities that are part of the ordinary course of Tenant’s business activities (the “Permitted Activities”), provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Landlord and, in connection therewith, Tenant shall be responsible for obtaining any required permits or authorizations and paying any fees and providing any testing required by any governmental agency; (ii) the Premises will not be used in any manner for the storage of any Hazardous Substances, except for the temporary storage of such materials that are used in the ordinary course of Tenant’s business (the “Permitted Materials”), provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and have been approved in advance in writing by Landlord, and, in connection therewith, Tenant shall be responsible for obtaining any required permits or authorizations and paying any fees and providing any testing required by any governmental agency; (iii) no portion of the Premises will be used as a landfill or a dump; (iv) Tenant will not install any underground tanks of any type; (v) Tenant will not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance; and (vi) Tenant will not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required clean-up procedures shall be diligently undertaken by Tenant at its sole cost pursuant to all Environmental Laws. Landlord and Landlord’s representatives shall have the right but not the obligation to enter the Premises for the purpose of inspecting the storage, use and disposal of any Permitted Materials to ensure compliance with all Environmental Laws. Should it be determined, in Landlord’s sole opinion, that any Permitted Materials are being improperly stored, used or disposed of, then Tenant shall immediately take such corrective action as requested by Landlord. Should Tenant fail to take such corrective action within twenty-four (24) hours, Landlord shall have the right to perform such work and Tenant shall reimburse Landlord, on demand, for any and all costs associated with said work. If at any time during or after the term of this Lease, the Premises is found to be contaminated with Hazardous Substances, Tenant shall diligently institute proper and thorough clean-up procedures, at Tenant’s sole cost. Tenant agrees to indemnify and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, damages, penalties and obligations of any nature arising from or as a result of any contamination of the Premises with Hazardous Substances, or otherwise arising from the use of the Premises by Tenant. The foregoing indemnification and the responsibilities of Tenant shall survive the termination or expiration of this Lease. Landlord shall deliver written notice to Tenant if, on or after the Commencement Date other tenants of the Project use Hazardous Substances in their premises with the consent or knowledge of Landlord. Landlord, however, shall not be required to provide notice to Tenant of the use or existence of Hazardous Substances that consist of customary cleaning supplies, office products or other materials used by any tenant in the ordinary course of such tenant’s business, unless Landlord becomes aware of such items being used or stored in violation of applicable environmental laws or if the use or storage of such items otherwise require the consent of Landlord under such tenant’s lease. 14. INSPECTION. Landlord’s agents and representatives shall have the right to enter the Premises at any reasonable time during business hours (or at any time in case of emergency) (i) to inspect the Premises, (ii) to make such repairs as may be required or permitted pursuant to this Lease, and/or (iii) during the last six (6) months of the Lease term, for the purpose of showing the Premises. In addition, Landlord shall have the right to erect a suitable sign on the Premises stating the Premises are available for lease. Tenant shall notify Landlord in writing at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. If Tenant fails to give such notice or to arrange for such inspection, then Landlord’s inspection of the Premises shall be deemed correct for the purpose of determining Tenant’s responsibility for repairs and restoration of the Premises. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not have the right to sublet, assign or otherwise transfer or encumber this Lease, or any interest therein, without the prior written consent of Landlord. Any attempted assignment, subletting, transfer or encumbrance by Tenant in violation of the terms and covenants of this paragraph shall be void. Any assignee, sublessee or transferee of Tenant’s interest in this Lease (all such assignees, sublessees and transferees being hereinafter referred to as “Transferees”), by assuming Tenant’s obligations hereunder, shall assume liability to Landlord for all amounts paid to persons other than Landlord by such Transferees to which Landlord is entitled or is otherwise in contravention of this Paragraph 15. No assignment, subletting or other transfer, whether or not consented to by Landlord or permitted hereunder, shall relieve Tenant of its liability under this Lease. If an Event of Default occurs while the Premises or any part thereof are assigned or sublet, then Landlord, in addition to any other remedies herein provided or provided by law, may collect directly from such Transferee all rents payable to the Tenant and apply such rent against any sums due Landlord hereunder. No such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant’s obligations hereunder. If Landlord consents to any subletting or assignment by Tenant as hereinabove provided and any category of rent subsequently received by Tenant under any such sublease is in excess of the same category of rent payable under this Lease, or any additional consideration is paid to Tenant by the assignee under any such assignment, then Landlord may, at its option, declare such excess rents (after deducting market brokerage commissions and tenant improvements) under any sublease or such additional consideration for any assignment to be due and payable by Tenant to Landlord as additional rent hereunder. The following shall additionally constitute an assignment of this Lease by Tenant for the purposes of this Paragraph 15: (i) if Tenant is a corporation, any merger, consolidation, dissolution or liquidation, or any change in ownership or power to vote of thirty percent (30%) or more of Tenant’s outstanding voting stock; (ii) if Tenant is a partnership, joint venture or other entity, any liquidation, dissolution or transfer of ownership of any interests totaling thirty percent (30%) or more of the total interests in such entity; (iii) the sale, transfer, exchange, liquidation or other distribution of more than thirty percent (30%) of Tenant’s assets, other than this Lease; or (iv) the mortgage, pledge, hypothecation or other encumbrance of or grant of a security interest by Tenant in this Lease, or of any of Tenant’s rights hereunder. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 5 -------------------------------------------------------------------------------- 16. CONDEMNATION. If more than eighty percent (80%) of the Premises are taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain or private purchase in lieu thereof, and the taking prevents or materially interferes with the use of the remainder of the Premises for the purpose for which they were leased to Tenant, then this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective on the date of such taking. If less than eighty percent (80%) of the Premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or private purchase in lieu thereof, or if the taking does not prevent or materially interfere with the use of the remainder of the Premises for the purpose for which they were leased to Tenant, then this Lease shall not terminate, but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances. All compensation awarded in connection with or as a result of any of the foregoing proceedings shall be the property of Landlord, and Tenant hereby assigns any interest in any such award to Landlord; provided, however, Landlord shall have no interest in any award made to Tenant for loss of business or goodwill or for the taking of Tenant’s trade fixtures and personal property, if a separate award for such items is made to Tenant. 17. HOLDING OVER. At the termination of this Lease by its expiration or otherwise, Tenant shall immediately deliver possession of the Premises to Landlord with all repairs and maintenance required herein to be performed by Tenant completed. If, for any reason, Tenant retains possession of the Premises after the expiration or termination of this Lease, unless the parties hereto otherwise agree in writing, such possession shall be deemed to be a tenancy at will only, and all of the other terms and provisions of this Lease shall be applicable during such period, except that Tenant shall pay Landlord from time to time, upon demand, as rental for the period of such possession, an amount equal to one and one-half (1 and 1/½) times the rent in effect on the date of such termination of this Lease, computed on a daily basis for each day of such period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this Paragraph 17 shall not be construed as consent for Tenant to retain possession of the Premises in the absence of written consent thereto by Landlord. 18. QUIET ENJOYMENT. Landlord represents that it has the authority to enter into this Lease and that, so long as Tenant pays all amounts due hereunder and performs all other covenants and agreements herein set forth, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this Lease. 19. EVENTS OF DEFAULT. The following events (herein individually referred to as an “Event of Default”) each shall be deemed to be a default in or breach of Tenant’s obligations under this Lease:      A. Tenant shall fail to pay any installment of the rent herein reserved when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date such payment was due and written notice was provided to the Tenant. Landlord will only be required to provide such notice twice during any calendar year.      B. Tenant shall (i) vacate or abandon all or more than thirty-three percent (33%) of the Premises or (ii) fail to continuously operate its business at the Premises for the permitted use set forth herein, in either event whether or not Tenant is in default of the rental payments due under this Lease.      C. Tenant shall fail to discharge any lien placed upon the Premises in violation of Paragraph 22 hereof within twenty (20) days after any such lien or encumbrance is filed against the Premises.      D. Tenant shall default in the performance of any of its obligations under any other lease to Tenant from Landlord and same shall remain uncured after the lapsing of any applicable cure periods provided for under such other lease.      E. Tenant shall fail to comply with any term, provision or covenant of this Lease (other than those listed above in this paragraph) and shall not cure such failure within twenty (20) days after written notice thereof from Landlord. 20. REMEDIES. Upon each occurrence of an Event of Default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand: (a) Terminate this Lease; (b) Enter upon and take possession of the Premises without terminating this Lease;      (c) Make such payments and/or take such action and pay and/or perform whatever Tenant is obligated to pay or perform under the terms of this Lease, and Tenant agrees that Landlord shall not be liable for any damages resulting to Tenant from such action; and/or      (d) Alter all locks and other security devices at the Premises, with or without terminating this Lease, and pursue, at Landlord’s option, one or more remedies pursuant to this Lease, and Tenant hereby expressly agrees that Landlord shall not be required to provide to Tenant the new key to the Premises, regardless of hour, including Tenant’s regular business hours; and in any such event Tenant shall immediately vacate the Premises, and if Tenant fails to do so, Landlord, without waiving any other remedy it may have, may enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim of damages therefore. The provisions of this Lease are intended to supersede Section 93.002 of the Texas Property Code and Tenant hereby expressly waives any and all rights and remediesTenant may have under Paragraph (g) of such Section 93.002.      A. Damages Upon Termination. If Landlord terminates this Lease at Landlord’s option, Tenant shall be liable for and shall pay to Landlord the sum of all rental and other payments owed to Landlord hereunder accrued to the date of such termination, plus, as liquidated damages, an amount equal to (i) the present value of the total rental and other payments owed hereunder for the remaining portion of the Lease term, calculated as if such term expired on the date set forth in Paragraph 1, less (ii) the present value of the then fair market rental for the Premises for such period, provided that, because of the difficulty of ascertaining such value and in order to achieve a reasonable estimate of liquidated damages hereunder, Landlord and Tenant stipulate and agree, for the purposes hereof, that such fair market rental shall in no event exceed seventy-five percent (75%) of the rental amount for such period set forth in Paragraph 2 above.      B. Damages Upon Repossession. If Landlord repossesses the Premises without terminating this Lease, Tenant, at Landlord’s option, shall be liable for and shall pay Landlord on demand all rental and other payments owed to Landlord hereunder, accrued to the date of such repossession, plus all amounts required to be paid by Tenant to Landlord until the date of expiration of the term as stated in Paragraph 1, diminished by all amounts actually received by Landlord through reletting the Premises during such remaining term (but only to the extent of the rent herein reserved). Actions to collect amounts due by Tenant to Landlord under this paragraph may be brought from time to time, on one or more occasions, without the necessity of Landlord’s waiting until expiration of the Lease term. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 6 --------------------------------------------------------------------------------      C. Costs of Reletting, Removing, Repairs and Enforcement. Upon an Event of Default, in addition to any sum provided to be paid under this Paragraph 20, Tenant also shall be liable for and shall pay to Landlord (i) brokers’ fees and all other costs and expenses incurred by Landlord in connection with reletting the whole or any part of the Premises; (ii) the costs of removing, storing or disposing of Tenant’s or any other occupant’s property; (iii) the costs of repairing, altering, remodeling or otherwise putting the Premises into condition acceptable to a new tenant or tenants; (iv) any and all costs and expenses incurred by Landlord in effecting compliance with Tenant’s obligations under this Lease; and (v) all reasonable expenses incurred by Landlord in enforcing or defending Landlord’s rights and/or remedies hereunder, including without limitation all reasonable attorneys’ fees and all court costs incurred in connection with such enforcement or defense.      D. Late Charge. In the event Tenant fails to make any payment due hereunder within five (5) days after such payment is due, including without limitation any rental or escrow payment, in order to help defray the additional cost to Landlord for processing such late payments and not as interest, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such payment. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law, and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner.      E. Interest on Past Due Amounts. If Tenant fails to pay any sum which at any time becomes due to Landlord under any provision of this Lease as and when the same becomes due hereunder, and such failure continues for ten (10) days after the due date for such payment, then Tenant shall pay to Landlord interest on such overdue amounts from the date due until paid at an annual rate which equals the lesser of (i) eighteen percent (18%) or (ii) the highest rate then permitted by law.      F. No Implied Acceptances or Waivers. Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance by Landlord of Tenant’s surrender of the Premises, it being understood that such surrender can be effected only by the written agreement of Landlord. Tenant and Landlord further agree that forbearance by Landlord to enforce any of its rights under this Lease or at law or in equity shall not be a waiver of Landlord’s right to enforce any one or more of its rights, including any right previously forborne, in connection with any existing or subsequent default. No re-entry or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease, unless a written notice of such intention is given to Tenant, and, notwithstanding any such reletting or re-entry or taking possession of the Premises, Landlord may at any time thereafter elect to terminate this Lease for a previous default. Pursuit of any remedies hereunder shall not preclude the pursuit of any other remedy herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages occurring to Landlord by reason of the violation of any of the terms, provisions and covenants contained in this Lease. Landlord’s acceptance of any rent following an Event of Default hereunder shall not be construed as Landlord’s waiver of such Event of Default. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants of this Lease shall be deemed or construed to constitute a waiver of any other violation or default.      G. Reletting of Premises. In the event of any termination of this Lease and/or repossession of the Premises for an Event of Default, Landlord shall use reasonable efforts to relet the Premises and to collect rental after reletting, with no obligation to accept any lessee that Landlord deems undesirable or to expend any funds in connection with such reletting or collection of rents therefrom. Tenant shall not be entitled to credit for or reimbursement of any proceeds of such reletting in excess of the rental owed hereunder for the period of such reletting. Landlord may relet the whole or any portion of the Premises, for any period, to any tenant and for any use or purpose.      H. Landlord’s Default. If Landlord fails to perform any of its obligations hereunder within thirty (30) days after written notice from Tenant specifying such failure, Tenant’s exclusive remedy shall be an action for damages. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof. All obligations of Landlord hereunder will be construed as covenants, not conditions; and all such obligations will be binding upon Landlord only during the period of its possession of the premises and not thereafter. The term “Landlord” shall mean only the owner, for the time being, of the Premises and, in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Landlord thereafter accruing, provided that such covenants and obligations shall be binding during the Lease term upon each new owner for the duration of such owner’s ownership. Notwithstanding any other provision of this Lease, Landlord shall not have any personal liability hereunder. Tenant agrees to look solely to the estate and interest of Landlord in the Project for the collection of any judgement or other judicial process requiring the payment of money by Landlord in the event of a default or breach by Landlord with respect to this Lease, and no other assets of Landlord shall be subject to levy of execution or other procedures for the satisfaction of Tenant’s rights.      I. Tenant’s Personal Property. If Landlord repossesses the Premises pursuant to the authority herein granted, or if Tenant vacates or abandons all or any part of the Premises, then, in addition to Landlord’s rights under Paragraph 27 hereof, Landlord shall have the right to (i) keep in place and use, or (ii) remove and store, all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Tenant, at all times prior to any foreclosure thereon by Landlord or repossession thereof by any lessor thereof or third party having a lien thereon. In addition to the Landlord’s other rights hereunder, Landlord may dispose of the stored property if Tenant does not claim the property within ten (10) days after the date the property is stored. Landlord shall give Tenant at least ten (10) days prior written notice of such intended disposition. Landlord shall also have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person (“Claimant”) who presents to Landlord a copy of any instrument represented by Claimant to have been executed by Tenant (or any predecessor of Tenant) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Landlord to inquire into the authenticity or legality of said instrument. The rights of Landlord herein stated shall be in addition to any and all other rights that Landlord has or may hereafter have at law or in equity, and Tenant stipulates and agrees that the rights granted Landlord under this paragraph are commercially reasonable. 21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the Building, provided, however, that if the mortgagee, trustee or holder of any such mortgage or deed of trust elects to have Tenant’s interest in this Lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust and provided further, that if this Lease is made subordinate to any subsequent mortgage or deed of trust, upon Tenant’s written request and notice to Landlord, Landlord shall use good faith efforts to obtain from any such mortgagee a written agreement that after a foreclosure (or a deed in lieu of foreclosure) the rights of Tenant shall remain in full force and effect during the term of this Lease so long as Tenant shall continue to recognize and perform all of the covenants and conditions of this Lease. Tenant, at any time hereafter on demand, shall execute any instruments, releases or other documents that may be required by any mortgagee, trustee or holder for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. Tenant shall not terminate this Lease or pursue any other remedy available to Tenant hereunder for any default on the part of Landlord without first giving written notice by certified or registered mail, return receipt requested, to any mortgagee, trustee or holder of any such mortgage or deed of trust, the name and post office address of which Tenant has received written notice, specifying the default in reasonable detail and affording such mortgagee, trustee or holder a reasonable opportunity (but in no event less than thirty (30) days) to make performance, at its election, for and on behalf of Landlord. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 7 -------------------------------------------------------------------------------- 22. MECHANIC’S LIENS. Tenant has no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises. Tenant will save and hold Landlord harmless from any and all loss, cost or expense, including without limitation attorneys’ fees, based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. 23. MISCELLANEOUS.      A. Interpretation. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. Any reference in this Lease to rentable area shall mean the gross rentable area as determined by the roofline of the building in question.      B. Binding Effect. Except as otherwise herein expressly provided, the terms, provisions and covenants and conditions in this Lease shall apply to, inure to the benefit of and be binding upon the parties hereto and upon their respective heirs, executors, personal representatives, legal representatives, successors and assigns. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations in the Premises and in the Building and other property that are the subject of this Lease.      