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                    DISTRIBUTION AND TAX INDEMNITY AGREEMENT


         THIS DISTRIBUTION AND TAX INDEMNITY AGREEMENT is made this ___ day of
_________, 2000, by and among ___________________, a ________ corporation (the
"Company"), and each of the Company's shareholders (collectively, the
"Shareholders" and each individually a "Shareholder").

                              W I T N E S S E T H:

         WHEREAS, the Company intends to make a public offering of the Company's
stock pursuant to a registration statement on Form S-1 to be filed with the
Securities Exchange Commission (the "Public Offering");

         WHEREAS, the Company has elected to be an S corporation under
Subchapter S of the Code and under similar provisions of applicable state and
local tax laws for all periods from and after March 13, 1990, and expects to be
an S corporation for all periods from and after March 13, 1990 through the close
of business on the day (the "Termination Date") immediately preceding the
closing ("Closing") of the Public Offering (the "S Corporation Period");

         WHEREAS, as an S corporation, the Company's income, gain, loss and
deductions have been and will be passed through to and reported on the
individual tax returns of the Shareholders during the S Corporation Period for
Federal and state and local income tax purposes rather than being taxed to the
Company;

         WHEREAS, the status of the Company as an S corporation will terminate
on the Termination Date and the Company will thereafter incur federal and state
income tax liability as a C corporation;

         WHEREAS, the parties to this Agreement desire to distribute to the
Shareholders all of the retained earnings of the Company accumulated during the
S Corporation Period (the "Accumulated S Earnings"); and

         WHEREAS, the parties to this Agreement desire to set forth their
agreement with respect to income taxes (and related liabilities) which may be
imposed upon the Shareholders or the Company as a result of the invalidity or
termination of the Company's status as an S corporation prior to the Termination
Date or any adjustments of the Company's income for any taxable year;


         NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto,
intending to be legally bound hereby, agree as follows:

         1.     Capitalized terms not otherwise defined have the meanings given
in Paragraph 15;


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         2.     Prior to the Closing, the Company will distribute to the
Shareholders $_______, which amount represents the Company's reasonable estimate
of the Company's Accumulated S Earnings. Such distribution may be paid in part
in cash and the balance shall be paid in the form of a promissory note
substantially in the form attached hereto as Exhibit A. The amount distributed
to the Shareholders under this Paragraph 2 shall be distributed in proportion to
their ownership of the shares of the Company as of _______, 2000.

         3.     Following the Closing, the Company will determine its actual
Accumulated S Earnings. If the amount of the Company's actual Accumulated S
Earnings is greater than the amounts previously distributed pursuant to this
Paragraph 2, such difference shall be promptly distributed to the Shareholders
in proportion to their ownership of the shares of the Company as of _______,
2000. If the amounts previously distributed pursuant to this Paragraph 3 are
greater than the actual Accumulated S Earnings, the Shareholders shall promptly
return to the Company an amount equal to such difference. The amount repaid to
the Company under this Paragraph 3 shall be paid by the in proportion to their
ownership of the shares of the Company as of _______, 2000.

         4.     a. The Company shall pay to any Affected Shareholder an amount
equal to the Shareholder's Blended Rate multiplied by any Adjustment Amount
arising in connection with a Final Determination, to the extent such Adjustment
Amount arises as a result of: (i) an increase in an item of the Company's income
or gain with respect to one or more of the taxable years of the Company
(including short taxable years) failing within the S Corporation Period ("S
Years") and a corresponding decrease in an item of income or gain with respect
to one or more of the taxable years of the Company (including short taxable
years) falling outside of the S Corporation Period ("C Years"); or (ii) a
decrease in the Company's losses, deductions, or credits with respect to one or
more S Years and a corresponding increase in losses, deductions, or credits with
respect to one or more C Years. Any payment pursuant to this Section 4.a. shall
be paid in cash by the Company no later than ten days prior to the due date of
any payment required to be made by the Shareholder with respect to such
Adjustment Amount, or, if no due date is specified, within fifteen (15) days
following the date of the Final Determination.

                b. In the event any Taxes as to which an amount shall have been
paid to a Shareholder by the Company pursuant to Paragraph 4.a are subsequently
refunded or repaid to such Shareholder, such Shareholder agrees to promptly pay
to the Company such refund or repayment, less any net tax cost incurred by the
Shareholder with respect to such amounts.

                c. Each Shareholder agrees to prepare his income tax returns
with respect to the calendar year in which the Termination Date occurs
consistent with the manner in which each item of income, loss, deduction and
credit of the Company is reported by the Company to each such Shareholder.

