Document:

bank leumi USA

                                                              December 15, 2000

Elk Associates Funding Corporation ("Borrower)
747 Third Avenue
New York, NY 10017

Attn:  Mr. Gary Granoff, President

Dear Mr. Granoff:

     Reference  is  made to  promissory  note  dated  December  15,  2000 in the
principal amount of $8,000,000.

     You have agreed that for good and valuable consideration including, but not
limited to the extension and increase of credit  accommodations to Borrower,  in
the amount of  $8,000,000,  that letter  agreement  dated January 20, 1998 shall
continue  to be in full force and effect with  respect to credit  accommodations
now or in the future outstanding to Borrower.

     You have  agreed  that the first  paragraph  of such  letter is modified to
provide as follows:

     "In order to induce you to make  and/or  continue  loans for the account of
     the undersigned pursuant to Promissory Note (Grid) dated December 15, 2000,
     as such note is  hereafter  modified,  extended,  renewed or replaced  with
     other  notes,  the  Borrower  will,  and  will  cause  each  affiliate  and
     subsidiary (to the extent applicable) to:".

                      562 Fifth Avenue, New York, NY 10036
         Commercial Banking o Private Banking o International Banking o
              A Member of the Worldwide Bank Leumi le-Israel Group

<PAGE>

Elk Associates Funding Corporation
Page 2
December 15, 2000

     Please  confirm you  agreement to the  foregoing by signing and returning a
copy of this letter to the undersigned.

                                         Very truly yours,

                                         BANK LEUMI USA

                                         By:  /s/ Iris Schechter
                                            ------------------------------------
                                             Iris Schechter, Vice President

                                         By:  /s/ Fran Davis
                                            ------------------------------------
                                             Fran Davis, Vice President

Consented and Agreed to:

ELK ASSOCIATES FUNDING CORPORATION

By:  /s/ Sylvia M. Mullens, V.P.
   --------------------------------------
    Sylvia M. Mullens, Vice President

By:  /s/ Margaret Chance
   --------------------------------------
    Margaret Chance, Secretary

<PAGE>

"THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE
(GRID) DATED OCTOBER 10, 2000 IN THE ORIGINAL PRINCIPAL AMOUNT OF
$8,000,000.00."

                             PROMISSORY NOTE (GRID)

New York, N.Y. DECEMBER 15, 2000                                      $8,000,000

     For Value  Received,  ELK ASSOCIATES  FUNDING CORP.  promises to pay to the
order of BANK LEUMI USA (the "Bank"),  at its offices at 579 Fifth  Avenue,  New
York, New York, the principal sum of Eight Million Dollars  ("Maximum  Principal
Amount") or, if less,  the aggregate  unpaid  principal sum of all loans made by
the Bank, in its sole  discretion,  to the maker of this Note from time to time.
The principal sum of each such loan shall be payable February 1, 2001.

     Within the limits of the Maximum  Principal  Amount,  the maker may borrow,
prepay, and reborrow in the manner provided herein.

     Each loan shall bear interest  (from the date of such loan),  at the option
of the  maker,  at a rate  per  annum  which  shall  be equal to (a) the rate of
interest  designated  by the  Bank,  and in  effect  from  time to time,  as its
"Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes
(the maker  acknowledges  that the Reference Rate may not necessarily  represent
the lowest rate of interest  charged by the Bank to customers) or (b) 1 1/2% per
annum above the Libor Rate  (Reserve  Adjusted)*  for a one,  two or three month
term,  as  elected  by the  maker and  calculated  by the  Bank,  in the  manner
hereinafter provided, but in no event in excess

--------

*    "Libor Rate" means,  relative to any Interest Period (hereinafter  defined)
     for loans made  pursuant to this Note and which bear interest at the "Libor
     Rate (Reserve Adjusted)",  the rate of interest per annum determined by the
     Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of
     the rates of interest per annum at which dollar deposits in the approximate
     amount of the amount of the loan to be made or  continued  hereunder by the
     Bank and having a maturity  comparable  to such  Interest  Period  would be
     offered  to the Bank in the  London  Interbank  market  at its  request  at
     approximately  11:00  a.m.  (London  time) two  Business  Days prior to the
     commencement of such Interest Period.