C. Evidence of Authority. Tenant agrees to furnish to Landlord, promptly upon demand, a corporate resolution, proof of due authorization by partners or other appropriate documentation evidencing the due authorization of such party to enter into this Lease.      D. Force Majeure. Landlord shall not be held responsible for delays in the performance of its obligations hereunder when caused by material shortages, acts of God, labor disputes or other events beyond the control of Landlord.      E. Payments Constitute Rent. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as rent, shall constitute rent.      F. Estoppel Certificates. Tenant agrees, from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord’s designee, an estoppel certificate stating that this Lease is in full force and effect, the date to which rent has been paid, the unexpired term of this Lease, any defaults existing under this Lease (or the absence thereof) and such other factual or legal matters pertaining to this Lease as may be requested by Landlord. It is understood and agreed that Tenant’s obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord’s execution of this Lease.      G. Entire Agreement. This Lease constitutes the entire understanding and agreement of Landlord and Tenant with respect to the subject matter of this Lease, and contains all of the covenants and agreements of Landlord and Tenant with respect thereto. Landlord and Tenant each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations or representations not expressly set forth in this Lease are of no force or effect. EXCEPT AS SPECIFICALLY PROVIDED IN THIS LEASE, TENANT HEREBY WAIVES THE BENEFIT OF ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR ANY PARTICULAR PURPOSE. Landlord’s agents and employees do not and will not have authority to make exceptions, changes or amendments to this Lease, or factual representations not expressly contained in this Lease. Under no circumstances shall Landlord or Tenant be considered an agent of the other. This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.      H. Survival of Obligations. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and insurance and all obligations concerning the condition and repair of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the Premises in good condition and repair, reasonable wear and tear excluded, including without limitation the cost of repairs to and replacements of all heating and air conditioning systems and equipment therein. Tenant shall also, prior to vacating the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant’s obligation hereunder for real estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefore upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be. Any Security Deposit held by Landlord may, at Landlord’s option, be credited against any amounts due from Tenant under this Paragraph 23H.      I. Severability of Terms. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then, in such event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.      J. Effective Date. All references in this Lease to “the date hereof” or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease.      K. Brokers’ Commission. Tenant represents and warrants that it has dealt with and will deal with no broker, agent or other person in connection with this transaction or future related transactions and that no broker, agent or other person brought about this transaction, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction.      L. Ambiguity. Landlord and Tenant hereby agree and acknowledge that this Lease has been fully reviewed and negotiated by both Landlord and Tenant, and that Landlord and Tenant have each had the opportunity to have this Lease reviewed by their respective legal counsel, and, accordingly, in the event of any ambiguity herein, Tenant does hereby waive the rule of construction that such ambiguity shall be resolved against the party who prepared this Lease.      M. Joint Several Liability. If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. If there be a guarantor of Tenant’s obligations hereunder, the obligations hereunder imposed upon Tenant shall be joint and several obligations of Tenant and such guarantor, and Landlord need not first proceed against Tenant before proceeding against such guarantor, nor shall any such guarantor be released from its guaranty for any reason whatsoever, including, without limitation, in case of any amendments hereto, waivers hereof or failure to give such guarantor any notices hereunder. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 8 --------------------------------------------------------------------------------      N. Third Party Rights. Nothing herein expressed or implied is intended, or shall be construed, to confer upon or give to any person or entity, other than the parties hereto, any right or remedy under or by reason of this Lease.      O. Exhibits and Attachments. All exhibits, attachments, riders and addenda referred to in this Lease, and the exhibits listed herein below and attached hereto, are incorporated into this Lease and made a part hereof for all intents and purposes as if fully set out herein. All capitalized terms used in such documents shall, unless otherwise defined therein, have the same meanings as are set forth herein.      P. Applicable Law. This Lease has been executed in the State of Texas and shall be governed in all respects by the laws of the State of Texas. It is the intent of Landlord and Tenant to conform strictly to all applicable state and federal usury laws. All agreements between Landlord and Tenant, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever shall the amount contracted for, charged or received by Landlord for the use, forbearance or retention of money hereunder or otherwise exceed the maximum amount which Landlord is legally entitled to contract for, charge or collect under the applicable state or federal law. If, from any circumstance whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity prescribed by law, then the obligation to be fulfilled shall be automatically reduced to the limit of such validity, and if from any such circumstance Landlord shall ever receive as interest or otherwise an amount in excess of the maximum that can be legally collected, then such amount which would be excessive interest shall be applied to the reduction of rent hereunder, and if such amount which would be excessive interest exceeds such rent, then such additional amount shall be refunded to Tenant. 24. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivering of notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivering of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken:      (i) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address for Landlord set forth below or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant’s obligation to pay rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord.      (ii) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address set forth below, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith.      (iii) Except as expressly provided herein, any written notice, document or payment required or permitted to be delivered hereunder shall be deemed to be delivered when received or, whether actually received or not, when deposited in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith. 25. ADDITIONAL PROVISIONS. See EXHIBIT “C” attached hereto and incorporated herein by reference. Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 9 -------------------------------------------------------------------------------- 27. LANDLORD’S LIEN. In addition to any statutory lien for rent in Landlord’s favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest in all rentals and other sums of money which may become due under this Lease from Tenant, all goods, equipment, fixtures, furniture, inventory, and other personal property of Tenant now or hereafter situated at, on or within the real property described in EXHIBIT “A” attached hereto and incorporated herein by reference, and such property shall not be removed therefrom without the consent of Landlord, except in the ordinary course of Tenant’s business. In the event any of the foregoing described property is removed from the Premises in violation of the covenant in the preceding sentence, the security interest shall continue in such property and all proceeds and products, regardless of location. Upon an Event of Default hereunder by Tenant, in addition to all of Landlord’s other rights and remedies, Landlord shall have all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this paragraph at public or private sale at any time after ten (10) days prior notice by Landlord. Tenant hereby agrees to execute such other instruments deemed by Landlord as necessary or desirable under applicable law to perfect more fully the security interest hereby created. Landlord and Tenant agree that this Lease and security agreement and EXHIBIT “A” attached hereto serves as a financing statement and that a copy, photograph or other reproduction of this portion of this Lease may be filed of record by Landlord and have the same force and effect as the original. This security agreement and financing statement also covers fixtures located at the Premises subject to this Lease and legally described in EXHIBIT “A” attached hereto, and all rents or other consideration received by or on behalf of Tenant in connection with any assignment of Tenant’s interest in this Lease or any sublease of the Premises or any part thereof, and, therefore, may also be filed for record in the appropriate real estate records. Landlord agrees that upon written request from Tenant, Landlord shall subordinate Landlord’s lien for any financing provided to Tenant by any bank, leasing company, or vendor of equipment. Such subordination shall be provided in a form acceptable to both Landlord and Landlord’s lender.      EXECUTED BY LANDLORD, this 27 day of March, 2000 .     Aetna Life Insurance Company, a Connecticut Corporation:     By: UBS Brinson Realty Investors, LLC (F/k/a Allegis Realty Investors LLC), a Massachusetts limited liability company, its Investment Advisor and Agent Attest/Witness _________________________________________   By:_______________________________ Title:______________________________ Title:  ____________________________________   Address: c/o Trammell Crow Central Texas, Inc. 301 Congress Avenue, Suite 1300, Austin, TX 78701      EXECUTED BY TENANT, this 16 day of March, 2000.     Tanisys Technology, Inc.: Attest/Witness _________________________________________         /s/ Richard Giandana ____________________________________ Title:  ____________________________________   By: Richard Giandana Title: V.P. of HR and Administration Address: Tanisys Technology, Inc.       12201 Technology Blvd.       Austin, Texas 78727 EXHIBIT “A” — Description of Premises EXHIBIT “C” — Additional Provisions 10 -------------------------------------------------------------------------------- INSERT EXHIBIT “A”HERE Initial _____/RG/____ __/SMC/____ Date _______03/16/00 ____03/27/00 11 -------------------------------------------------------------------------------- EXHIBIT “C” ADDITIONAL PROVISIONS MORTGAGEE PROTECTION CLAUSE Tenant agrees to give any Mortgagees and/or Trust Deed Holders, by Registered Mail, a copy of any Notice of Default served upon the Landlord, provided that prior to such notice Tenant has been notified, in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the address of such Mortgagees and/or Trust Deed Holders. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagees and/or Trust Deed Holders shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days, any Mortgagee and/or Trust Deed Holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. TOXIC WASTE Tenant covenants not to introduce any form of hazardous or toxic materials onto the Premises without complying with all applicable Federal, State and local laws or ordinances pertaining to the transportation, storage, use or disposal of such material, including but not limited to obtaining proper permits. If Tenant’s transportation, storage, use or disposal of hazardous or toxic materials on the Premises results in: 1) contamination of the soil or surface or ground water; or 2) loss or damage to person(s) or property, then Tenant agrees to respond in accordance with the following paragraph. Tenant agrees: (i) to notify Landlord immediately of any contamination, claim of contamination, loss or damage; (ii) after consultation and approval by Landlord, to clean up the contamination in full compliance with all applicable statutes, regulations and standards; and (iii) to indemnify claims, suits, causes of action, costs and fees, including attorney’s fees, arising from or connected with any such contamination, claim of contamination, loss or damage. These provisions shall survive termination of this Lease. INTERIOR IMPROVEMENTS All improvements must comply with Trammell Crow Company’s standard specifications (see Standards and Specifications for Office/Warehouse Buildings) and all applicable governmental regulations. Prior to beginning construction of any such improvements, Tenant shall submit architectural drawings of the proposed improvements to Landlord and shall obtain Landlord’s written consent to begin construction. 12

QuickLinks -- Click here to rapidly navigate through this document NASH-FINCH COMPANY PROFIT SHARING PLAN 1994 REVISION Seventh Declaration of Amendment     Pursuant to the retained power of amendment contained in Section 11.2 of the instrument entitled "Nash-Finch Company Profit Sharing Plan—1994 Revision," the undersigned hereby amends the said instrument in the manner described below. 1.Section 2.1(A)(2) thereof is amended to read as follows:     (2) the last day of the three-month period that begins on the day on which he or she first completes an Hour of Service of the type specified at Section 10.3(A)(1) for the purpose of having Pre-Tax Contributions made on his or her behalf pursuant to Section 3.1; and 2.Section 2.1(B) thereof is amended to read as follows:     (B) If an Employee is not a Qualified Employee on the date on which he or she would otherwise be eligible to participate in the Plan for the purpose specified in Subsection (A)(2), he or she will become eligible to participate in the Plan for that purpose as of the first following date on which he or she completes an Hour of Service of the type specified at Section 10.3(A)(1) as a Qualified Employee. If an Employee is not a Qualified Employee on the date on which he or she would otherwise be eligible to participate in the Plan for the purpose specified in Subsection (A)(3), he or she will become eligible to participate for that purpose as of the first day of the calendar quarter that falls on or next follows the date on which he or she becomes a Qualified Employee if he or she remains a Qualified Employee on the date on which he or she would otherwise be eligible to participate. 3.Section 2.2 thereof is amended to read as follows:     2.2  Termination Prior to Entry Date.  If an Employee who terminates employment before the date on which he or she would otherwise be eligible to participate in the Plan for a specified purpose again becomes an Employee after that date: (a)he or she will be treated as a new Employee and his or her previous service will be disregarded in determining his or her new three-month period pursuant to Section 2.1(A)(2); provided, that if he or she again becomes an Employee before the end of the Computation Period in effect when he or she terminated employment and he or she completes one Year of Service during that Computation Period, in no case will he or she become eligible to participate in the Plan for the purpose specified in Section 2.1(A)(2) later than the first day of the first payroll period that begins after the last day of that Computation Period if he or she is a Qualified Employee on the day on which he or she would otherwise be eligible to participate; and (b)with respect to his or her eligibility to participate for the purpose specified in Section 2.1(A)(3), (i)if he or she terminated employment before the last day of the first Computation Period during which he or she completes one Year of Service, he or she will be treated as a new Employee and his or her previous service will be disregarded in determining his or her new Computation Period, (ii)if he or she terminated employment after completing one Year of Service but before completing two Years of Service, he or she will be treated as a new Employee and his or her previous service will be disregarded in determining his or her new Computation Period if his or her service is lost pursuant to Section 10.5, or -------------------------------------------------------------------------------- (iii)if he or she terminated employment after completing two Years of Service but before he or she become eligible to participate for the purpose specified in Section 2.1(A)(3), he or she will be eligible to participate for the purpose specified in Section 2.1(A)(3) as of the first day of the calendar quarter that falls on or next follows the date on which he or she first completes an Hour of Service of the type specified at Section 10.3(A)(1) as a Qualified Employee following his or her termination of employment. 4.Section 3.1(B)(2) thereof is amended to read as follows:     (2) In conjunction with a Participant's entering or reentering the Plan pursuant to Article II, reduction of the Participant's Eligible Earnings will begin as soon as administratively practicable after the Administrator receives the Participant's complete and accurate election in form prescribed by Plan Rules. 5.Section 5.2 thereof is amended to read as follows:     5.2  Contribution Investment Directions.  (A) In conjunction with his or her enrollment in the Plan, a Participant must direct the manner in which contributions to his or her Accounts will be invested among the investment funds maintained pursuant to Section 5.1. Investment directions must be made in five percent increments and may be made separately with respect to the Participant's Pre-Tax Contribution Account and with respect to the aggregate of his or her Profit Sharing Contribution and Rollover Accounts. Such a direction must be made in accordance with and is subject to Plan Rules. To the extent a Participant fails to direct Account investments, the Accounts will be invested in the manner specified in Plan Rules.     (B) A Participant may direct a change in the manner in which future contributions credited to his or her Accounts will be invested among the investment funds maintained pursuant to Section 5.1. Investment directions must be made in five percent increments and may be made separately with respect to the Participant's Pre-Tax Contribution Account and with respect to the aggregate of his or her Profit Sharing Contribution and Rollover Accounts. Such a direction must be made in accordance with and is subject to Plan Rules and will be effective as soon as administratively practicable after the Trustee receives the direction from the Participant in accordance with Plan Rules.     (C) Plan Rules will include procedures pursuant to which Participants are provided with the opportunity to obtain written confirmation of investment directions made pursuant to this section. 6.Sections 5.3 and 5.4 thereof are redesignated as Sections 5.4 and 5.5, respectively, and a new Section 5.3 is added thereto which reads as follows:     5.3  Transfer Among Investment Funds.  (A) A Participant may direct the transfer of his or her Accounts among the investment funds maintained pursuant to Section 5.1. Investment directions must be made in five percent increments and may be made separately with respect to the Participant's Pre-Tax Contribution Account and with respect to the aggregate of his or her Profit Sharing Contribution and Rollover Accounts. Such a direction must be made in accordance with and is subject to Plan Rules and will be effective on or as soon as administratively practicable after the Trustee receives the direction from the Participant in accordance with Plan Rules.     (B) Plan Rules will include procedures pursuant to which Participants are provided with the opportunity to obtain written confirmation of investment directions made pursuant to this section.     (C) Plan Rules may impose uniform limitations and restrictions applicable to transfers into and out of specific funds. 7.A new Exhibit D is added thereto in the form attached hereto. 2 --------------------------------------------------------------------------------     The amendments set forth at items 1 through 6 above are effective as of January 1, 2000. The amendment set forth at item 7 above is effective as of December 31, 1999. The amendment set forth at item 6 above applies to all Participants, including those who terminated employment before January 1, 2000.     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly authorized officers this 24th day of October, 2000.       NASH FINCH COMPANY   Attest:   /s/ NORMAN R. SOLAND    -------------------------------------------------------------------------------- Secretary       By:   /s/ RON MARSHALL    -------------------------------------------------------------------------------- President 3 -------------------------------------------------------------------------------- NASH-FINCH COMPANY PROFIT SHARING PLAN EXHIBIT D Special Provisions Applicable to the Adoption of the Plan by Erickson's Diversified Corporation     This Exhibit D sets forth special provisions of the Plan applicable to the adoption of the Plan by Erickson's Diversified Corporation ("Erickson's") effective as of December 31, 1999. 1.Eligibility.  (A) Notwithstanding Section 2.1(A)(3) of the Plan, a Qualified Employee of Erickson's on December 31, 1999 who was a participant in the Erickson's Diversified Corporation Profit Sharing Plan on December 31, 1999 is eligible to participate in the Plan for the purpose specified in Section 2.1(A)(3) of the Plan as of December 31, 1999.     (B) Notwithstanding Sections 2.1(A) and 2.3(A) of the Plan, if a Qualified Employee of Erickson's transfers employment to the Company after the date on which Erickson's became an Affiliated Organization and before January 1, 2000, then     (1) if the Qualified Employee was a participant in the Erickson's Diversified Corporation 401(k) Plan immediately before the transfer, he or she will be eligible to participate in the Plan for the purpose specified in Section 2.1(A)(2) of the Plan as of the date on which he or she first performs an Hour of Service of the type specified at Section 10.3(A)(1) as a Qualified Employee of the Company, and     (2) if the Qualified Employee was a participant in the Erickson's Diversified Corporation Profit Sharing Plan immediately before the transfer, he or she will be eligible to participate in the Plan for the purpose specified at Section 2.1(A)(3) of the Plan as of the date on which he or she first performs an Hour of Service of the type specified at Section 10.3(A)(1) as a Qualified Employee of the Company. 2.Service Credit.  For any Employee of Erickson's on the date on which Erickson's became an Affiliated Organization, the Employee's service with Erickson's prior to that date will be taken into account, in accordance with Article X of the Plan, in determining his or her Years of Service for the purpose of Section 2.1(A)(3) of the Plan and for the purpose of determining whether he or she completes at least 1000 Hours of Service during the 1999 Plan Year for the purpose of Section 3.2(B)(3) of the Plan. 3.1999 Profit Sharing Contribution.  If Erickson's makes a Profit Sharing Contribution for the 1999 Plan Year, in allocating the contribution pursuant to Section 3.2 (C) of the Plan, an eligible Participant's Eligible Earnings will be deemed to be his or her Eligible Earnings from Erickson's for the period beginning on June 1, 1999 and ending on December 31, 1999; provided, that the limitation on Eligible Earnings pursuant to Section 12.11(B) of the Plan will be equal to the limitation in effect for the 1999 Plan Year multiplied by a fraction, the numerator of which is seven and the denominator of which is 12. -------------------------------------------------------------------------------- QUICKLINKS NASH-FINCH COMPANY PROFIT SHARING PLAN 1994 REVISION Seventh Declaration of Amendment NASH-FINCH COMPANY PROFIT SHARING PLAN EXHIBIT D Special Provisions Applicable to the Adoption of the Plan by Erickson's Diversified Corporation