         5.     a. The Shareholders, individually on a pro rata basis in
accordance with the number of shares of Common Stock owned by each Shareholder
on _______, 2000, shall pay to the Company an amount equal to the Company
Blended Rate multiplied by any Adjustment Amount arising in connection with a
Final Determination, to the extent such Adjustment Amount arises as a result of
(i) the invalidity or termination of the Company's S Election for any reason


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other than the Public Offering, or (ii) (A) an increase in an item of the
Company's income or gain in any C Year and a corresponding decrease in an item
of income or gain reported to the Shareholders by the Company with respect to an
S Year; or (B) a decrease in an item of loss, deduction, or credit reported by
the Company in any C Year and a corresponding increase in an item of loss,
deduction, or credit with respect to an S Year. Any payment pursuant to this
Paragraph 5.a. shall be paid in cash by the Shareholders no later than ten days
prior to the due date of any payment required to be made by the Company with
respect to such Adjustment Amount, or, if no due date is specified, within
fifteen (15) days following the date of the Final Determination.

                b. The obligation of the Shareholders to make payments to the
Company under clause (ii) of the first sentence of Paragraph 5.a. shall in no
event exceed the amount distributed to the Shareholder with respect to the
year in which the decrease in the Shareholders' taxable income occurs.

                c. In the event any amounts in respect of Taxes as to which an
amount shall have been paid to the Company by the Shareholders pursuant to
Paragraph 5.a. are subsequently refunded or repaid to the Company, the Company
agrees to promptly pay to the Shareholders such refund or repayment, less any
net tax cost incurred by the Company with respect to such amounts.

                d. If the S Election of the Company is terminated prior to the
Termination Date, each of the Shareholders and the Company agrees to take such
steps as are reasonably necessary to obtain relief from the effects of such
termination pursuant to Section 1362(f) of the Code and the regulations
thereunder.

         6.     a. Any Shareholder receiving notice of an intention by a
taxing authority to audit any return of the Shareholder or the Company which
includes any item of income, gain, deduction, loss, or credit reported by the
Company with respect to any S Year shall inform the Company, in writing, of the
intended audit within 15 days after receipt of such notice. Should the Company
receive notice of an intention by a taxing authority to audit any return of the
Company which includes any item of income, gain, deduction, loss, or credit
reported by the Company with respect to any S Year shall inform the
Shareholders, in writing, of the intended audit within 15 days after receipt of
such notice.

                b. On behalf of all Shareholders, the Shareholder with the
largest percentage interest in the outstanding stock of the Company on the
Termination Date shall be responsible for management and supervision of such
audit of the Company (the "Managing Shareholder"). The Company shall cooperate
with such audit by, without limitation, organizing and making available all
books and records of the Company and participating, on a reasonable basis, in
meetings and correspondence with the taxing authority. The cost of professional
assistance, including independent accountants and attorneys hired by any or all
of the Shareholders in the course of the audit shall be borne by such
Shareholder or Shareholders. The Company shall have the right to participate in
the audit, directly or through its representatives, at its expense, and the
Managing Shareholder shall keep the Company informed of all meetings,
correspondence and other procedural aspects of the audit.


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                c. Any Shareholder (a "Notified Shareholder") receiving notice
from a taxing authority of any proposed adjustment for which the Company may be
required to make payment to any Shareholder under Paragraph 4.a. (a "Proposed
Adjustment") must give notice to the Company of the Proposed Adjustment within
15 days after receipt of such notice from a taxing authority. A failure on the
part of a Notified Shareholder to provide such notice to the Company on a timely
basis shall not relieve the Company of its obligation under Paragraph 4.a.
unless such failure materially prejudices the ability of the Company to cause
the Proposed Adjustment to be contested. The Company may, based on the
procedural rules then in effect either contest such Proposed Adjustment or upon
giving written notice to the Notified Shareholder, request that the Notified
Shareholder contest such Proposed Adjustment. If the Company shall contest such
Proposed Adjustment itself, the Company shall bear all associated costs. If the
Company shall request that any Proposed Adjustment be contested by the Notified
Shareholder, then the Notified Shareholder shall, at the Company's expense,
contest (or engage representatives to contest) the Proposed Adjustment or permit
the Company and, its representatives, at the Company's request, to contest the
Proposed Adjustment (including pursuing all administrative and judicial appeals
and processes). The Company shall promptly pay to the Shareholders on demand all
reasonable costs and expenses (including reasonable attorneys' and accountants'
fees) that the Shareholders may incur in contesting such Proposed Adjustments.

                d. Without regard to any other provisions of this Agreement,
the Shareholders shall not make, accept or enter into a settlement or other
compromise with respect to any Taxes of the Company or forego or terminate any
proceeding relating to a proposed adjustment without the consent of the Company,
which shall not be unreasonably withheld or delayed.