     "Libor Reserve Percentage" means, relative to any Interest Period for loans
     hereunder,  the percentage  (expressed as a decimal,  rounded upward to the
     next 1/100th of 1%) in effect on such day (whether or not applicable to the
     Bank) under the regulations issued from time to time by the Federal Reserve
     System Board for determining the maximum reserve requirement (including any
     emergency, supplemental or other marginal reserve requirement) with respect
     to  Eurocurrency   funding  (currently   referred  to  as  a  "Eurocurrency
     Liabilities" in Regulation D of the Federal Reserve System Board).

     "Libor Rate (Reserve  Adjusted)" means,  relative to any loan to be made or
     continued hereunder for any Interest Period, the rate of interest per annum
     (rounded  upwards  to the  next  1/16th  of 1%)  determined  by the Bank as
     follows:

              Libor Rate           =                 Libor Rate
                                           ------------------------------
          (Reserve Adjusted)               1.00 - Libor Reserve Percentage

<PAGE>

of the maximum rate permitted by applicable law; provided, that in the event the
Bank shall have determined that by reason of  circumstances  affecting the Libor
Rate  (Reserve  Adjusted)  adequate  and  reasonable  means  do  not  exist  for
ascertaining  the Libor Rate  (Reserve  Adjusted) for any Interest  Period,  the
applicable  rate of interest  during such Interest  Period shall be equal to its
Reference  Rate minus 1/2% per annum  adjusted when said Reference Rate changes,
but in no event in excess of the maximum rate permitted by law; further provided
that if, at the end of any  Interest  Period,  the  maker  has  failed to timely
notify the Bank of its election of the choice of interest  rate for or length of
the next Interest Period,  then the interest rate in effect  thereafter shall be
at the Libor  Rate  (Reserve  Adjusted)  plus 1 1/2% per  annum for an  Interest
Period the length of which shall be the same length as the immediately preceding
Interest  Period unless such Interest Period would end after the stated maturity
date of this Note,  in which  case the  Interest  Period  shall be of a duration
equal  to the  next  longest  Interest  Period  which  would  end  prior to such
scheduled   maturity  date,   provided  further  that  no  Libor  Rate  (Reserve
Adjusted)-based  loan  shall be made  less  than one  month  before  the  stated
maturity date of this Note, or after the occurrence and  continuance of an Event
of  Default  or an event  which,  upon  notice,  passage  of time or both  would
constitute an Event of Default.  Interest hereunder shall be payable on the last
day of  each  Interest  Period  and at  maturity  (whether  by  acceleration  or
otherwise).  The term "Interest Period" as used in this Note shall mean a period
of one, two or three  month(s),  as elected by the maker by written or facsimile
notice to the Bank given not later than 12:00 noon three  Business Days prior to
the commencement of an Interest  Period.  No Interest Period shall extend beyond
the stated maturity date of this Note. The initial Interest Period for this Note
shall  begin on the day of the  initial  draw  down  under  the  Note,  and each
subsequent  Interest  Period  shall  begin on the  last  day of the  immediately
preceding  Interest  Period.  The Bank  shall  give  notice  to the maker of the
interest rate determined for each Interest Period as provided  herein,  and such
notice shall be  conclusive  and binding upon the maker for all purposes  absent
manifest  error.  The maker shall pay to the Bank to compensate it for any loss,
cost or expense that the Bank  determines is attributable to any prepayment of a
loan made by the Bank to the maker using the Libor Rate (Reserve Adjusted). Such
compensation  shall  include  an amount  equal to the excess (if any) of (i) the
amount of interest that otherwise would have accrued on the principal  amount so
prepaid for the period from the date of such  prepayment  to the last day of the
then current  Interest  Period for such loan at the applicable  rate of interest
for such loan provided  herein over (ii) the amount of interest  that  otherwise
would have  accrued to such  principal  amount at a rate per annum  equal to the
interest component of the amount the Bank would have bid in The London Interbank
market  for dollar  deposits  of leading  banks in  amounts  comparable  to such
principal  amount and with  maturities  comparable to such period (as reasonably
determined by the Bank).  The term "Business Day" shall mean any day of the year
on which the Bank is open for  business  (as  required  or  permitted  by law or
otherwise) and on which dealings in the U.S.  dollar  deposits are carried on in
London, England.