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.7 AMENDED AND RESTATED NOTE $6,800,000   October 10, 2000 Minneapolis, Minnesota     FOR VALUE RECEIVED, REUTER MANUFACTURING, INC., a corporation organized under the laws of the State of Minnesota, hereby promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender") at its main office in Minneapolis, Minnesota, in lawful money of the United States of America in immediately available funds the principal amount of SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS AND NO CENTS ($6,800,000), and to pay interest (computed on the basis of actual days elapsed and a year of 360 days) in like funds on the unpaid principal amount hereof from time to time outstanding. The principal hereof and interest hereon is payable as follows:     (A) interest on the Advances (as such term and each other capitalized term used herein are defined in the Credit Agreement hereinafter referred to) at the rates and times set forth in the Credit Agreement. The Advances are payable on the Revolving Maturity Date;     (B) on Term Loan A in consecutive installments of $27,020 each, beginning on November 1, 2000 and on the first day of each month thereafter through September 1, 2005 and one final payment on October 1, 2005 in the amount of the entire remaining balance. Each such installment shall be applied first to interest and the balance to principal.     (C) on Term Loan B (i) in payments of accrued interest only payable in arrears on November 1, 2000, December 1, 2000 and on January 1, 2001, and (ii) principal and interest payments in consecutive installments of $36,500 each, beginning on February 1, 2001 and on the first day of each month thereafter through December 1, 2003 and one final payment on January 1, 2004 in the amount of the entire remaining balance. Each such installment shall be applied first to interest and the balance to principal.     (D) Term Loan C is payable on September 30, 2003, provided however, that Term Loan C shall be forgiven in the event (i) the Advances, Term Loan A and Term Loan B are all paid in full on or before September 30, 2003, or (ii) on October 1, 2003 if the Borrower has fully complied with the terms of the Credit Agreement and no Default or Event of Default exists.     This note is the Amended and Restated Note referred to in the Amended and Restated Credit Agreement dated as of October 10, 2000 (as the same may be hereafter from time to time amended, restated or modified, the "Credit Agreement") between the undersigned and the Lender. This note is secured, it is subject to certain permissive and mandatory prepayments and its maturity is subject to acceleration, in each case upon the terms provided in said Credit Agreement. This note is issued in combination, substitute and replacement but not in payment of indebtedness owed to the Lender by the Borrower under that Financing Agreement dated as of December 3, 1997, a Term Note in the original principal amount of $2,400,000 dated as of December 3, 1997 (as amended from time to time) from the Borrower to the Lender a Term Note in the original principal amount of $270,000 dated as of December 3, 1997 (as amended from time to time) from the Borrower to the Lender.     In the event of default hereunder, the undersigned agrees to pay all costs and expenses of collection, including reasonable attorneys' fees. The undersigned waives demand, presentment, notice of nonpayment, protest, notice of protest and notice of dishonor.     THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING -------------------------------------------------------------------------------- EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.     REUTER MANUFACTURING, INC.           By   /s/ MICHAEL J. TATE    --------------------------------------------------------------------------------     Title President 2 -------------------------------------------------------------------------------- QUICKLINKS AMENDED AND RESTATED NOTE

EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 18th day of July 2000 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Kenneth C. Bohlen (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ the Executive and the Executive is willing to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1.     Term of Employment The Company hereby agrees to employ the Executive and the Executive hereby accepts employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2.     Position and Responsibilities  During the Employment Term, the Executive shall serve as the Executive Vice President and Chief Innovation Officer of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non-corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies, subject to the By-laws of the Company the organizational structure of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. 3.     Compensation and Benefits > During the Employment Term, the Company shall pay and provide the Executive > the following: 3.1     Base Salary. The Company shall pay the Executive an initial base salary (the "Base Salary") at a rate of $380,000. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually by the O&C Committee (or as otherwise designated by the Board) to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2     Annual Bonus . The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least 55% of Base Salary. 3.3     Long-Term Incentives . The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefore; provided, however, that unless replaced with Executive's written consent, Executive shall be entitled to (a) receive restricted stock equivalents of the company as set forth in the "Restricted Stock Equivalent Awards, November 15, 1999" attached as Exhibit B, and (b) to stock options and performance share units as previously granted. 3.4     Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time; provided, however, that unless replaced with Executive's written consent, Executive shall be entitled to the "Special Pension Arrangement" attached as Exhibit C. 3.5     Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6     Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7     Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally. 4.     Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5.     Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: > (a)     Automatically on the date of the Executive's death. > > (b)     Upon thirty (30) days written notice by the Company to the Executive > of a termination due to Disability, provided such notice is delivered during > the period of Disability. The term "Disability" shall mean, for purposes of > this Agreement, the inability of the Executive, due to injury, illness, > disease or bodily or mental infirmity, to engage in the performance of his > material duties of employment with the Company as contemplated by Section 2 > herein for a period of more than one hundred eighty (180) consecutive days or > for a period that is reasonably expected to exist for a period of more than > one hundred eighty (180) consecutive days, provided that interim returns to > work of less than ten (10) consecutive business days in duration shall not be > deemed to interfere with a determination of consecutive absent days if the > reason for absence before and after the interim return are the same. The > existence or non-existence of a Disability shall be determined by a physician > agreed upon in good faith by the Executive (or his representatives) and the > Company. It is expressly understood that the Disability of the Executive for a > period of one hundred eighty (180) consecutive days or less shall not > constitute a failure by him to perform his duties hereunder and shall not be > deemed a breach or default and the Executive shall receive full compensation > for any such period of Disability or for any other temporary illness or > incapacity during the term of this Agreement. > > (c)     Immediately upon written notice by the Company to the Executive of a > termination due to his retirement at or after the Executive's attainment of > age sixty-five (65). > > (d)     Immediately upon written notice by the Company to the Executive of a > termination for Cause, provided such notice is given within ninety (90) days > after the discovery by the Board or the Chief Executive Officer of the Cause > event and has been approved by the O&C Committee at a meeting at which the > Executive and his counsel had the right to appear and address such meeting > after receiving at least five (5) business days written notice of the meeting > and reasonable detail of the facts and circumstances claimed to provide a > basis for such termination. The term "Cause" shall mean, for purposes of this > Agreement: (i) an act or acts of willful misrepresentation, fraud or willful > dishonesty (other than good faith expense account disputes) by the Executive > which in any case is intended to result in his or another person or entity's > substantial personal enrichment at the expense of the Company; (ii) any > willful misconduct by the Executive with regard to the Company, its business, > assets or employees that has, or was intended to have, a material adverse > impact (economic or otherwise) on the Company; (iii) any material, willful and > knowing violation by the Executive of (x) the Company's Business Conduct > Guidelines, or (y) any of his fiduciary duties to the Company which in either > case has, or was intended to have, a material adverse impact (economic or > otherwise) on the Company; (iv) the willful or reckless behavior of the > Executive with regard to a matter of a material nature which has a material > adverse impact (economic or otherwise) on the Company; (v) the Executive's > willful failure to attempt to perform his duties under Section 2 hereof or his > willful failure to attempt to follow the legal written direction of the Board, > which in either case is not remedied within ten (10) days after receipt by the > Executive of a written notice from the Company specifying the details thereof; > (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, > a felony (other than (x) a traffic infraction or (y) vicarious liability > solely as a result of his position provided the Executive did not have actual > knowledge of the actions or inactions creating the violation of the law or the > Executive relied in good faith on the advice of counsel with regard to the > legality of such action or inaction (or the advice of other specifically > qualified professionals as to the appropriate or proper action or inaction to > take with regard to matters which are not matters of legal interpretation)); > or (vii) any other material breach by the Executive of this Agreement that is > not cured by the Executive within twenty (20) days after receipt by the > Executive of a written notice from the Company of such breach specifying the > details thereof. No action or inaction should be deemed willful if not > demonstrably willful and if taken or not taken by the Executive in good faith > as not being adverse to the best interests of the Company. Reference in this > paragraph (d) to the Company shall also include direct and indirect > subsidiaries of the Company, and materiality and material adverse impact shall > be measured based on the action or inaction and the impact upon, and not the > size of, the Company taken as a whole, provided that after a Change in > Control, the size of the Company, taken as a whole, shall be a relevant factor > in determining materiality and material adverse impact. > > (e)     Upon written notice by the Company to the Executive of an involuntary > termination without Cause. A notice by the Company of non-renewal of the > Employment Term pursuant to Section 1 above shall be deemed an involuntary > termination of the Executive by the Company without Cause as of the end of the > Employment Term, but the Executive may terminate at any time after the receipt > of such notice and shall be treated as if he was terminated without Cause as > of such date. > > (f)     Upon twenty (20) days written notice by the Executive to the Company > of a termination for Good Reason (which notice sets forth in reasonable detail > the facts and circumstances claimed to provide a basis for such termination) > unless the Good Reason event is cured within such twenty (20) day period. The > term "Good Reason" shall mean, for purposes of this Agreement, without the > Executive's express written consent, the occurrence of any one or more of the > following: (i) the assignment to the Executive of duties materially > inconsistent with the Executive's then authorities, duties, responsibilities, > and status (including offices, titles, and reporting requirements), or any > reduction in the Executive's then title, position, reporting lines or a > material reduction (other than temporarily while Disabled or otherwise > incapacitated) in his then status, authorities, duties, or responsibilities > or, if then a director of the Company, failure to be nominated or reelected as > a director of the Company or removal as such; (ii) relocation of the Executive > from the principal office of the Company (excluding reasonable travel on the > Company's business to an extent substantially consistent with the Executive's > business obligations) or relocation of the principal office of the Company to > a location which is at least fifty (50) miles from the Company's current > headquarters, provided, however, if the Executive at the time of the > relocation is not located at the principal office, such relocation provision > shall apply based on his then location but shall not cover a relocation to the > principal office prior to a Change in Control; (iii) a reduction by the > Company in the Executive's Base Salary; (iv) a reduction in the Executive's > aggregate level of participation in any of the Company's short and/or > long-term incentive compensation plans, or employee benefit or retirement > plans, policies, practices, or arrangements in which the Executive > participated as of the Effective Date, or, after a Change in Control, > participated immediately prior to the Change in Control; (v) the failure of > the Company to obtain and deliver to the Executive a satisfactory written > agreement from any successor to the Company to assume and agree to perform > this Agreement; or (vi) any other material breach by the Company of this > Agreement. > > (g)     Upon written notice by the Executive to the Company of the Executive's > voluntary termination of employment without Good Reason (which the Company > may, in its sole discretion, make effective earlier than any notice date). A > notice by the Executive of non-renewal of the Employment Term pursuant to > Section 1 above shall be deemed a voluntary termination by the Executive > without Good Reason as of the end of the Employment Term. Section 6.  Consequences of a Termination of Employment 6.1     Termination Due to Death or Retirement . If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2     Termination Due To Disability . If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, to any Accrued Obligations. 6.3     Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: > > (a)     Payment of the Prorated Portion (as determined in the next sentence) > > of the earned annual incentive compensation award for the fiscal year in > > which the Executive's termination occurs, payable promptly after the end of > > such fiscal year. "Prorated Portion" shall be determined by multiplying such > > amount by a fraction, the numerator of which is the number of days during > > the fiscal year of termination that the Executive is employed by the > > Company, and the denominator of which is, 365. > > > > (b)     Continued payment off payroll for two years (in approximately equal > > monthly installments) of an amount equal to two times the sum of (i) the > > Executive's Base Salary and (ii) the higher of (x) the Executive's target > > incentive compensation established for the fiscal year in which the > > Executive's termination occurs or (y) a multiple thereof equal to the > > product of such target amount and the multiple of target earned by the > > Executive for the prior fiscal year (whether or not deferred). > > > > (c)     For the Executive's accounts that have not or will not fully vest > > under the Deferred Income Plan, a cash payment outside of the Plan equal to > > the value of the amount that would have vested under the Plan. > > > > (d)     Payment of the premium for COBRA continuation health coverage for > > the Executive and the Executive's dependents until the earliest of (i) > > eighteen (18) months after such termination, (ii) until no longer eligible > > for COBRA continuation benefit coverage or (iii) the Executive commences > > other substantially full-time employment. 6.4     Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. Section 7.  No Mitigation/No Offset/Release > > (a)     In the event of any termination of employment hereunder, the > > Executive shall be under no obligation to seek other employment and there > > shall be no offset against any amounts due the Executive under this > > Agreement on account of any remuneration attributable to any subsequent > > employment that the Executive may obtain. The amounts payable hereunder > > shall not be subject to setoff, counterclaim, recoupment, defense or other > > right which the Company may have against the Executive or others, except as > > specifically set forth in Section 9 hereof or upon obtaining by the Company > > of a final unappealable judgement against the Executive. > > > > (b)     Any amounts payable and benefits or additional rights provided > > pursuant to Section 6.3 or Section 8.1 beyond and Accrued Obligations and > > beyond the sum of any amounts due (without execution of a release) under the > > Company severance program then in effect, or, if greater, three (3) months > > Base Salary as severance, shall only be payable if the Executive delivers to > > the Company a release of all claims of the Executive (other than those > > specifically payable or providable hereunder on or upon the applicable type > > of termination and any rights of indemnification under the Company's > > organizational documents) with regard to the Company, its subsidiaries and > > related entities and their respective past or present officers, directors > > and employees in such form as reasonably requested by the Company. > > > > (c)     Upon any termination of employment, upon the request of the Company, > > the Executive shall deliver to the Company a resignation from all offices > > and directorships and fiduciary positions of the Executive in which the > > Executive is serving with, or at the request of, the Company or its > > subsidiaries, affiliates or benefit plans. > > > > (d)     The amounts and benefits provided under Sections 6 and 8 hereof are > > intended to be inclusive and not duplicative of the amounts and benefits due > > under the Company's employee benefit plans and programs to the extent they > > are duplicative. 8.     Change in Control 8.1     Employment Termination in Connection with a Change in Control . In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid, pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: > > (a)     Any Accrued Obligations. > > > > (b)     A lump-sum cash payment equal to three (3) times the highest rate of > > the Executive's Base Salary rate in effect at any time up to and including > > the date of the Executive's termination. > > > > (c)     A lump-sum cash payment equal to the Prorated Portion of the greater > > of: (i) the Executive's target annual incentive compensation award > > established for the fiscal year during which the Executive's award > > termination occurs, or (ii) the Executive's earned annual incentive award > > for the fiscal year prior to the fiscal year in which the earlier of the > > Change in Control or the Qualifying Termination occurs (whether or not > > deferred). > > > > (d)     A lump-sum cash payment equal to three (3) times the greater of: (i) > > the Executive's highest annual incentive compensation earned over the three > > (3) fiscal years ending prior to the earlier of the Change in Control or the > > Qualifying Termination (whether or not deferred); or (ii) the Executive's > > target incentive compensation established for the fiscal year in which the > > Executive's date of termination occurs. > > > > (e)     To the extent the Executive is eligible, was eligible prior or after > > the Change in Control (or, if earlier, the Qualifying Termination) or if the > > Executive would be eligible with credit for an additional three (3) years of > > age and service credit, coverage under all applicable retiree health and > > other retiree welfare plans for the Executive and the Executive's eligible > > dependents (including an adjustment to the extent necessary to put the > > Executive on the same after tax basis as if the Executive had been eligible > > for such coverage). > > > > (f)     To the extent eligible prior or after the Change in Control (or, if > > earlier, the Qualifying Termination), continued participation, (coordinated > > with (e) above to the extent duplicative), at no additional after tax cost > > to the Executive than the Executive would have as an employee, in all > > welfare plans, until three (3) years after the date of termination, > > provided, however, that in the event the Executive obtains other employment > > that offers substantially similar or improved benefits, as to any particular > > welfare plan, such continuation of coverage by the Company for such similar > > or improved benefit under such plan shall immediately cease. To the extent > > such coverage cannot be provided under the Company's welfare benefit plans > > without jeopardizing the tax status of such plans, for underwriting reasons > > or because of the tax impact on the Executive, the Company shall pay the > > Executive an amount such that the Executive can purchase such benefits > > separately at no greater after tax cost to him than he would have had if the > > benefits were provided to him as an employee. > > > > (g)     A lump-sum cash payment of the actuarial present value equivalent > > (as determined in accordance with the most favorable (to the Executive) > > overall actuarial assumptions and subsidies in any of the Company's > > tax-qualified or nonqualified type defined benefit pension plans in which > > the Executive then participates) of the accrued benefits accrued by the > > Executive as of the date of termination under the terms of any nonqualified > > defined benefit type retirement plan, including but not limited to, the > > Amended and Restated Supplemental Executive Retirement Plan for Textron Inc. > > Key Executives and the Supplemental Benefits Plan and assuming the benefit > > was fully vested without regard to any minimum age or service requirements. > > For this purpose, such benefits shall be calculated under the assumption > > that the Executive's employment continued following the date of termination > > for three (3) full years (i.e., three (3) additional years of age > > (including, but not limited to, for purposes of determining the actuarial > > present value), compensation and service credits shall be added). > > > > (h)     Three (3) times the amount of the maximum Company contribution or > > match to any defined contribution type plan in which the Executive > > participates. > > > > (i)     A lump-sum cash payment of the product of (i) the Interest Factor > > (as determined in the next sentence) multiplied by (ii) the Executive's > > entire account balance under the Deferred Income Plan (or any replacement > > therefor), plus an additional amount equal to three (3) times the match > > which the Company made for the Executive to such plan for the fiscal year > > ending immediately prior to the earlier of the Change in Control or the > > Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus > > three (3) times the rate of earnings of the Executive's account under such > > plan for the fiscal year ending immediately prior to his termination. > > > > (j)     Immediate full vesting of any outstanding stock options, performance > > share units and other equity awards (and lapse of any forfeiture provisions) > > to the extent permitted under the plan or grant, or if full vesting is not > > permitted with regard to stock options, a cash payment equal to the > > difference between the fair market value of the shares covered by the > > unvested options and the exercise price of such unvested options on such > > unvested options on the date of termination (or, if later, the date of the > > Change in Control). > > > > (k)     Outplacement services at a level commensurate with the Executive's > > position, including use of an executive office and secretary, for a period > > of one (1) year commencing on the date of termination but in no event > > extending beyond the date on which the Executive commences other full time > > employment. > > > > (l)     Continuation of participation for three (3) additional years in the > > Company's programs with regard to tax preparation assistance and financial > > planning assistance, club dues and automobile (but based on the automobile > > then being used and no new one), in accordance with the Company's programs > > in effect at the time of the Change in Control. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2     Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: > > (a)     Any "person" or "group" (within the meaning of Section 13(d) and > > 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange > > Act")) other than the Company, any trustee or other fiduciary holding > > Company common stock under an employee benefit plan of the Company or a > > related company, or any corporation which is owned, directly or indirectly, > > by the stockholders of the Company in substantially the same proportions as > > their ownership of the Company's common stock, is or becomes the beneficial > > owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty > > percent (30%) of the then outstanding voting stock; > > > > (b)     During any period of two (2) consecutive years, individuals who at > > the beginning of such period constitute the Board and any new director 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 two > > year 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; > > > > (c)     The consummation of 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 being > > converted into voting securities of the surviving entity) more than fifty > > percent (50%) of the combined voting securities of the Company or such > > surviving entity outstanding immediately after such merger or consolidation; > > or > > > > (d)     The approval of the stockholders of the Company of a plan of > > complete liquidation of the Company or an agreement for the sale or > > disposition by the Company of all or substantially all of its assets. 8.3     Excise Tax Equalization Payment . In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit A will apply. 9.     Noncompetition, Confidentiality and Nondisparagement 9.1     Agreement Not to Compete. > > (a)     The Executive agrees that for a period of two (2) years after the > > termination of the Executive's employment, the Executive will not engage in > > Competition with the Company with the Listed Companies, provided that after > > the Executive's termination of employment the Listed Companies shall be > > limited to those effectively listed at the time of his termination and still > > on such list at the time of any alleged activity of the Executive, > > including, but not limited to, (i) soliciting customers, business or orders > > for, or selling any products and services in, Competition with the Company > > for such Listed Companies or (ii) diverting, enticing, or otherwise taking > > away customers, business or orders of the Company, or attempting to do so, > > in either case in Competition with the Company for such Listed Companies. > > > > (b)     The Executive agrees that if, while he is receiving severance pay > > from the Company pursuant to Section 6.3(b), the Executive: (i) violates (a) > > above, or (ii) otherwise engages in Competition in the Restricted Territory, > > whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. > > > > (c)     The Executive agrees that the restrictions contained in this Section > > 9 are necessary for the protection of the business and goodwill of the > > Company because of the trade secrets within the Executive's knowledge and > > are considered by the Executive to be reasonable for such purpose. 9.2     Definitions. > > (a)     "Competition" shall mean engaging in, as an employee, director, > > partner, principal, shareholder, consultant, advisor, independent contractor > > or similar capacity, with (a) the Listed Companies or (b) in any business, > > activity or conduct which directly competes with the business of the > > Company, provided that, with regard to the period after termination of the > > Executive's employment, Section 9.1(b)(ii) shall only apply to business > > lines in which the Company is engaged both at the time of termination of > > employment and at the time of the determination and which during the last > > fiscal year ending prior to the date of such termination represented at > > least five percent (5%) of the Company's revenues (the "Prohibited Lines"). > > Notwithstanding anything else in this Section 9, Competition shall not > > include: (A) (i) holding five percent (5%) or less of an interest in the > > equity or debt of any publicly traded company, (ii) engaging in any activity > > with the prior written approval of the Chief Executive Officer or the O&C > > Committee, (iii) the practice of law in a law firm that represents entities > > in Competition with the Company, provided that the Executive does not > > personally represent such entities, or (iv) the employment by, or provision > > of services to, an investment banking firm or consulting firm that provides > > services to entities that are in Competition with the Company provided that > > the Executive does not personally represent or provide services to such > > entities that are Listed Companies or otherwise with regard to businesses in > > Competition with the Prohibited Lines, or (B) with regard to Section > > 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive > > division or business unit of an entity which is in Competition with the > > Company (and participating in such entity's employee equity plans), (ii) > > being employed by, or consulting for, an entity which had annual revenues in > > the last fiscal year prior to the Executive being employed by, or consulting > > for, the entity generated through business lines in Competition with the > > Prohibited Lines of the Company that do not exceed five percent (5%) of such > > entity's total annual revenues, provided that revenues within the > > Executive's area of responsibility or authority are not more than ten > > percent (10%) composed of the revenues from the businesses in Competition > > with the Prohibited Lines, or (iii) any activities conducted after a Change > > in Control of the Company. > > > > (b)     The Restricted Territory shall mean any geographic area in which the > > Company with regard to the Prohibited Lines did more than nominal business. > > > > (c)     Listed Companies shall mean those entities which are within the > > "peer group" established by the Company for the performance graphs in its > > proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange > > Act and which are in a list of no more than five (5) entities established by > > the Company from time to time and available from the Chief Human Resources > > Officer, provided that the addition of any entity to the list shall not be > > effective until sixty (60) days after it is so listed. > > > > (d)     For purposes of this Section 9, "Company" shall mean the Company and > > its subsidiaries and affiliates. 9.3     Agreement Not to Engage in Certain Solicitation . The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4     Confidential Information. > > (a)     The Executive specifically acknowledges that any trade secrets or > > confidential business and technical information of the Company or its > > vendors, suppliers or customers, whether reduced to writing, maintained on > > any form of electronic media, or maintained in mind or memory and whether > > compiled by the Executive or the Company (collectively, "Confidential > > Information"), derives independent economic value from not being readily > > known to or ascertainable by proper means by others; that reasonable efforts > > have been made by the Company to maintain the secrecy of such information; > > that such information is the sole property of the Company or its vendors, > > suppliers, or customers and that any retention, use or disclosure of such > > information by the Executive during the Employment Term (except in the > > course of performing duties and obligations of employment with the Company) > > or any time after termination thereof, shall constitute misappropriation of > > the trade secrets of the Company or its vendors, suppliers, or customers, > > provided that Confidential Information shall not include: (i) information > > that is at the time of disclosure public knowledge or generally known within > > the industry, (ii) information deemed in good faith by the Executive, while > > employed by the Company, desirable to disclose in the course of performing > > the Executive's duties, (iii) information the disclosure of which the > > Executive in good faith deems necessary in defense of the Executive's rights > > provided such disclosure by the Executive is limited to only disclose as > > necessary for such purpose, or (iv) information disclosed by the Executive > > to comply with a court, or other lawful compulsory, order compelling him to > > do so, provided the Executive gives the Company prompt notice of the receipt > > of such order and the disclosure by the Executive is limited to only > > disclosure necessary for such purpose. > > > > (b)     The Executive acknowledges that the Company from time to time may > > have agreements with other persons or with the United States Government, or > > agencies thereof, that impose obligations or restrictions on the Company > > regarding inventions made during the course of work under such agreements or > > regarding the confidential nature of such work. If the Executive's duties > > hereunder will require disclosures to be made to him subject to such > > obligations and restrictions, the Executive agrees to be bound by them. 9.5     Scope of Restrictions . If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope 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. 9.6     Remedies. > > (a)     In the event of a material breach or threatened material breach of > > Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in > > addition to its other remedies at law or in equity, shall be entitled to > > injunctive or other equitable relief in order to enforce or prevent any > > violations of the provisions of this Section 9. Except as specifically > > provided with regard to Listed Companies, the Company agrees that it will > > not assert to enjoin or otherwise limit the Executive's activities based on > > an argument of inevitable disclosure of confidential information. > > > > (b)     In the event Section 9.1(b) applies, the Company may immediately > > cease payment to the Executive of all future amounts due under Sections > > 6.3(a) or (b) as well as otherwise specifically provided in any other plan, > > grant or program. > > > > (c)     Upon written request of the Executive, the Company shall within > > thirty (30) days notify the Executive in writing whether or not in good > > faith it believes any proposed activities would be in Competition and, if it > > so determines or does not reply within thirty (30) days, it shall be deemed > > to waive any right to treat such activities as Competition unless the facts > > are otherwise than as presented by the Executive or there is a change > > thereafter in such activities. The Executive shall promptly provide the > > Company with such information as it may reasonably request to evaluate > > whether or not such activities are in Competition. 9.7     Uniformity . In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8     Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. > > 9.9     Nondisparagement. > > (a)     During the Employment Term and thereafter, the Executive shall not > with willful intent to damage economically or as to reputation or vindictively > disparage the Company, its subsidiaries or their respective past or present > officers, directors or employees (the "Protected Group"), provided that the > foregoing shall not apply to (i) actions or statements taken or made by the > Executive while employed by the Company in good faith as fulfilling the > Executive's duties with the Company or otherwise at the request of the > Company, (ii) truthful statements made in compliance with legal process or > governmental inquiry, (iii) as the Executive in good faith deems necessary to > rebut any untrue or misleading public statements made about him or any other > member of the Protected Group, (iv) statements made in good faith by the > Executive to rebut untrue or misleading statements made about him or any other > member of the Protected Group by any member of the Protected Group, and (v) > normal commercial puffery in a competitive business situation. No member of > the Protected Group shall be a third party beneficiary of this Section 9.9(a). > > (b)     During the Employment Term and thereafter, neither the Company > officially nor any then member of the Executive Leadership Team (or the > equivalent) of the Company, as such term is currently used within the Company, > shall with willful intent to damage the Executive economically or as to > reputation or otherwise vindictively disparage the Executive, provided the > foregoing shall not apply to (i) actions or statements taken or made in good > faith within the Company in fulfilling duties with the Company, (ii) truthful > statements made in compliance with legal process, governmental inquiry or as > required by legal filing or disclosure requirements, (iii) as in good faith > deemed necessary to rebut any untrue or misleading statements by the Executive > as to any member of the Protected Group, or (iv) normal commercial puffery in > a competitive business situation. > > (c)     In the event of a material breach or threatened material breach of > clauses (a) or (b) above, the Company or the Executive, as the case may be, in > addition to its or the Executive's other remedies at law or in equity, shall > be entitled to injunctive or other equitable relief in order to enforce or > prevent any violations of this Section 9.9. 9.10     Pooling of Interests . If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10.     Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11.     Assignment 11.1     Assignment by the Company . This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2     Assignment by the Executive . This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, 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, in the absence of such designee, to the Executive's estate. 12.     Legal Remedies 12.1     Payment of Legal Fees . The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2     Arbitration . All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3     Notice . Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the [senior legal officer]. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4     Continued Payments . In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13.     Miscellaneous 13.1     Entire Agreement . This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2     Modification . This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3     Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4     Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5     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. 13.6     Beneficiaries . The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7     Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14.     Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written.   s\Kenneth C. Bohlen    Kenneth C. Bohlen       TEXTRON INC.       By: s\John D. Butler         John D. Butler         Executive Vice President Administration         and Chief Human Resources Officer   Exhibit A Parachute Gross Up (a)     In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b)     For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c)     For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross-up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d)     The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be determined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e)     In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f)     The Company shall be responsible for all charges of the Accountant. (g)     The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A. Exhibit B  Kenneth C. Bohlen Restricted Stock Equivalent Awards November 15, 1999  The Organization and Compensation Committee approved an award of restricted stock equivalents to Kenneth C. Bohlen (the "Executive"). The terms of the award are as follows: * The Executive will receive the cash equivalent of shares of Textron common stock provided he remains employed by Textron Inc. in accordance with the following schedule:   Equivalents Shares Vesting Date     2,000 December 31, 2000     3,000 December 31, 2002     5,000     * Each cash payment will equal the number of vested shares times the average of the composite closing prices (as reported on the New York Stock Exchange consolidated tape) of Textron's common stock for the first ten trading days following the respective vesting date. Such award shall be paid to the Executive in a lump sum within 30 days following the vesting date or in annual installments as may be determined by the Textron CEO. * Except as otherwise provided herein, the Executive shall not be entitled to receive such award if his employment with Textron Inc. ends for any reason prior to the respective vesting date, provided that if the Executive's employment ends prior to such date because of his involuntary termination by Textron without "cause" (Attachment A), "disability" (Attachment A) or death, the Executive or the Executive's estate will receive a "pro-rata portion" (Attachment A) of the award. Such payment shall equal the number of pro-rata shares vested times the average of the composite closing prices (as reported on the New York Stock Exchange consolidated tape) of Textron's common stock for the first ten trading days following the date of termination. A lump sum payment will be made within 30 days following termination. * Notwithstanding the above, if the Executive's employment terminates at any time after a "change in control" of Textron, Textron shall, in lieu of the above award, award to the Executive (or to the Executive's estate in the event of his death prior to payment) upon such termination of employment, a cash amount equal to the number of unvested shares times the highest closing price per share of Textron's common stock (as reported on the New York Stock Exchange consolidated tape) during the 30 day period ending on the date of such change in control. Payment shall be made in a lump sum within 30 days following such termination. * The number of restricted stock equivalents awarded to the Executive hereunder shall be proportionately adjusted for any increase or decrease in the number of issued shares of Textron's common stock resulting from a stock split, stock divided or any other increase or decrease in such shares effective without receipt of consideration by Textron.     s\John D. Butler 11/10/99   John D. Butler Date Attachment A  Kenneth C. Bohlen Restricted Stock Equivalent Awards November 15,1999   "Cause" "Cause" shall mean: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the executive's willful failure to attempt to perform his duties or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; or (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or in actions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation); No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. "Disability" "Disability" shall mean, for purposes of this award, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon a good faith by the Executive (or his representatives) and Textron. "Pro-rata Portion" "Pro-rata portion" shall mean the number of complete or partial months employed by Textron Inc. beginning November 15, 1999 through the date of termination divided by 14 and 38 for the awards vesting on December 31, 2000 and 2002, respectively. For example, a termination of employment on February 13, 2001 due to disability would result in a number of shares earned determined as follows: > >     2,000 shares vesting 12/31/00 - paid in full = 2,000.0 shares   3,000 shares vesting 12/31/02                3,000 shares x 16 (months) ÷ 38 (months) = 1,263.2 shares     3,263.2 shares  Notes: * 16 equals the number of full or partial months from November 15, 1999 through February 13, 2001. * 38 equals the number of full or partial months beginning November 15, 1999 through December 31, 2002, the vesting date. Exhibit C Kenneth C. Bohlen Special Pension Arrangement: * 2.5 years of credited service for each year employed for the first five years of employment provided he is employed for a minimum of five years. * 2.0 years of credited service for each year of service thereafter through age 65. * Minimum Pension Guarantee: If this special pension arrangement results in a lesser pension benefit than would result from the following arrangement, the credited service schedule described above will be adjusted upon retirement to provide a pension benefit equal to the following arrangement. A review of the two pension calculations will be made at the completion of 5 years of actual service and every year thereafter. Any adjustments to the credited service arrangement that may be necessary will be done at the time of retirement. > * Two years of credited service for each year employed for the first five > years of employment provided he is employed for a minimum of five years. > > * 50% of capped long-term incentive compensation will be treated as > pensionable compensation.