                e. Procedures similar to those set forth in Paragraph 6.c shall
apply to any Proposed Adjustment with respect to which the Shareholders may be
obligated to make a payment under Paragraph 5; provided, however, that the
Company shall have the right to require the Shareholders, at the Shareholders'
expense, to contest any proposed adjustment that results from an assertion that
there was a termination of the S Election or that it was invalid during any time
in the S Corporation Period until a final judicial determination is reached as
to the status of the S Election for the relevant time period. The Company shall
not exercise such right if, in the judgment of the Company, there is no
reasonable basis for contesting the assertion that the S Election terminated or
was invalid. Should the validity or termination of the S Election be raised in
any audit with respect to Taxes, each Shareholder shall take all necessary steps
to extend the time period for which such Shareholder could file an amended tax
return relating to the period for which the S Election is in question.

                f. Nothing in this Paragraph 6 shall limit the Company's or
the Shareholders' obligation to make a payment to the other party pursuant to
Paragraphs 4 or 5 hereof if the other party decides not to contest, or abandons
its prior decision to contest, a Proposed Adjustment.

         7. For income tax purposes, the Company shall elect and the
Shareholders shall consent, pursuant to Section 1362(e)(3) of the Code (and
corresponding provisions of applicable state or local law), to allocate tax
items to the Company's short taxable year ending on the Termination Date and its
short taxable year beginning the day after the Termination Date as if the tax
year had ended on the Termination Date (the "closing of the books method").


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         8. The covenants and agreements of the parties set forth in this
Agreement shall survive until the applicable period of limitations for the
assessment of deficiencies with respect to the taxable years of the Shareholders
and the Company which include any period prior to the Termination Date.

         9. All notices, requests, demands and other communications which are
required or which may be given under this Agreement shall be in writing.

         10. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof.

         11. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.

         12. No provision of this Agreement may be amended, waived or otherwise
modified without the prior written consent of each of the parties hereto.

         13. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.

         14. This Agreement shall be effective as to the date first set forth
above.

         15. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without reference to the
principles of conflicts of law.

         16. As used herein, the following terms shall have the following
meanings:

         "Adjustment Amount" means the net increase in taxable income of an
Affected Shareholder or the Company based on a Final Determination and which
gives rise to a payment pursuant to Paragraph 4 or 5.

         "Affected Shareholder" means a Shareholder whose tax returns are
adjusted in a manner which gives rise to an obligation of the Company pursuant
to Paragraph 4.

         "Blended Rate" means a percentage which equals (i) in the case of a
Shareholder, the sum of the maximum federal, state and municipal individual
income tax rates for an individual residing in California (after giving effect
to the full deductibility of state and/or municipal income taxes for federal
and/or state income tax purposes), and (ii) in the case of the Company, the sum
of the maximum federal, state and municipal corporate income tax rates for a
corporation conducting its business entirely within California (after giving
effect to the full deductibility of state and/or municipal income taxes for
federal and/or state income tax purposes), in each case as


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in effect for the year of the adjustment to a tax return of the Company or a
Shareholder that gives rise to a correlative adjustment to a tax return of
such Shareholder or the Company, respectively.

         "Final Determination" means the final resolution of any income Tax
liability for a taxable period. A Final Determination shall result form the
first to occur of:

         a. The expiration of thirty(30) days after the acceptance by the
Internal Revenue Service of a Waiver of Restrictions on Assessment and
Collection of Deficiency in Tax and Acceptance of Overassessment on Federal
Revenue Form 870 or 870-AD (or any successor comparable form or the expiration
of a comparable period with respect to any comparable agreement or form under
applicable state or local laws), unless, within such period, the taxpayer gives
notice to the other party of the taxpayer's intention to attempt to recover all
or part of any amount paid pursuant to the waiver by the filing of a timely
claim for refund;

         b. A decision, judgment, decree, or other order by a court of competent
jurisdiction that is not subject to further judicial review (by appeal or
otherwise) and has become final;

         c. The execution of a closing agreement under Section 7121 of the Code
or the acceptance by the Internal Revenue Service or its counsel of an offer in
compromise under Section 7122 of the Code, or comparable agreements under
applicable state or local laws;

         d. The expiration of the time for filing a claim for refund or of
instituting suit in respect of a claim for refund disallowed in whole or part by
the Internal Revenue Service or other relevant taxing authority;

         e. Any other final disposition of the tax liability for such period by
reason of the expiration of the statute of limitations; or

         f. Any other event that the parties agree is a final and irrevocable
determination of the liability at issue.

         "Taxes" means all federal, state or local income taxes, including
interest, penalties and additions to taxes.

         IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.


                                               SIMPLE TECHNOLOGIES, INC.



                                               By:______________________________

                                               SHAREHOLDERS:


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                                               _________________________________

                                               _________________________________

                                               _________________________________


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