     If any  law,  treaty,  rule,  regulation  or  determination  of a court  or
governmental  authority  or  any  change  therein  or in the  interpretation  or
application  thereof  (each,  a "Change in Law") shall make it unlawful  for the
Bank to make Libor Rate (Reserve  Adjusted)-based loans, or to maintain interest
rates  based on Libor,  then in the former  event,  any  obligation  of the Bank
contained herein or in any agreement of the Bank to make available such unlawful
Libor Rate

                                       -2-

<PAGE>

(Reserve Adjusted)-based loans shall immediately be cancelled, and in the latter
event,  any  such  unlawful  Libor  Rate  (Reserve  Adjusted)-based  loans  then
outstanding  shall be converted,  at the Bank's option,  so that interest on the
outstanding  principal  balance  subject hereto is determined in relation to the
Reference  Rate as  hereinabove  provided;  provided  however,  that if any such
Change in Law shall  permit any Libor  Rate  (Reserve  Adjusted)-based  loans to
remain in effect until the expiration of the Interest Period applicable thereto,
then such permitted Libor Rate (Reserve  Adjusted)-based loans shall continue in
effect until the expiration of such Interest Period.  Upon the occurrence of any
of the foregoing  events,  maker shall pay to the Bank  immediately  upon demand
such  amounts as may be necessary to  compensate  the Bank for any fines,  fees,
charges,  penalties  or other costs  incurred or payable by the Bank as a result
thereof and which are attributable to any Libor Rate (Reserve  Adjusted) options
made available to maker  hereunder,  and any reasonable  allocation  made by the
Bank among its operations shall be conclusive and binding upon maker.

     If any  Change  in Law or  compliance  by the  Bank  with  any  request  or
directive  (whether  or not  having the force of law) from any  central  bank or
other governmental authority shall:

     (A)  subject the Bank to any tax,  duty or other charge with respect to any
          Libor Rate (Reserve Adjusted) options, or change the basis of taxation
          of  payments  to the Bank of  principal,  interest,  fees or any other
          amount payable hereunder (except for changes in the rate of tax on the
          overall net income of the Bank); or

     (B)  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 or
          loans by, or any other acquisition of funds by any office of the Bank;
          or

     (C)  impose on the Bank any other condition;

and the result of any of the  foregoing  is to increase  the cost to the Bank of
making,  renewing or maintaining  any Libor Rate (Reserve  Adjusted)-based  loan
hereunder  and/or to reduce  any  amount  receivable  by the Bank in  connection
therewith,  then in any such case,  maker shall pay to the Bank immediately upon
demand  such  amounts  as may be  necessary  to  compensate  the  Bank  for  any
additional  costs  incurred by the Bank and/or  reductions  received by the Bank
which are  attributable  to such Libor Rate  (Reserve  Adjusted)-based  loan. In
determining  which  costs  incurred  by the Bank  and/or  reductions  in amounts
received by the Bank are attributable to any Libor Rate (Reserve Adjusted)-based
loan made to maker hereunder,  any reasonable  allocation made by the Bank among
its operations shall be conclusive and binding upon maker.

     The Bank is hereby  authorized to enter on the schedule attached hereto the
amount of each loan and each payment of principal  thereon,  without any further
authorization  on the part of the maker or any  endorser  or  guarantor  of this
Note,  but the Bank's  failure to make such entry  shall not limit or  otherwise
affect the  obligations  of the maker or any endorser or guarantor of this Note.
In the event that any Liabilities (as hereinafter  defined) of maker to the Bank
are due at

                                       -3-

<PAGE>

any time that the Bank  receives a payment from maker on account of this Note or
any such other Liabilities of maker, the Bank may apply such payments to amounts
due under this Note or any such other Liabilities in such manner as the Bank, in
its  discretion,  elects,  regardless  of any  instructions  from  maker  to the
contrary.

     The maker and each  endorser  and  guarantor of this Note  acknowledge  and
agree that the use of this form of Note is for their  convenience,  and there is
no obligation on the part of the Bank to make loans to the maker whatsoever.

     Interest shall be computed on the basis of a 360-day year.

     Each maker or endorser authorizes (but shall not require) the Bank to debit
any account  maintained  by the maker or endorser  with the Bank, at any date on
which the payment of principal or of interest on any of the  Liabilities is due,
in an  amount  equal to any  unpaid  portion  of such  payment.  If the time for
payment of principal of or interest on any of the Liabilities or any other money
payable hereunder or with respect to any of the Liabilities becomes due on a day
on which the Bank's  offices  are closed (as  required  or  permitted  by law or
otherwise),  such payment shall be made on the next succeeding business day, and
such extension  shall be included in computing  interest in connection with such
payment.  All  payments  by any maker or  endorser  of this Note on  account  of
principal,  interest  or fees  hereunder  shall be made in  lawful  money of the
United States of America, in immediately available funds.