EXHIBIT 10.2 EMPLOYMENT AGREEMENT       AGREEMENT made as of July 1, 2000 by and between JONES APPAREL GROUP, INC., a Pennsylvania corporation (the "Company"), and JACKWYN NEMEROV (the "Executive"). W I T N E S S E T H:       WHEREAS, Executive has been serving as a senior executive of the Company; and     WHEREAS, the Company wishes to continue to employ the Executive, and the Executive wishes to continue employment with the Company, on the terms and conditions hereinafter set forth.     NOW, THEREFORE, it is agreed as follows:     1.   Employment. (a) During the term of this Agreement, the Company shall employ the Executive as the President of the Company, with such responsibilities and authority as Executive has heretofore had as President of the Company. The Executive shall report directly to the Chief Executive Officer of the Company. During the term of this Agreement, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote all of Executive's business time and attention to the business affairs of the Company, and to perform such responsibilities in a professional manner. Notwithstanding the foregoing, during the term of this Agreement, it shall not be a violation of this Agreement for the Executive to (a) serve on civic or charitable boards or committees; (b) deliver lectures, fulfill speaking engagements or teach at educational institutions; (c) serve as a non-employee member of a board of directors of a business entity which is not competitive with the Company and as to which the Board of Directors of the Company has given its consent; and (d) attend to personal business, so long as such activities do not interfere with the performance of the Executive's responsibilities as a senior executive of the Company in accordance with this Agreement.         (b) If neither party has given a Non-extension Notice (as defined in Section 2 hereof) prior to such date, effective July 1, 2001 Executive shall be designated as "President and Chief Operating Officer" of the Company, with such responsibilities and authority as Executive had immediately prior to such date and with such additional responsibilities and authority (if any) as to which Executive and the Chief Executive Officer of the Company may agree, with the concurrence of the Board of Directors of the Company. <PAGE> 2     2.    Term. The Company shall employ the Executive for the period commencing as of July 1, 2000 and ending as of June 30, 2003 (the "Expiration Date"), as renewed in accordance with the following sentence (the "Term"). The Executive's employment with the Company will continue, and this Agreement will be automatically extended without limitation, for successive 12-month periods commencing July 1 and ending June 30 (a "Contract Year"), unless either party to this Agreement advises the other in writing, no later than June 30, 2001 and no later than each June 30 thereafter, that such party does not wish to extend (a "Non-extension Notice"). If this Agreement shall be so extended, the "Expiration Date" shall mean the then applicable extended "Expiration Date", and the "Term" shall mean the period commencing July 1, 2000 and ending on the then applicable extended "Expiration Date".     For example, (i) if by June 30, 2001, neither party has given a Non-extension Notice to the other, the Term will be automatically extended through June 30, 2004, and (ii) if the Term is so extended through June 30, 2004, then if by June 30, 2002, neither party has given a Non-extension Notice to the other, the Term will be automatically extended through June 30, 2005.     3.    Salary, Retirement Plans, Fringe Benefits and Allowances.         (a) Throughout the Term, the Executive shall receive a salary at the annual rate of not less than $1,000,000. The Executive's salary shall be payable at such regular times and intervals as the Company customarily pays its senior executives from time to time, but no less frequently than once a month.         (b) During the Term, the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the extent applicable generally to other senior executives of the Company.         (c) During the Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare, fringe and other benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription drug, dental, disability, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior executives of the Company.         (d) The Executive shall be entitled to an aggregate of four (4) weeks paid vacation during each calendar year of the Term. The Executive shall also be entitled to the benefits of the Company's policies relating to sick leave and holidays.         (e) The Executive shall have all expenses reasonably incurred by Executive on behalf of the Company reimbursed by the Company in accordance with the Company's standard policies and practices. The Executive shall be entitled to first class seating for air travel on Company business. 2 <PAGE> 3         (f) The Company shall make available to the Executive all perquisites that are made available to senior executives of the Company. Without limiting the foregoing, the Company shall provide the Executive with a Company car and reimbursement of related expenses on a basis consistent with past practice.     4.    Calendar Year Bonus; Contract Year Bonus.         (a) Executive shall participate in the Company's Executive Annual Incentive Plan (the "Bonus Plan"), pursuant to which the Executive may be entitled to receive annual bonus payments for each full calendar year of employment which ends prior to the Expiration Date and throughout which the Executive has been employed by the Company ("Calendar Year Bonus"), conditioned upon the attainment of annual criteria and objectives established for participants in the Bonus Plan.         (b)(i) In addition to the Calendar Year Bonuses that the Executive may receive pursuant to Section 4(a) hereof, the Executive shall be paid an aggregate bonus of $3,000,000 for each full Contract Year throughout which the Executive has been employed by the Company during the Term (the "Contract Year Bonus"). The Contract Year Bonus shall be paid in two installments of $1,500,000 (each a "Contract Year Bonus Installment"), payable within 10 days after the first day and the last day of each Contract Year (except that the first Contract Year Bonus Installment for the Contract Year beginning July 1, 2000 shall be paid within 10 days following the execution of this Agreement).             (ii) Executive may elect to receive all or part of a Contract Year Bonus Installment in shares ("Common Shares") of the Company's common stock (the "Common Stock Amount"), by giving written notice of such election (a "Stock Election Notice") to the Company no later than the July 10 immediately following the end of a Contract Year. If such Stock Election Notice has been given, the number of Common Shares that the Company shall deliver to the Executive shall be equal to the Common Stock Amount divided by the average daily last sale price of the Company's common stock on the New York Stock Exchange (adjusted for intervening stock dividends, stock splits, recapitalizations and any other transactions having a similar effect) during the period from the day following the Company's receipt of the Stock Election Notice and ending on the immediately following July 31 (the "Price Calculation Period"). A stock certificate for the Common Shares comprising the Common Stock Amount shall be delivered to the Executive no later than the end of the fifth business day immediately following the end of the Price Calculation Period.     5.     Stock Options. (a) In anticipation of the entering into of this Agreement and as an inducement to the Executive to do so, on July 6, 2000 the Stock Option Committee of the Board of Directors of the Company granted to Executive an option to purchase 500,000 Common Shares on the terms and conditions contained in stock option agreements of that date. 3 <PAGE> 4         (b) Subject to the absolute authority of the Stock Option Committee of the Board of Directors of the Company from time to time to grant (or not to grant) to eligible individuals options to purchase common stock of the Company ("Options"), it is the intention of the Company and the expectation of the Executive that while the Executive is employed hereunder, the Executive will receive Options annually (in addition to those described in Section 5(a) hereof), on the following terms and conditions (and any Options so granted shall be subject to the following terms and conditions, which shall govern any conflicts in the terms hereof with any terms and conditions in any stock option agreement):             (a) Target awards will be in an amount (plus or minus 25%) equal to 150% of Executive's salary;             (b) For purposes of determining the number of shares subject to a given Option grant, the value of such Option shall be determined using the Black-Scholes valuation method, or another generally recognized valuation method which is being used uniformly by the Company for its senior executives;             (c) The exercise price per share of the Options shall be the fair market value of the common stock on the date of grant, and the Options shall expire on the tenth anniversary of the date of grant; and             (d) The Options shall vest ratably on the first three anniversaries of the date of grant; provided, however, that all Options (and all other options to purchase Common Shares then held by the Executive) which are not then vested shall become fully vested and immediately exercisable during the remaining original term of the option, upon the occurrence of any of the following events ("Acceleration Events"): Executive's Retirement, death, Disability, a Change in Control, and termination of Executive's employment by the Company without Cause or by the Executive for Good Reason; and             (e) The Options shall be granted on such other terms and conditions as are generally made applicable to Options granted to the other senior executives of the Company.     6.    Termination of Employment.         (a) By the Company for Cause, or by the Executive without Good Reason. The Company may terminate the Executive's employment for Cause (as defined herein) before the Expiration Date. If the Executive's employment is terminated for Cause, or if Executive resigns during the Term without Good Reason (as defined below), the Company shall pay to the Executive any unpaid salary through the date of termination, as well as reimburse the Executive for any unpaid reimbursable expenses incurred on behalf of the Company, and thereafter the Company shall have no additional obligations to the Executive under this Agreement. 4 <PAGE> 5         (b) Death or Disability; Retirement. (i) If the Executive's employment terminates before the Expiration Date because of Executive's death or Disability (as defined herein), the Company shall pay Executive or Executive's duly appointed personal representative, as the case may be, (i) any unpaid salary through the date of death or the Disability Termination Date (as defined herein), as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) an amount equal to Executive's monthly salary during each of the six (6) months following Executive's death or the Disability Termination Date, (iii) the Target Bonus for the calendar year in which Executive dies or becomes Disabled, prorated for the portion of such year preceding Executive's death or the Disability Termination Date, which shall be paid not later than 120 days after the end of such year, and (iv) the Contract Year Bonus for the Contract Year in which Executive dies or becomes Disabled, prorated for the portion of such year preceding Executive's death or the Disability Termination Date, which shall be paid not later than 120 days after the end of such year. Except as set forth in this Section 6(b), the Company shall have no additional obligations to the Executive under this Agreement in the event of Executive's termination of employment under this Section 6(b).             (ii) In addition to the foregoing and notwithstanding any other agreement between the Executive and the Company, all options to purchase the Company's common stock which were held by the Executive at the time of the Executive's Retirement, death or the Disability Termination Date, shall become fully exercisable and shall remain exercisable by the Executive or by the Executive's estate or her representative, as the case may be, during the remaining original term of the option in the case of the Executive's Retirement or Disability, or during the 3-year period following the date of the Executive's death.         (c) By the Company without Cause, or by the Executive for Good Reason. (i) The Company may terminate the Executive's employment before the Expiration Date without Cause, and the Executive may terminate Executive's employment before the Expiration Date for Good Reason, upon 30-days written notice to the other party. If the Executive's employment is so terminated by the Company without Cause, or by the Executive for Good Reason, as the case may be, the Company shall pay and provide to the Executive (i) any unpaid salary through the date of termination, as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) the Target Bonus for the calendar year in which termination occurs, prorated for the portion of such year preceding termination (payable no later than the 30th day immediately following termination of employment), (iii) the Contract Year Bonus for the Contract Year in which termination occurs, prorated for the portion of such year preceding termination (payable no later than the 30th day immediately following termination of employment), (iv) during each month of the Severance Period (as defined below), an amount equal to the sum of (x) Executive's monthly salary at the rate in effect immediately preceding termination and (y) one-twelfth of the Executive's Target Bonus for the calendar year in which termination occurs, and (z) one-twelfth of the Contract Year Bonus, (v) throughout the Severance Period, continuation of Executive's participation (including the Company's contributions thereto) in all benefit plans and practices in which Executive was participating immediately preceding termination, and (vi) reimbursement to the Executive for up to $10,000 of 5 <PAGE> 6 executive outplacement services. Except as set forth in this Subsection 6(c), the Company shall not have any additional obligations to the Executive under this Agreement in the event of Executive's termination of employment under this Subsection 6(c).         (ii) In addition to the foregoing and notwithstanding any other agreement between the Executive and the Company, all options to purchase the Company's common stock which were held by the Executive at the time of the termination of the Executive's employment by the Company without Cause or by the Executive for Good Reason (whether or not following a Change of Control), shall become fully exercisable and shall remain exercisable for the same period following termination as would apply if the Executive's employment had not terminated.         (d) Change in Control. If, following a "Change in Control" (as defined herein) and prior to the Expiration Date, the Company terminates the Executive's employment without Cause, or the Executive terminates employment hereunder for Good Reason, the Company shall pay to the Executive, within 20 days following termination, (i) any unpaid salary through the date of termination, as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) the Target Bonus for the calendar year in which termination occurs, prorated for the portion of such year preceding termination, (iii) the Contract Year Bonus for the Contract Year in which termination occurs, prorated for the portion of such year preceding termination, (iv) a lump-sum payment equal to (x) the sum of (q) 200% of Executive's yearly salary at the rate in effect immediately preceding termination and (r) the Contract Year Bonus, multiplied by (y) the Severance Multiple (as defined herein), and (v) a lump-sum equal to the Company's cost for health insurance, life insurance and retirement benefits for the Severance Period.         (e) Special Termination Provision. (i) Any other provision in this Agreement notwithstanding, during the period commencing when Sidney Kimmel first does not hold the position of Chief Executive Officer of the Company and ending on the 90th day immediately following such event, Executive may give written notice (an "Early Termination Notice") to the Company that she is terminating her employment on the earlier of (x) the first anniversary of the giving of such notice and (y) the Expiration Date (the "Early Termination Date"; the period commencing with the giving of an Early Termination Notice and ending with the Early Termination Date being referred to herein as the "Early Termination Period"). At any time during the Early Termination Period, the Company may terminate Executive's employment on not less than 60-days written notice to the Executive.             (ii) If the Executive's employment is so terminated by the Executive or by the Company, as the case may be, the Company shall pay and provide to the Executive (i) any unpaid salary through the date of termination, as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) the Target Bonus for the calendar year in which termination occurs, prorated for the portion of such year preceding termination (payable no later than the 30th day immediately following termination of employment), (iii) the Contract Year Bonus for the Contract Year in which termination occurs, prorated for the portion of such year preceding termination (payable no later than the 30th day immediately following 6 <PAGE> 7 termination of employment), plus, if the Severance Period ends after the termination of employment, (iv) during each month of the Severance Period (as defined below), an amount equal to the sum of (x) Executive's monthly salary at the rate in effect immediately preceding termination and (y) one-twelfth of the Executive's Target Bonus for the calendar year in which termination occurs, and (z) one-twelfth of the Contract Year Bonus, (v) throughout the Severance Period, continuation of Executive's participation (including the Company's contributions thereto) in all benefit plans and practices in which Executive was participating immediately preceding termination, and (vi) reimbursement to the Executive for up to $10,000 of executive outplacement services. Except as set forth in this Subsection 6(e), the Company shall not have any additional obligations to the Executive under this Agreement in the event of Executive's termination of employment under this Subsection 6(e).         (f) As used herein:             (i) the term "Cause" shall mean (v) the Executive's commission of an act of fraud or dishonesty or a crime involving money or other property of the Company; (w) the Executive's conviction of a felony or a plea of guilty or nolo contendere to an indictment for a felony; (x) if, in carrying out Executive's duties hereunder, the Executive engages in conduct which constitutes willful misconduct or gross negligence; (y) the Executive's failure to carry out a lawful order of the Board of Directors of the Company or its Chief Executive Officer; or (z) a material breach by the Executive of this Agreement. Any act or failure to act on the part of the Executive which is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company or authorized in writing by the Chief Executive Officer of the Company, or based upon the advice of counsel for the Company, shall not constitute Cause as used herein. For purposes of this provision only, a breach shall be "material" if it is demonstrably injurious to the Company, its affiliates or any of its respective business units, financially or otherwise.             