     All Property (as hereinafter  defined) held by the Bank shall be subject to
a security  interest in favor of the Bank or holder  hereof as security  for any
and all Liabilities. The term "Property" shall mean the balance of every deposit
account of the maker with the Bank or any of the Bank's  nominees  or agents and
all other obligations of the Bank or any of its nominees or agents to the maker,
whether now existing or hereafter  arising,  and all other personal  property of
the  maker  (including   without   limitation  all  money,   accounts,   general
intangibles, goods, instruments, documents and chattel paper) which, or evidence
of which, are now or at any time in the future shall come into the possession or
under the  control  of or be in transit  to the Bank or any of its  nominees  or
agents for any  purpose,  whether or not  accepted for the purposes for which it
was delivered.  The term "Liabilities" shall mean the indebtedness  evidenced by
this Note and all other indebtedness, liabilities and obligations of any kind of
the maker (or any  partnership or other group of which the maker is a member) to
(a) the Bank,  (b) any  group of which  the Bank is a  member,  or (c) any other
person if the Bank has a participation  or other interest in such  indebtedness,
liabilities or  obligations,  whether (i) for the Bank's own account or as agent
for others,  (ii) acquired  directly or indirectly by the Bank from the maker or
others,  (iii) absolute or contingent,  joint or several,  secured or unsecured,
liquidated  or  unliquidated,  due or not  due,  contractual  or  tortious,  now
existing or  hereafter  arising,  or (iv)  incurred  by the maker as  principal,
surety,  endorser,  guarantor or otherwise, and including without limitation all
expenses, including attorneys' fees, incurred by the Bank in connection with any
indebtedness,  liabilities or obligations or any of the Property  (including any
sale or other disposition of the Property).

                                       -4-

<PAGE>

     Upon the  happening,  with  respect to any maker,  endorser or guarantor of
this Note or any assets of any such maker, endorser or guarantor,  of any of the
following events (each an "Event of Default"):  death of the maker,  endorser or
guarantor or any member of the maker,  endorser or guarantor (if a partnership);
the failure to furnish  the Bank with any  requested  information  or failing to
permit  inspection  of books or  records by the Bank or any of its  agents;  the
making of any misrepresentation to the Bank in obtaining credit for any of them;
dissolution  (if a  corporation  or  partnership);  the making of a mortgage  or
pledge; the commencement of a foreclosure proceeding;  default in the payment of
principal or interest on this Note or in the payment of any other  obligation of
any said maker,  endorser or guarantor  held by the Bank or holder  hereof or in
the  performance  or  observance  of any covenant or agreement  contained in the
instrument evidencing such obligation; default in the payment of principal of or
interest on any  indebtedness  for  borrowed  money owed to any other  person or
entity  (including any such indebtedness in the nature of a lease) or default in
the  performance or observance of the terms of any instrument  pursuant to which
such  indebtedness was created or is secured,  the effect of which default is to
cause or permit any hoder of any such  indebtedness  to cause the same to become
due prior to its stated  maturity  (and whether or not such default is waived by
the holder  thereof);  a change in the financial  condition or affairs of any of
them which in the opinion of the Bank or  subsequent  holder  hereof  materially
reduces  his,  their or its ability to pay all of his their or its  obligations;
the  suspension  of  business;  the making of an  assignment  for the benefit of
creditors,  or appointment  of a trustee,  receiver or liquidator for the maker,
endorser  or  guarantor  or  for  any of  his,  its or  their  property,  or the
commencement  of any  proceedings by the maker,  endorser or guarantor under any
bankruptcy,  reorganization,  arrangement of debt,  insolvency,  readjustment of
debt, receivership, liquidation or dissolution law or statute (including, if the
maker,  endorser or guarantor is a partnership,  its dissolution pursuant to any
agreement or statute),  or the commencement of any such proceedings  without the
consent  of the  maker,  endorser  or  guarantor,  as the case may be,  and such
proceedings shall continue  undischarged for a period of 30 days; the sending of
notice of an intended bulk sale; the entry of judgments or any attachment,  levy
or execution  against any of his, their or its properties shall not be released,
discharged  dismissed,  stayed or fully  bonded  for a period of 30 days or more
after its entry, issue or levy, as the case may be; or the issuance of a warrant
of distraint or assertion of a lien for unpaid taxes, this Note, if not then due
or payable on demand, shall become due and payable immediately without demand or
notice and all other debts or obligations of the makers and endorsers  hereof to
the  Bank  or  holder  hereof,  whether  due or not due and  whether  direct  or
contingent  and however  evidenced,  shall,  at the option of the Bank or holder
hereof, also become due and payable immediately without demand or notice.  After
this Note becomes due, at stated maturity or on acceleration, any unpaid balance
hereof shall bear interest from the date it becomes due until paid at a rate per
annum 3% above the rate borne by this Note when it becomes  due or, if such rate
shall not be lawful with respect to the undersigned,  then at the highest lawful
rate. The liability of any party to commercial  paper held by the Bank or holder
hereof,  other than the makers and  endorsers  hereof,  shall remain  unaffected
hereby and such  parties  shall remain  liable  thereon in  accordance  with the
original  tenor thereof.  Each maker and endorser  agrees that if an attorney is
retained to enforce or collect this Note or any other  obligations  by reason of
non-payment of this Note when due or made due hereunder, a reasonable attorneys'
fee shall be paid in addition, which fees shall be computed as follows:

                                       -5-

<PAGE>

15% of the principal,  interest and all other sums due and owing to the payee or
holder or the reasonable value of the attorneys' services, whichever is greater.

     This Note shall be  governed by the laws of the State of New York and shall
be binding upon the maker and each endorser and the maker's and each  endorser's
heirs,  administrators,  successors  and  assigns.  The maker and each  endorser
hereby irrevocably  consent to the jurisdiction of any New York State or Federal
court located in New York City over any action or proceeding  arising out of any
dispute  between the maker and each endorser and the Bank, and the maker further
irrevocably  consents to the service of process in any such action or proceeding
by the  mailing of a copy of such  process to the maker at the address set forth
below. In the event of litigation between the Bank and the maker over any matter
connected with this Note or resulting from the transactions hereunder, the right
to a trial by jury is hereby  waived by the Bank and the  maker.  The maker also
waives the right to interpose  any set-off or  counterclaim  of any nature.  The
Bank or any holder may accept late payments,  or partial  payments,  even though
marked  "payment  in  full"  or  containing  words of  similar  import  or other
conditions,  without  waiving any of its rights.  No amendment,  modification or
waiver of any  provision  of this Note nor  consent  to any  departure  by maker
therefrom shall be effective,  irrespective of any course of dealing, unless the
same shall be in writing and signed by the Bank, and then such waiver or consent
shall be effective  only in the specific  instance and for the specific  purpose
for which given.

     The rights and remedies of the Bank provided for hereunder  (including  but
not limited to the right to  accelerate  Liabilities  of maker and to realize on
any  security  for any such  Liabilities)  are  cumulative  with the  rights and
remedies of the Bank available under any other  instrument or agreement or under
applicable law.

     The  undersigned,  if more than one, shall be jointly and severally  liable
hereunder.

                                       ELK ASSOCIATES FUNDING CORPORATION

                                       By:  /s/ Sylvia M. Mullens, V.P.
                                          -------------------------------------
                                           Sylvia M. Mullens, Vice President

                                       By:  /s/ Margaret Chance
                                          -------------------------------------
                                           Margaret Chance, Secretary

                                       (Address)

                                                747 Third Avenue
                                                New York, New York 10017

VALUE RECEIVED

                                       -6-

<PAGE>

bank leumi USA

                                                  October 10, 2000

Elk Associates Funding Corporation ("Borrower)
747 Third Avenue
New York, NY 10017

Attn:  Mr. Gary Granoff, President

Dear Mr. Granoff:

     Reference  is  made  to  promissory  note  dated  October  10,  2000 in the
principal amount of $8,000,000.

     You have agreed that for good and valuable consideration including, but not
limited to the extension and increase of credit  accommodations to Borrower,  in
the amount of  $8,000,000,  that letter  agreement  dated January 20, 1998 shall
continue  to be in full force and effect with  respect to credit  accommodations
now or in the future outstanding to Borrower.