Cause shall not exist unless and until the Company (i) has delivered to the Executive a written Notice of Termination that specifically identifies the events, actions, or non-actions, as applicable, that the Company believes constitute Cause hereunder, and, in the case of termination for Cause under clauses (x), (y) or (z) above, the Executive has been provided with an opportunity to cure the offending conduct (if curable) within 30 days after delivery of the written Notice of Termination, and has not so cured such conduct (if curable), and (ii) the Executive has been provided an opportunity to be heard (with counsel) within 30 days after delivery of the Notice of Termination; provided, however, that in the case of termination for Cause under clauses (x), (y), and (z) above, the date of termination shall be no earlier than 35 days after delivery of the Notice of Termination.             (ii) the term "Good Reason" shall mean any one of the following:                 (1) a material breach of the Company's obligations under this Agreement, which breach has not been cured within 20 business days after the Company's receipt of written notice from the Executive of such breach; 7 <PAGE> 8                 (2) a reduction in the Executive's then annual base salary;                 (3) the relocation of the Executive's office to a location more than 30 miles from Executive's present office;                 (4) the failure to pay the Executive any undisputed portion of the Executive's compensation within 15 business days after the date of receipt of written notice that such compensation or payment is due;                 (5) the failure to continue in effect any compensation or benefit plan in which the Executive is participating, unless either (i) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or (ii) the failure to continue the Executive's participation therein (or in such substitute or alternative plan) does not discriminate against the Executive, both with respect to the amount of benefits provided and the level of the Executive's participation, relative to other similarly situated participants;                 (6) a reduction in the Executive's title and status as President of the Company or as President and Chief Operating Officer, if Executive is so designated, or any change in the Executive's status as reporting directly to the Chief Executive Officer; or the assignment to the Executive of any duties materially inconsistent with the Executive's position (including, without limitation, status, office, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1 of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose any action not taken in bad faith and which is remedied by the Company no later than thirty (30) days after written notice by the Executive; or                 (7) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted in this Agreement.             (iii) the terms "Disabled" or "Disability" shall mean the Executive's physical or mental incapacity which renders the Executive incapable, even with a reasonable accommodation by the Company, of performing the essential functions of the duties required of Executive by this Agreement for one hundred twenty (120) or more consecutive days; the term "Disability Termination Date" shall mean the date as of which the Executive's employment with the Company is terminated, either by the Executive or by the Company, following the suffering of a Disability by the Executive.             (iv) the term "Severance Period" shall mean the period commencing with the termination of the Executive's employment and ending with the Expiration Date, or with the Early Termination Date if termination is pursuant to Section 6(e).             (v) the term "Severance Multiple" shall mean 3 times. 8 <PAGE> 9             (vi) A "Change in Control" shall have the same meaning as in the Company's 1999 Stock Option Plan, as in effect on the date hereof.             (vii) the term "Target Bonus" shall mean 75% of Executive's annual salary for any given year during the Term.             (viii) the term "Retirement" shall mean voluntary retirement by the Executive after attaining age 55 with 10 years of service with the Company, or, if the Executive has not attained age 55 and/or has less than 10 years of service with the Company, the Company determines that circumstances exist that warrant the granting of Retirement status.             (g) The Executive shall have no obligation to seek other employment or otherwise mitigate the Company's obligations to make payments under this Section 6, and the Company's obligations shall not be reduced by the amount, if any, of other compensation or income earned or received by the Executive after the effective date of Executive's termination.     7.    Effect of Section 280G of the Internal Revenue Code.         (a) Notwithstanding any other provision of this Agreement to the contrary, and except as provided in Section 7(b), to the extent that any payment or distribution of any type to or for the benefit of the Executive by the Company (or by any affiliate of the Company, any person or entity who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder), or any affiliate of such person or entity, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is or will be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (but not below zero) if and to the extent that a reduction in the Total Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received the entire amount of such Total Payments. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Total Payments, by first reducing or eliminating the portion of the Total Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as defined herein). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation.         (b) The determination of whether the Total Payments shall be reduced as provided in this Section 7 and the amount of such reduction shall be made at the Company's expense by an accounting firm selected by the Company from among its independent auditors and the five 9 <PAGE> 10 (5) largest accounting firms (an "Eligible Accounting Firm") 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 Executive within ten (10) days of the last day of Executive's employment. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to the Total Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such payments and, absent manifest error, such Determination shall be binding, final and conclusive upon the Company and the Executive. If the Accounting Firm determines that an Excise Tax would be payable, the Executive shall have the right to accept the Determination of the Accounting Firm as to the extent of the reduction, if any, pursuant to this Section 7, or to have such Determination reviewed by another Eligible Accounting Firm selected by the Executive, at the expense of the Company, in which case the determination of such second accounting firm shall be binding, final and conclusive upon the Company and Executive.     8.    Company Property. Any trade name or mark, program, discovery, process, design, invention or improvement which the Executive makes or develops, which relates, directly or indirectly, to the business of the Company or its affiliates, or Executive's employment by the Company, shall be considered as "made for hire" and shall belong to the Company and shall be promptly disclosed to the Company. During the Executive's employment and thereafter, the Executive shall, without additional compensation, execute and deliver to or as requested by the Company, any instruments of transfer and take such other action as the Company may reasonably request to carry out the provisions hereof, including filing, at the Company's sole expense, trademark, patent or copyright applications for any trade name or mark, invention or writing covered hereby and assigning such applications to the Company.     9.    Confidential Information. The Executive shall not, either during the term of Executive's employment by the Company or thereafter, disclose to anyone or use (except, in each case, in the performance of Executive's responsibilities hereunder and in the regular course of the Company's business), any information acquired by the Executive in connection with or during the period of Executive's employment by the Company, with respect to any confidential, proprietary or secret aspect of the affairs of the Company or any of its affiliates, including but not limited to the requirements and terms of dealings with existing or potential licensors, licensees, designers, suppliers and customers and methods of doing business, all of which the Executive acknowledges are confidential and proprietary to the Company, and any of its affiliates, as the case may be.     10.    Competition; Recruitment; Non-Disparagement.         (a) The Executive shall not, at any time during Executive's employment by the Company and during the Severance Period (provided that the Company is making the payments to Executive which may be required hereby during such Severance Period) (the "Non-Compete Period") and under the following circumstances, engage or become interested (as an owner, stockholder, partner, director, officer, employee, consultant or otherwise) in any business which 10 <PAGE> 11 then competes, directly or indirectly, with the business then conducted by the Company or any of its subsidiaries or affiliates. The ownership of less than 5% of the stock of a publicly owned company which competes with the Company, any of its subsidiaries or affiliates, in and of itself, shall not be considered a violation of the provisions of this Section 10.         (b) The Executive shall not, at any time during Executive's employment by the Company and thereafter until the second anniversary of the expiration of the Non-Compete Period, recruit, solicit for employment, hire or engage, or assist any person or entity in recruiting, soliciting for employment, hiring or engaging, any employee or consultant of the Company, any of its subsidiaries or affiliates, or any person who was an employee or consultant of the Company, any of its subsidiaries or affiliates within one year before the termination of the Executive's employment.         (c) For the longer of any period applicable under this Section 10 or a period of three years immediately following the date of termination, (i) the Company, and its respective affiliates and employees shall not disparage the Executive, and (ii) the Executive shall not disparage the Company, or its respective affiliates and employees.         (d) The Executive acknowledges that these provisions are necessary for the protection of the Company, and its subsidiaries and affiliates and are not unreasonable, because the Executive would be able to recruit and hire personnel other than employees of the Company, and any of their subsidiaries and affiliates. The Executive further agrees that a breach of Section 8, 9 or 10 of this Agreement shall result in the immediate cessation of any payments pursuant to this Section 10 and Section 6 hereof, if applicable. The duration and the scope of these restrictions on the Executive's activities are divisible, so that if any provision of this Section 10 is held or deemed to be invalid, that provision shall be automatically modified to the extent necessary to make it valid.     11.    Notices. Any notice or other communication to the Company or to the Executive under this Agreement shall be in writing and shall be considered given when mailed by certified mail, return receipt requested, to such party at Executive's address below, or to the Company at 1411 Broadway, New York, New York 10018, Attention: General Counsel (or at such other address as such party may specify by written notice to the other party).     12.    Successors; Binding Agreement.         (a) Company's Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the business or assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the business or assets of the Company and such assignee or transferee assumes all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company will require any such 11 <PAGE> 12 successor 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 or assets as aforesaid, which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement or by operation of law.         (b) Executive's Successors. This Agreement shall not be assignable by the Executive. This Agreement and all rights of the Executive hereunder 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. Upon the Executive's death, all amounts to which Executive is entitled hereunder, 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.     13.    Indemnification. The Company shall indemnify Executive and hold the Executive harmless, to the maximum extent permitted by applicable law, from and against all claims, actions, suits, proceedings, loss, damage, liability, costs, charges and expenses, including reasonable attorneys' fees and costs arising in connection with the Executive's performance of Executive's duties hereunder or Executive's status as an employee, officer, director or agent of the Company or its affiliates, in accordance with the Company's indemnity policies for its senior executives.     14.    Interest on Late Payments. "Undisputed Late Obligations" shall bear interest beginning on the Due Date until paid in full at an annual rate of one percent (1.0%) plus the prime rate as declared from time to time by The Chase Manhattan Bank. For purposes hereof, "Undisputed Late Obligations" shall mean any obligation which remains unpaid 5 days after written notice thereof is delivered to the other party in accordance with Section 11 (the "Due Date") for money under this Agreement owing from one party to another, which obligation (i) is not subject to any bona fide dispute or (ii) has been adjudicated by an arbitration panel or court of competent jurisdiction to be due and payable.     15.    Arbitration. Except as otherwise provided herein, all controversies, claims or disputes arising out of or related to this Agreement shall be settled under the rules of the American Arbitration Association then in effect in the State of New York, as the sole and exclusive remedy of either party, and judgment upon such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction.     16.    Attorneys' Fees. The Company shall reimburse the Executive (or the Executive shall reimburse the Company) for all reasonable costs, including without limitation reasonable attorneys' fees, of the Executive or the Company, as the case may be, in any dispute, arbitration or proceeding arising under this Agreement (collectively, a "Proceeding"), so long as the Executive or the Company, as the case may be, "prevails in substantial part" with respect to Executive's or the Company's claims or defenses in such Proceeding. For purposes hereof, the 12 <PAGE> 13 Executive shall be deemed to have "prevailed in substantial part" if (i) the Executive is the party originally demanding a Proceeding, and the arbitrator(s) shall have awarded the Executive at least 75% of the amount originally demanded by the Executive, or (ii) the Company is the party originally demanding a Proceeding, and the arbitrator(s) shall have denied the Company the relief originally requested. The Company shall be deemed to have "prevailed in substantial part" if the Executive is the party originally demanding a Proceeding and the arbitrator(s) shall have awarded the Executive less than 25% of the amount originally demanded by the Executive.     17.    Miscellaneous.         (a) Given that a breach of the provisions of this Agreement would injure the Company irreparably, the Company may, in addition to its other remedies, obtain an injunction or other comparable relief restraining any violation of this Agreement, and no bond, security or other undertaking shall be required of the Company in connection therewith.         (b) The provisions of this Agreement are separable, and if any provision of this Agreement is invalid or unenforceable, the remaining provisions shall continue in full force and effect.         (c) This Agreement constitutes the entire understanding and agreement between the parties, supersedes all other existing agreements between them and cannot be amended, unless such amendment is in writing and signed by both parties to this Agreement.         (d) This Agreement shall be governed by and construed in accordance with the laws of the State of New York (other than its choice of laws rules), where it has been entered and where it is to be performed. The parties hereto consent to the exclusive jurisdiction of any federal or state court in the State of New York to resolve any dispute arising under this Agreement or otherwise.         (e) The headings in this Agreement are solely for convenience of reference and shall not affect its interpretation.         (f) The failure of either party to insist on strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. For any waiver of a provision of this Agreement to be effective, it must be in writing and signed by the party against whom the waiver is claimed.         (g) The obligations of the Executive and the Company hereunder shall survive the termination of the term of this Agreement and the Executive's employment hereunder, to the extent necessary to give full effect to the provisions of this Agreement.     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as 13 <PAGE> 14 of the date first above written. JONES APPAREL GROUP, INC. By: /s/ Sidney Kimmel      Chairman and Chief Executive Officer      /s/ Jackwyn Nemerov      Executive 14