     You have  agreed  that the first  paragraph  of such  letter is modified to
provide as follows:

     "In order to induce you to make  and/or  continue  loans for the account of
     the undersigned  pursuant to Promissory Note (Grid) dated October 10, 2000,
     as such note is  hereafter  modified,  extended,  renewed or replaced  with
     other  notes,  the  Borrower  will,  and  will  cause  each  affiliate  and
     subsidiary (to the extent applicable) to:".

                      562 Fifth Avenue, New York, NY 10036
         Commercial Banking o Private Banking o International Bankingo
              A Member of the Worldwide Bank Leumi le-Israel Group

<PAGE>

Elk Associates Funding Corporation
Page 2
October 10, 2000

     Please  confirm you  agreement to the  foregoing by signing and returning a
copy of this letter to the undersigned.

                                             Very truly yours,

                                             BANK LEUMI USA

                                             By:  /s/ Iris Schechter
                                                --------------------------------
                                                 Iris Schechter, Vice President

                                             By:  /s/ Fran Davis
                                                --------------------------------
                                                 Fran Davis, Vice President

Consented and Agreed to:

ELK ASSOCIATES FUNDING CORPORATION

By:  /s/ Gary Granoff
   ----------------------------
    Gary Granoff, President

By:  /s/ Margaret Chance
   ----------------------------
    Margaret Chance, Secretary

<PAGE>

"THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE
(GRID) DATED MAY 8, 2000 IN THE ORIGINAL PRINCIPAL AMOUNT OF
$8,000,000.00."

                             PROMISSORY NOTE (GRID)

New York, N.Y. OCTOBER 10, 2000                                       $8,000,000

     For Value  Received,  ELK ASSOCIATES  FUNDING CORP.  promises to pay to the
order of BANK LEUMI USA (the "Bank"),  at its offices at 579 Fifth  Avenue,  New
York, New York, the principal sum of Eight Million Dollars  ("Maximum  Principal
Amount") or, if less,  the aggregate  unpaid  principal sum of all loans made by
the Bank, in its sole  discretion,  to the maker of this Note from time to time.
The principal sum of each such loan shall be payable February 1, 2001.

     Within the limits of the Maximum  Principal  Amount,  the maker may borrow,
prepay, and reborrow in the manner provided herein.

     Each loan shall bear interest  (from the date of such loan),  at the option
of the  maker,  at a rate  per  annum  which  shall  be equal to (a) the rate of
interest  designated  by the  Bank,  and in  effect  from  time to time,  as its
"Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes
(the maker  acknowledges  that the Reference Rate may not necessarily  represent
the lowest rate of interest  charged by the Bank to customers) or (b) 1 1/2% per
annum above the Libor Rate  (Reserve  Adjusted)**  for a one, two or three month
term,  as  elected  by the  maker and  calculated  by the  Bank,  in the  manner
hereinafter provided, but in no event in excess

--------
**   "Libor Rate" means,  relative to any Interest Period (hereinafter  defined)
     for loans made  pursuant to this Note and which bear interest at the "Libor
     Rate (Reserve Adjusted)",  the rate of interest per annum determined by the
     Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of
     the rates of interest per annum at which dollar deposits in the approximate
     amount of the amount of the loan to be made or  continued  hereunder by the
     Bank and having a maturity  comparable  to such  Interest  Period  would be
     offered  to the Bank in the  London  Interbank  market  at its  request  at
     approximately  11:00  a.m.  (London  time) two  Business  Days prior to the
     commencement of such Interest Period.

     "Libor Reserve Percentage" means, relative to any Interest Period for loans
     hereunder,  the percentage  (expressed as a decimal,  rounded upward to the
     next 1/100th of 1%) in effect on such day (whether or not applicable to the
     Bank) under the regulations issued from time to time by the Federal Reserve
     System Board for determining the maximum reserve requirement (including any
     emergency, supplemental or other marginal reserve requirement) with respect
     to  Eurocurrency   funding  (currently   referred  to  as  a  "Eurocurrency
     Liabilities" in Regulation D of the Federal Reserve System Board).

     "Libor Rate (Reserve  Adjusted)" means,  relative to any loan to be made or
     continued hereunder for any Interest Period, the rate of interest per annum
     (rounded  upwards  to the  next  1/16th  of 1%)  determined  by the Bank as
     follows:

              Libor Rate          =                Libor Rate
                                         ------------------------------
          (Reserve Adjusted)             1.00 - Libor Reserve Percentage

<PAGE>

of the maximum rate permitted by applicable law; provided, that in the event the
Bank shall have determined that by reason of  circumstances  affecting the Libor
Rate  (Reserve  Adjusted)  adequate  and  reasonable  means  do  not  exist  for
ascertaining  the Libor Rate  (Reserve  Adjusted) for any Interest  Period,  the
applicable  rate of interest  during such Interest  Period shall be equal to its
Reference  Rate minus 1/2% per annum  adjusted when said Reference Rate changes,
but in no event in excess of the maximum rate permitted by law; further provided
that if, at the end of any  Interest  Period,  the  maker  has  failed to timely
notify the Bank of its election of the choice of interest  rate for or length of
the next Interest Period,  then the interest rate in effect  thereafter shall be
at the Libor  Rate  (Reserve  Adjusted)  plus 1 1/2% per  annum for an  Interest
Period the length of which shall be the same length as the immediately preceding
Interest  Period unless such Interest Period would end after the stated maturity
date of this Note,  in which  case the  Interest  Period  shall be of a duration
equal  to the  next  longest  Interest  Period  which  would  end  prior to such
scheduled   maturity  date,   provided  further  that  no  Libor  Rate  (Reserve
Adjusted)-based  loan  shall be made  less  than one  month  before  the  stated
maturity date of this Note, or after the occurrence and  continuance of an Event
of  Default  or an event  which,  upon  notice,  passage  of time or both  would
constitute an Event of Default.  Interest hereunder shall be payable on the last
day of  each  Interest  Period  and at  maturity  (whether  by  acceleration  or
otherwise).  The term "Interest Period" as used in this Note shall mean a period
of one, two or three  month(s),  as elected by the maker by written or facsimile
notice to the Bank given not later than 12:00 noon three  Business Days prior to
the commencement of an Interest  Period.  No Interest Period shall extend beyond
the stated maturity date of this Note. The initial Interest Period for this Note
shall  begin on the day of the  initial  draw  down  under  the  Note,  and each
subsequent  Interest  Period  shall  begin on the  last  day of the  immediately
preceding  Interest  Period.  The Bank  shall  give  notice  to the maker of the
interest rate determined for each Interest Period as provided  herein,  and such
notice shall be  conclusive  and binding upon the maker for all purposes  absent
manifest  error.  The maker shall pay to the Bank to compensate it for any loss,
cost or expense that the Bank  determines is attributable to any prepayment of a
loan made by the Bank to the maker using the Libor Rate (Reserve Adjusted). Such
compensation  shall  include  an amount  equal to the excess (if any) of (i) the
amount of interest that otherwise would have accrued on the principal  amount so
prepaid for the period from the date of such  prepayment  to the last day of the
then current  Interest  Period for such loan at the applicable  rate of interest
for such loan provided  herein over (ii) the amount of interest  that  otherwise
would have  accrued to such  principal  amount at a rate per annum  equal to the
interest component of the amount the Bank would have bid in The London Interbank
market  for dollar  deposits  of leading  banks in  amounts  comparable  to such
principal  amount and with  maturities  comparable to such period (as reasonably
determined by the Bank).  The term "Business Day" shall mean any day of the year
on which the Bank is open for  business  (as  required  or  permitted  by law or
otherwise) and on which dealings in the U.S.  dollar  deposits are carried on in
London, England.

     If any  law,  treaty,  rule,  regulation  or  determination  of a court  or
governmental  authority  or  any  change  therein  or in the  interpretation  or
application  thereof  (each,  a "Change in Law") shall make it unlawful  for the
Bank to make Libor Rate (Reserve  Adjusted)-based loans, or to maintain interest
rates  based on Libor,  then in the former  event,  any  obligation  of the Bank
contained herein or in any agreement of the Bank to make available such unlawful
Libor Rate