EXHIBIT 10.3h TERMINATION PROTECTION AGREEMENT   AGREEMENT effective June 19, 2000 between Harcourt General, Inc. and Brian J. Knez (the "Executive"). Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows: 1. Defined Terms. Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A. 2. Effective Date; Term. This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control. 3. Change of Control Benefits. (i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable. Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date. a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to: (1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and (2) the Severance Multiple times the Target Bonus; and (3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365. b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date. c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits"). d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date. f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)). (ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control. 4. Equity Pool. In the event of a Change of Control, Executive shall be entitled to a 4.55% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company. 5. Mitigation. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive. 6. Gross-Up. a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive. b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. c. Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company 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 Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company 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 Executive 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 6(c), the Company shall control all proceedings taken in connection with such contest 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 and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and 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 shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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 or with respect to any imputed income with respect to such advance; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. The Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive 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. d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty 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. 7. Termination for Cause. Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits. 8. Indemnification; Director's and Officer's Liability Insurance. (i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations. 9. Arbitration. All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. 10. Costs of Proceedings. The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10. 11. Assignment. Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. 12. Withholding. Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder. 13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof. 14. Notice. For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at 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. If to the Company: Harcourt General, Inc. 27 Boylston Street Chestnut Hill, MA 02467 Attention: General Counsel If to Executive: To the most recent address of Executive set forth in the personnel records of the Company.   15. Entire Agreement; Modification. This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive. 16. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.   IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000. HARCOURT GENERAL, INC. /s/ Richard A. Smith             By: Richard A. Smith Title: Chairman of the Board /s/ Brian J. Knez                EXECUTIVE   Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated: I. "Act" means the Securities Exchange Act of 1934, as amended. II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question. III. "Board" means the board of directors of the Company. IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company. V. "Cause" means either of the following: (1) If Executive has an employment agreement, the definition contained therein; otherwise (2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates. VI. "Change of Control" means the first to occur of any of the following: (1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate; (2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation); (3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors; (4) any liquidation or sale of all or substantially all of the assets of the Company; or (5) any other transaction so denominated by the Board. VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company. VIII. "Code" means the Internal Revenue Code of 1986, as amended. IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto. X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%. XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death: (1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus; (2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits; (3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held); (4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or (5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period. Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason. XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest). XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent. XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders. XV. "Severance Multiple" means three. XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). XVII. "Target Bonus" means the greatest of (i) 70% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.   Schedule B CALCULATION OF PENSION LUMP SUM AMOUNT   1. Lump Sum Amount The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement. The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age. 2. Actuarial Equivalent Assumptions The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions: a. 6% interest, compounded annually b. no pre-retirement mortality, c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females. 3. Coordination of Agreement with existing SERP and Retirement Plan Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP. Exhibit A WAIVER AND RELEASE OF CLAIMS   In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above. I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company. Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms. ___________________________________ Employee's Signature ___________________________________ Print Name ___________________________________ Date Signed

EX-10.65 7 south1065.htm 10.65 AUTO LOANS INTERNET AUTO LOAN PURCHASE AND SALE AGREEMENT   This Auto Loan Purchase and Sale Agreement ("Agreement") is made on May 4, 2000 (the "Effective Date"), by and between TranSouth Financial Corporation, a South Carolina corporation with its principal office at 250 East Carpenter Freeway, Irving, Texas 75062 ("Correspondent") and E-LOAN, Inc., a Delaware corporation with its principal office at 5875 Arnold Road, Dublin, CA 94568 ("E-LOAN"). WHEREAS, E-LOAN maintains a website at www.eloan.com, and is engaged in the business of, among other things, origination and sale of loans to consumers for the purchase or refinance of motor vehicles ("Loans"); WHEREAS, E-LOAN desires to provide a broad range of available financing for consumers seeking Loans; WHEREAS, E-LOAN and Correspondent desire to enter into an arrangement whereby E-LOAN will sell Loans to Correspondent based on Correspondent's underwriting criteria; NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, E-LOAN and Correspondent hereby agree as follows: 1. Sale and Delivery of Loans. 1.1 Sale and Purchase of Loans. From time to time during the Term of this Agreement, E-LOAN shall sell, assign, transfer, convey and deliver to Correspondent, and Correspondent shall purchase from E-LOAN, without recourse and on a servicing released basis, all right, title and interest in and to Loans as provided in this Agreement. 1.2 Offer. From time to time during the Term of this Agreement, E-LOAN may submit, for Correspondent's review and approval, an offer to sell one or more prospective Loans (each, an "Offer") under the terms of this Agreement. Each Offer shall be in a format acceptable to Correspondent, and shall include the items and information set forth on Exhibit A, which shall include the application relating to each offered Loan and such other information as mutually agreed by the parties. In determining whether to submit an Offer to Correspondent, E-LOAN shall apply Correspondent's underwriting and other criteria for purchase of Loans subject to this Agreement as set forth on Exhibit B ("Purchase Criteria") to the Loan application, and shall only submit Offers that E-LOAN reasonably believes satisfy the Purchase Criteria. E-LOAN is not obligated to offer to sell any Loans or prospective Loans to Correspondent and Correspondent is not obligated to purchase any Loan from E_LOAN. 1.3 Acceptance. On or before the Offer expiration Date set forth on Exhibit A, Correspondent shall, in its sole discretion, accept or reject such offer, and shall inform E-LOAN of its decision. In determining whether to accept or reject an Offer, Corespondent shall apply the Purchase Criteria to each Loan offered for sale. If Correspondent accepts an Offer, Correspondent shall electronically transmit to E-LOAN a Confirmation with respect to each prospective Loan to be purchased. The Confirmation shall include the information set forth on Exhibit C, and shall include a clear description of the conditions that must be met in order for Correspondent to purchase the Loan. Transmission of a Confirmation shall constitute acceptance of E-LOAN's Offer, and Correspondent shall be obligated to purchase the prospective Loan, provided that all conditions set forth in the Confirmation are met and the Loan is funded by E-LOAN prior to expiration of the Confirmation. If E-LOAN does not fund a prospective Loan and fulfill all conditions set forth in the Confirmation within thirty (30) days of E-LOAN's receipt of the Confirmation, the Confirmation shall expire, and Correspondent shall have no obligation to purchase the Loan. E-LOAN agrees that it will not offer for sale to any person other than Correspondent any Loan for which a Confirmation has been issued and is outstanding. Upon expiration of a Confirmation, E-LOAN shall be free to sell or offer to sell the subject Loan to any other person. In the absence of a Confirmation issued by Correspondent with respect to a Loan, Correspondent is not obligated to purchase any Loan offered for sale by E-LOAN. 1.4 Funding and Delivery of Loans. . E-LOAN shall use its best efforts to fulfill all conditions set forth in a Confirmation, and to fund the subject Loans prior to expiration of a Confirmation; however, E-LOAN is not obligated to fund or sell any Loans to Correspondent, whether or not a Confirmation has been issued by Correspondent with respect to the subject Loan. Upon funding of a Loan subject to a Confirmation, E-LOAN shall immediately deliver to Correspondent, the loan documents and items set forth on Exhibit D, together with any other items required by the Confirmation relating to the subject Loan, evidencing funding and fulfillment of all conditions of the Confirmation ("Required Documents"). 1.5 Payment; Transfer. With respect to each Loan sold, Correspondent shall pay E-LOAN the amount set forth on Exhibit E ("Purchase Price"), in the manner, and by the time limits set forth in Exhibit E. The Purchase Price shall be the principal amount of the Loan, plus such additional compensation as the parties agree. Upon receipt by E-LOAN of the portion of the Purchase Price representing the principal balance of the Loan ("Transfer Date"), the Loan, and all rights, benefits, payments, proceeds and obligations arising from or in connection with the Loan, together with any lien or security interest in the vehicle serving as collateral for the Loan, shall vest in Correspondent. Until the Transfer Date, E-LOAN shall own and control the application and all documentation relating to a prospective Loan to be sold. All Loans sold under this Agreement shall be sold without recourse, on a servicing released basis. With respect to each Loan as to which E-LOAN has not delivered to Correspondent all Required Documents prior to expiration of the Confirmation related to such Loan, Correspondent shall have no obligation to purchase the subject Loan. 2. Covenants. 2.1 Compliance with Law. Each party shall comply with all federal, state and local laws and regulations applicable to this Agreement and the respective party's obligations hereunder, including without limitation all consumer protection laws, the federal Equal Credit Opportunity Act, Truth in Lending Act, Fair Credit Reporting Act and Fair Debt Collection Practices Act and each of their respective regulations ("Applicable Law"). E-LOAN shall provide prior written notice to Correspondent of any changes to the form documents for Loans, and shall update the forms as necessary to comply with Applicable Law. Correspondent shall provide prior written notice to E-LOAN of any changes to the Purchase Criteria, and shall update the Purchase Criteria as necessary to comply with Applicable Law. 2.2 Post-Closing Payments. All monies received by E-LOAN after the transfer of title to any Loan shall be promptly turned over to Correspondent. 2.3 Limited Power of Attorney. E-LOAN hereby appoints Correspondent, its agents, employees, successors and assigns, as its attorney in fact, with the full power of substitution, for the limited purpose of (1) endorsing E-LOAN's name on any checks, drafts, money orders or other forms of payment payable to E-LOAN that may come into Correspondent's possession with respect to any Loan purchased by Correspondent under this Agreement, and (2) executing any form or document necessary to effectuate the assignment of a Loan in accordance with this Agreement, or to create, perfect, assign or release a first priority security interest in a vehicle securing a Loan in favor of Correspondent. 2.4 Non-Discrimination. Correspondent's credit underwriting standards and Purchase Criteria comply with, and as such standards and Criteria may be revised from time to time throughout the term of this Agreement shall remain in compliance with, the anti-discrimination and other requirements of Applicable Law. E-LOAN's loan origination practices comply with, and as such origination practices may be revised from time to time throughout the term of this Agreement shall remain in compliance with, the anti-discrimination and other requirements of Applicable Law. 2.5 Record Retention. Each party shall, at its own expense, maintain data, information, records and documents relating to Loans offered for sale or sold pursuant to this Agreement, in such manner and for such time period as is required by Applicable Law. Each party shall cooperate with one another and make such Loan records available to regulatory authorities to satisfy state or federal audit requirements. If a party has reasonable grounds to believe a default has occurred under this Agreement, that party shall have the right to review the records of the other party upon reasonable notice, provided that the requesting party shall be entitled to review only those records necessary to determine existence and extent of the default. 2.6 Performance Reports. Within thirty (30) days after the end of each calendar month during the Term of this Agreement, Correspondent shall provide to E-LOAN a report showing (i) the number of Loans purchased by Correspondent during the preceding month; (ii) the total principal balance of all Loans purchased by Correspondent during the preceding month; (iii) the number of Loans purchased by Correspondent since the Effective Date having delinquencies of 30-59 days, 60-90 days, and over 90 days, respectively; (iv) the number of Loans purchased by Correspondent since the Effective Date that have been charged off; and (v) the number of Loans purchased by Correspondent since the Effective Date for which the vehicle securing the Loan has been repossessed, showing the date of each repossession. Mutual Cooperation. During the term of this Agreement, the parties agree to cooperate with and assist each other, as reasonably requested, in carrying out the covenants, agreements, duties and responsibilities of one another under this Agreement, and shall from time to time, execute, acknowledge and deliver such additional instruments, assignments, endorsements, and documents as may reasonably be required or appropriate to facilitate the performance of this Agreement. Both parties shall work together with respect to coordinating the systems requirements for establishing and maintaining electronic connectivity, and each party shall bear its own expenses with respect thereto. No Solicitation . From the date of this Agreement until any Loan sold to Correspondent is paid in full, E-LOAN agrees that it will not directly solicit the respective borrowers to apply for, or offer to such borrowers, any financial products, the proceeds of which could be used to pay off or refinance the subject Loan, including, without limitation, the solicitation or offering of any loan, line of credit, home equity loan or line of credit, or any other credit product. 3. Representations and Warranties of the Parties. As of the date of this Agreement, and throughout the Term, each party hereby represents and warrants to the other party that: 3.1 Due Organization and Good Standing. Each party is a corporation, duly organized, validly existing, and is qualified and authorized to transact business in, and is in good standing under the laws of, the jurisdiction of its organization and each jurisdiction in which it performs or will perform its obligations under this Agreement, or is otherwise doing business or is otherwise exempt under applicable Law from such qualification. 3.2 Authority and Capacity. Each party has the power, authority and capacity to execute, deliver, and perform its obligations under this Agreement. Each party's execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action. This Agreement constitutes a valid and legally binding agreement enforceable in accordance with its terms, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability of specific performance. 3.3 Consent; Litigation. No consent or approval of any other party or any court or governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. There is no pending claim, cause of action, governmental action or litigation that, if determined adversely, would affect the party's ability to perform its obligations hereunder. This Agreement will not result in a default under any other agreement to which the party is bound. 3.4 Licenses. All necessary qualifications and licenses required by applicable law to conduct business as contemplated by this Agreement in all states where Loans are purchased and sold hereunder have been obtained, and will be maintained in good standing. 4. Additional Representations and Warranties of E-LOAN. As of each and every date E-LOAN sells and delivers a Loan to Correspondent under this Agreement, E-LOAN hereby represents and warrants to Correspondent with respect to each such Loan that: 4.1 Valid Loans. Each Loan is bona fide, valid, genuine and legally enforceable according to its terms and is duly and properly executed by the parties shown as borrowers who were competent and had full legal capacity to enter into such Loan at the time they executed the same. The following statements are true and correct: (1) there are no claims or defenses with respect to any Loan; (2) no Loan, or the obligations of any borrower, guarantor or surety with respect to any Loan, has been obtained by fraud or fraudulent representations; (3) no oral or written agreement exists or will exist whereby any of the terms of any Loan has been varied in any way; (4) the information provided to Corespondent in connection with each Loan is complete, true and correct; and (5) none of the borrowers, guarantors or sureties on the Loans are deceased, and none of such persons are the subject of any bankruptcy or other legal proceedings between E-LOAN and such persons. 4.2 Loans Comply with Law. The form of each Loan and the transactions contemplated by the Loan comply with, and have been entered into in compliance with, all applicable law, and all required disclosures and notices have been given in compliance with all applicable law; provided, however, that E-LOAN makes no representation or warranty as to the enforceability or effect of the arbitration clause or agreement that Correspondent requires E-LOAN to include in the Loan documentation.. Any applicable period during which the borrower may rescind the Loan has expired, and all Loan proceeds have been fully disbursed. 4.3 No Default. All payments required under each Loan have been made up to the date the Loan is sold. There is no default, breach, violation or event of acceleration existing under the terms of each Loan nor has any event occurred which, upon the giving of notice or the lapse of time, or both, would constitute a default, breach, violation or event of acceleration under the Loan. 4.4 Title and Insurance. For each Loan sold to Correspondent, the certificate of title to each vehicle securing a loan shall list E-LOAN, Correspondent or its designated Affiliate (as the parties shall mutually agree as the first and only lienholder on the certificate of title application or registration and on the required physical damage insurance policies and loss payable clauses relating to the vehicle securing the Loan. For purposes of this Agreement, "Affiliate" means any person or entity which directly, or indirectly through one or more intermediaries, owns or controls, is owned or controlled by, or is under common control or ownership with, E-LOAN or Correspondent, respectively, or their respective ultimate parent.  4.5 Origination of Loans. Except as disclosed in writing to Correspondent and accepted by Correspondent prior to the Transfer Date, each Loan has been originated in accordance with the Purchase Criteria and the terms and conditions of the applicable Confirmation. 4.6 Status of Loan. The information that appears on E-LOAN's accounting and all other pertinent records pertaining to any Loan accurately reflect the true status of each Loan. 4.7 Ownership of Loans. Except with respect to the liens of E-LOAN's warehouse lenders, (a) E-LOAN is the sole owner of each Loan and has good and marketable title thereto, and has the right to assign, sell and transfer the Loan to Correspondent free and clear of any encumbrance, lien, pledge, charge, claim or security interest, and (b) E_LOAN has not sold, assigned or otherwise transferred any right or interest in or to the Loan and has not pledged the Loan as collateral for any debt or other purpose. . 4.8 Sale Treatment. The sale of each Loan shall be reflected on E-LOAN's balance sheet and other financial statements as a sale of assets by E-LOAN, and E-LOAN shall not take any action or omit to take any action which would cause the transfer of the Loans to Correspondent to be treated as anything other than a sale to Correspondent of all of E-LOAN's right, title and interest in and to each Loan. 4.9 Insurance. Each vehicle securing a Loan is insured against loss under a policy issued by an insurer reasonably acceptable to Correspondent and qualified to do business in the state where the vehicle is located, in a form such that it may be endorsed to Correspondent as loss payee. 5. Indemnification & Remedies. 5.1 Indemnification. Each party (in such capacity, referred to as "Indemnitor") shall indemnify and hold the other party and its respective shareholders, directors, officers, employees, representatives, agents, servants, successors, and assigns (collectively "Indemnitee") harmless from and shall reimburse Indemnitee for any losses, damages, deficiencies, claims, causes of action or expenses of any nature (including reasonable attorneys' fees and expenses) incurred by Indemnitee arising out of or resulting from any breach of any warranty, representation covenant or obligation of Indemnitor under this Agreement. 5.2 Indemnification Procedures. After either party obtains knowledge of any claim, action, suit or proceeding (collectively a "Claim") for which it believes is entitled to indemnification under this Agreement, it shall promptly notify the other party of such Claim in writing within ninety (90) days after such knowledge. Each party shall cooperate with the other in every reasonable manner (at the Indemnitor's sole expense) to facilitate the defense of any Claim subject to indemnification hereunder. Indemnitee's failure to promptly notify Indemnitor of a Claim shall not relieve the Indemnitor from any liability under this Section to the extent that Indemnitor is not materially adversely affected by such delay. With respect to each such notice, the Indemnitor shall, at the Indemnitee's option, immediately take all action necessary to minimize any risk or loss to the Indemnitee, including retaining counsel satisfactory to the Indemnitee and take such other actions as are necessary to defend the Indemnitee or to discharge the indemnity obligations under this Section. If the Indemnitor does not timely and adequately conduct such defense, the Indemnitee may, at its option and at Indemnitor's expense, conduct such defense, contest, litigate or settle the Claim using counsel of its own choice without prejudice to its right of indemnification under this Section. The Indemnitor shall pay on demand any liability incurred by the Indemnitee under this Section. The Indemnitor shall not settle any claim in which the Indemnitee is named without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld. The Indemnitee shall have the right to be represented by counsel at its own expense in any such contest, defense, litigation or settlement conducted by the Indemnitor. 5.3 Repurchase. The purchase and sale of Loans under this Agreement shall be without recourse to E-LOAN, except for the representations, warranties, covenants and agreements set forth in this Agreement. Notwithstanding the foregoing, in the event there is a breach by E-LOAN of any covenant, representation, warranty or agreement under this Agreement which remains uncured for thirty (30) days and involves, relates to, or affects any Loan sold to Correspondent under this Agreement, E-LOAN shall repurchase the affected Loan from Correspondent for the outstanding balance of principal and accrued but unpaid interest on such Loan. Upon discovery of a suspected breach, Correspondent shall provide E-LOAN with written notice specifying the breach. In the event of such repurchase, Correspondent shall assign the affected Loan to E-LOAN without recourse and without representation or warranties, expressed or implied. 5.4 Survival of Remedies. This Section shall survive termination of the Agreement.   6. Term and Termination. 6.1 Term. Unless this Agreement is terminated earlier as provided below, this Agreement shall have an initial term of one (1) year commencing on the Effective Date, and shall automatically renew for successive one (1) year term periods. The initial term, together with any renewal terms, shall be referred to herein as the "Term." 6.2 Termination. Notwithstanding the foregoing, this Agreement may be terminated as follows: (i) without cause by either party upon not less than thirty (30) days prior written notice to the other party; or (ii) by either party immediately upon written notice to the other party (a) if the other party breaches any warranty, representation, covenant or obligation under this Agreement and fails to cure such breach within thirty (30) calendar days of receiving written notice of the breach from the non-breaching party; (b) if a party has reasonable cause to believe that the other party will not be able to perform its obligations under this Agreement; (c) if there occurs a change of (25%) or more of the ownership of the other party; (d) if a material adverse change occurs in the financial condition of the other party; or (e) if the other party is subject to a dissolution, receivership, liquidation, insolvency, conservatorship, consolidation, reorganization, sale of substantially all of its assets, cessation of business, voluntary or involuntary bankruptcy. 6.3 Effect of Termination; Survival. The termination of this Agreement shall not affect the rights and obligations of the parties with respect to Loans for which Confirmations have previously been issued ("Pipeline Loans"), or transactions and occurrences that take place prior to the effective date of termination, and Correspondent shall purchase Pipeline Loans as provided in Section 1.3 if all conditions set forth in the Confirmation are met, except as otherwise provided by Applicable Law.   7. Miscellaneous. 7.1 Confidentiality of Information. Each party and their respective Affiliates, directors, officers, employees and authorized representatives shall hold in strict confidence and not use or disclose to any other person without the prior written consent of the other party, all information concerning the other party's proprietary business procedures, products, services, operations, fees, policies or plans received from the other party in connection with the negotiation and performance of this Agreement. Notwithstanding the foregoing, either party may disclose information that is required to be disclosed by Applicable Law, governmental regulation or court order, and may disclose the contents of this Agreement, with information as to the amount of, and manner of calculating the Purchase Price redacted where permitted, in required filings with the Securities Exchange Commission or other governmental agency without the other party's prior consent This provision shall survive termination of the Agreement 7.2 Public Announcement. The timing and content of any advertisements, announcements, press releases or other promotional activity relating to this Agreement, and the use of each other's name or trademarks shall be subject to the prior approval of both parties. 7.3 Assignment. Neither party may assign this Agreement without the prior written consent of the other party. 7.4 No Agency Relationship. The relationship between E-LOAN and Correspondent shall not be construed as a joint venture, partnership or principal-agent relationship, and under no circumstances shall any of the employees of one party be deemed to be employees of the other party for any purpose. This Agreement shall not be construed as authority for either party to act for the other in any agency or any other capacity, except as expressly set forth in this Agreement. 7.5 Third Party Beneficiaries. This Agreement is not intended and shall not be construed to create any rights or benefits upon any person not a party to this Agreement. 7.6 Costs and Expenses. Unless specifically provided for elsewhere in this Agreement, each party will bear its own costs and expenses, including legal fees, accounting fees and taxes incurred in connection with the negotiation and performance of this Agreement. 7.7 Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed given (i) three business days after being deposited in the U.S. mail, first class, postage prepaid, (ii) upon transmission, if sent by facsimile transmission, or (iii) upon delivery, if served personally or sent by any generally recognized overnight delivery service, to the following addresses: (a) If to E-LOAN, to: E-LOAN, Inc. 5875 Arnold Road Dublin, CA 94568 Attn: Curtis M. Kuboyama Facsimile no. (925) 803 3507 with a copy to Edward A. Giedgowd, E-LOAN's Counsel at the same address. (b) If to Correspondent, to: TranSouth Financial Corporation 2001 Beach Street Fort Worth, TX 76103 Attn: Gary R. Perdue Senior Vice President with copies to: TranSouth Financial Corporation 250 East Carpenter Freeway Irving, TX 75062 Attn: President and TranSouth Financial Corporation P. O. Box 660237 Dallas, TX 75266-0237 Attn: General Counsel Consumer Legal 7 Decker 7.8 Entire Agreement. This Agreement, including any exhibits or other documents attached hereto or referenced herein, each of which is hereby incorporated into this Agreement and made an integral part hereof, constitutes the entire agreement between the parties relating to the subject matter hereof and there are no representations, warranties or commitments except as set forth herein. This Agreement supersedes all prior understandings, negotiations and discussions, written or oral, of the parties relating to the transactions contemplated by this Agreement. 7.9 Modification. This Agreement may not be changed orally but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought 7.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 7.11 Provisions Severable. If any provision of this Agreement shall be or become wholly or partially invalid, illegal or unenforceable, such provision shall be enforced to the extent that its legal and valid and the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns.  7.12 Waivers; Cumulative Remedies. No failure or delay by a party to insist upon the strict performance of any term or condition under this Agreement or to exercise any right or remedy available under this Agreement at law or in equity, shall imply or otherwise constitute a waiver of such right or remedy, and no single or partial exercise of any right or remedy by any party will preclude exercise of any other right or remedy. All rights and remedies provided in this Agreement are cumulative and not alternative; and are in addition to all other available remedies at law or in equity. 7.13 Limitation of Liability. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY UNDER THIS AGREEMENT FOR ANY DAMAGES OR CLAIMS FOR LOST PROFITS OR PUNITIVE DAMAGES EXCEPT TO THE EXTENT THAT IT MUST INDEMNIFY THE OTHER FOR LOSSES, DAMAGES, OR CLAIMS PAID TO OTHERS PURSUANT TO SECTION 5 OF THIS AGREEMENT. 7. 14 Counterparts. This Agreement may be executed in two or more counterparts, each of which together shall be deemed an original, but all of which shall constitute one and the same instrument. 7.15 Arbitration. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules. Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Any arbitration proceeding provided for by this section shall take place in Dallas, Texas.   IN WITNESS WHEREOF, the parties have executed this Agreement, effective as of the Effective Date written above. TranSouth Financial Corporation E-LOAN, Inc. By: ____________________________ By: ____________________________ Title: ___________________________ Title: ___________________________ Date: __________________________ Date: __________________________         E-LOAN, Inc.   By: ____________________________   Title: ___________________________   Date: __________________________   Exhibit A: Documents to be Submitted by E-Loan with Offers to sell a Loan   Product: Loan amount: Term: Trade-in vehicle: Primary Applicant information: Co-applicant information: Primary applicant name: Primary applicant SSN: Primary applicant score: Birthdate: Current residence: Time on current residence: Rent/Mortgage Payment: Previous residence: Time at previous residence: Name of employer: Time on job: Occupation: Employer phone: Gross Monthly Income: Name of previous employer: Time on previous job: Previous employer address: Previous employer phone: Other Income Source: Other Income Amount: Co-applicant name: Co-applicant SSN: Co-borrower score: Birthdate: Current residence: Time on current residence: Rent/Mortgage Payment: Previous residence: Time at previous residence: Name of employer: Time on job: Occupation: Employer phone: Gross Monthly Income: Name of previous employer: Time on previous job: Previous employer address: Previous employer phone: Other Income Source: Other Income Amount:                                 Exhibit B: Purchase Criteria   [*]       Exhibit C: Information to be Included in Loan Confirmation The Loan Confirmation will include the following: For Approvals: Date and Time of the credit decision Application number Decisioning Lender Contact Information Applicant name (and Co-Applicant if applicable) Approved Amount Maximum Loan to Value % (for new and used) APR Rate (for new and used) Maximum Term (for new and used) Stipulations, which may include but not be limited to specifically required documents, such as tax lien information, proof of income, proof of employment, proof of address, individual credit bureau trade line issues, etc. For Declinations: Date and Time of credit decision Application number Decisioning Lender contact information Applicant Name (and Co-Applicant if applicable) Up to 4 ECOA reasons for not approving the application as submitted   Exhibit D: Loan Documents Note and Security Agreement (Estimated) Note and Security Agreement (FINAL) Copy of front and back of Documentary Draft to fund immediately and Original Copy in timely fashion. Drivers License(s) Proof of Insurance Title Application Sale Contract (New Vehicle) Bill of Sale or Buyers Order (Used Vehicle) Odometer Statement (Used Vehicle) Dealer Factory Invoice (New Vehicle) Warranty Certificate (if applicable) Proof of Income, if requested by TranSouth on Tiers 1 & 2. Required for Tiers 3 & 4 Proof of Residency, if requested by TranSouth (copy of driver's license or copy of current utility bill) on Tiers 1 & 2. Required for Tiers 3 & 4 2 Completed References (name, address, phone number). 4 References for Tiers 3 & 4. Exhibit E: Purchase Price Purchase Price: With respect to each Loan made, Correspondent shall pay E-LOAN, via ACH, the Principal Balance of each Loan within 48 hours of receipt of the Required Documents for such Loan. Calculation and payment of Additional Compensation shall be as shown below. Additional Compensation: As additional compensation for E-LOAN's performance of Services hereunder, Correspondent will pay E-LOAN a fee equal to $[*] ("Origination Fee") for each Loan purchased under this Agreement. On or before the 10th of each month, Correspondent shall pay E-LOAN the aggregate Origination Fees for all Loans made in the prior calendar month pursuant to this Agreement.

Exhibit 10.2 EXECUTION COPY     SALE AGREEMENT Reference is made to (i) the Receivables Purchase Agreement, dated as of April 30, 1993 (as amended, supplemented or modified from time to time, the "RPA"), between Household Bank (SB), National Association (the "Bank "), a national banking association, as successor in interest to Household Bank, f.s.b., and Household Affinity Funding Corporation, a Delaware corporation ("HAFCO") and subsidiary of the Bank and (ii) the Amended and Restated Pooling and Servicing Agreement (as amended, supplemented, or modified from time to time, the "PSA") dated as of August 1, 1993, among HAFCO, Household Finance Corporation, a Delaware corporation, and The Bank of New York, a New York banking corporation. Capitalized terms used herein (and not otherwise defined herein) shall have the respective meanings ascribed thereto in the RPA. HAFCO (hereinafter "Seller"), Household Affinity Funding Corporation II, a Delaware corporation ("Purchaser"), and the Bank agree, effective as of October 1, 2000 (the "Effective Date"), as follows: 1. In consideration of the payment by Purchaser of the sum of $1,128,924,235, and the Purchasers assumption of all of the Sellers obligations under the RPA and the PSA, receipt of which is hereby acknowledged by the Seller, the Seller hereby does hereby grant, bargain, sell, convey, transfer and deliver unto Purchaser, its successors and assigns, all of Sellers right, title and interest in and to all assets belonging to the Seller, including all of Sellers right, title and interest in, to and under the RPA and the PSA, and Receivables and other Purchased Assets and all other accounts, investment property, general intangibles, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, and advices of credit and all proceeds thereof (collectively all such assets hereinafter referred to as the "Assets"). 2. The Purchaser (a) represents and warrants that it is legally authorized to enter into this Sale Agreement; (b) confirms that it has received a copy of the RPA and the PSA and such other documents and information as it has deemed appropriate to make its own analysis and decision to enter into this Sale Agreement; (c) agrees that it will be bound by the provisions of the RPA and the PSA and hereby assumes and will perform in accordance with its terms all the obligations which by the terms of the RPA and the PSA were required to be performed by Seller prior to this Sale Agreement and which Seller would be required to perform on or after this Sale Agreement had Seller not entered into this Sale Agreement; and (d) confirms that all representations and warranties of the Seller under each of the RPA and the PSA are true and correct as to the Purchaser. 3. The Seller represents and warrants that it is legally authorized to enter into this Sale Agreement and that the Seller shall relinquish its rights under each of the RPA and the PSA and be released from its obligations under each of the RPA and the PSA. 4. The parties hereto intend that the conveyance of (i) the Sellers rights, title and interests in and to the Receivables and other Purchased Assets purchased by it pursuant to the RPA and the Conveyance Papers and (ii) the Sellers rights, title and interests in and to all other Assets shall constitute an absolute sale, conveying good title free and clear of any liens, claims, encumbrances or rights of others, from the Seller to the Purchaser, and not a borrowing secured by the Assets. In the event, however, that it were to be determined that the transactions evidenced hereby constitute a loan and not a purchase and sale, it is the intention of the parties hereto that this Agreement shall constitute a security agreement under applicable law, and that the Seller shall be deemed to have granted and does hereby grant to the Purchaser a first priority perfected security interest in all the Sellers right, title and interest in and to the Receivables all other Assets and all proceeds thereof to secure the obligations of the Seller hereunder. 5. The Bank hereby consents to the Sellers assignment to Purchaser of the Assets and to Purchasers assumption of all obligations of the Seller under the RPA pursuant to the terms of this Sale Agreement. The Bank hereby confirms and acknowledges its conveyance of and grant of a security interest in the Purchased Assets to the Purchaser under the RPA and the Conveyance Papers, and the Bank and the Purchaser each intend each such conveyance to be a sale, and not a secured borrowing. 6. This Sale Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7. THIS SALE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. (Signature Page Follows) IN WITNESS WHEREOF, the parties hereto have caused this Sale Agreement to be executed and delivered by their respective duly authorized officers as of the Effective Date. HOUSEHOLD AFFINITY FUNDING CORPORATION By:   /s/ P. L. Krupowicz Name: P. L. Krupowicz Title: Vice President and Treasurer HOUSEHOLD AFFINITY FUNDING CORPORATION II By:     /s/ S. H. Smith Name: S. H. Smith Title: Vice President and Assistant Treasurer HOUSEHOLD BANK (SB), NATIONAL ASSOCIATION By:   /s/ M. A. Sprude Name: M.A. Sprude Title: Executive Vice President and Chief Financial Officer