                                       -2-

<PAGE>

(Reserve Adjusted)-based loans shall immediately be cancelled, and in the latter
event,  any  such  unlawful  Libor  Rate  (Reserve  Adjusted)-based  loans  then
outstanding  shall be converted,  at the Bank's option,  so that interest on the
outstanding  principal  balance  subject hereto is determined in relation to the
Reference  Rate as  hereinabove  provided;  provided  however,  that if any such
Change in Law shall  permit any Libor  Rate  (Reserve  Adjusted)-based  loans to
remain in effect until the expiration of the Interest Period applicable thereto,
then such permitted Libor Rate (Reserve  Adjusted)-based loans shall continue in
effect until the expiration of such Interest Period.  Upon the occurrence of any
of the foregoing  events,  maker shall pay to the Bank  immediately  upon demand
such  amounts as may be necessary to  compensate  the Bank for any fines,  fees,
charges,  penalties  or other costs  incurred or payable by the Bank as a result
thereof and which are attributable to any Libor Rate (Reserve  Adjusted) options
made available to maker  hereunder,  and any reasonable  allocation  made by the
Bank among its operations shall be conclusive and binding upon maker.

     If any  Change  in Law or  compliance  by the  Bank  with  any  request  or
directive  (whether  or not  having the force of law) from any  central  bank or
other governmental authority shall:

     (A)  subject the Bank to any tax,  duty or other charge with respect to any
          Libor Rate (Reserve Adjusted) options, or change the basis of taxation
          of  payments  to the Bank of  principal,  interest,  fees or any other
          amount payable hereunder (except for changes in the rate of tax on the
          overall net income of the Bank); or

     (B)  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 or
          loans by, or any other acquisition of funds by any office of the Bank;
          or

     (C)  impose on the Bank any other condition;

and the result of any of the  foregoing  is to increase  the cost to the Bank of
making,  renewing or maintaining  any Libor Rate (Reserve  Adjusted)-based  loan
hereunder  and/or to reduce  any  amount  receivable  by the Bank in  connection
therewith,  then in any such case,  maker shall pay to the Bank immediately upon
demand  such  amounts  as may be  necessary  to  compensate  the  Bank  for  any
additional  costs  incurred by the Bank and/or  reductions  received by the Bank
which are  attributable  to such Libor Rate  (Reserve  Adjusted)-based  loan. In
determining  which  costs  incurred  by the Bank  and/or  reductions  in amounts
received by the Bank are attributable to any Libor Rate (Reserve Adjusted)-based
loan made to maker hereunder,  any reasonable  allocation made by the Bank among
its operations shall be conclusive and binding upon maker.

     The Bank is hereby  authorized to enter on the schedule attached hereto the
amount of each loan and each payment of principal  thereon,  without any further
authorization  on the part of the maker or any  endorser  or  guarantor  of this
Note,  but the Bank's  failure to make such entry  shall not limit or  otherwise
affect the  obligations  of the maker or any endorser or guarantor of this Note.
In the event that any Liabilities (as hereinafter  defined) of maker to the Bank
are due at

                                       -3-

<PAGE>

any time that the Bank  receives a payment from maker on account of this Note or
any such other Liabilities of maker, the Bank may apply such payments to amounts
due under this Note or any such other Liabilities in such manner as the Bank, in
its  discretion,  elects,  regardless  of any  instructions  from  maker  to the
contrary.

     The maker and each  endorser  and  guarantor of this Note  acknowledge  and
agree that the use of this form of Note is for their  convenience,  and there is
no obligation on the part of the Bank to make loans to the maker whatsoever.

     Interest shall be computed on the basis of a 360-day year.

     Each maker or endorser authorizes (but shall not require) the Bank to debit
any account  maintained  by the maker or endorser  with the Bank, at any date on
which the payment of principal or of interest on any of the  Liabilities is due,
in an  amount  equal to any  unpaid  portion  of such  payment.  If the time for
payment of principal of or interest on any of the Liabilities or any other money
payable hereunder or with respect to any of the Liabilities becomes due on a day
on which the Bank's  offices  are closed (as  required  or  permitted  by law or
otherwise),  such payment shall be made on the next succeeding business day, and
such extension  shall be included in computing  interest in connection with such
payment.  All  payments  by any maker or  endorser  of this Note on  account  of
principal,  interest  or fees  hereunder  shall be made in  lawful  money of the
United States of America, in immediately available funds.

     All Property (as hereinafter  defined) held by the Bank shall be subject to
a security  interest in favor of the Bank or holder  hereof as security  for any
and all Liabilities. The term "Property" shall mean the balance of every deposit
account of the maker with the Bank or any of the Bank's  nominees  or agents and
all other obligations of the Bank or any of its nominees or agents to the maker,
whether now existing or hereafter  arising,  and all other personal  property of
the  maker  (including   without   limitation  all  money,   accounts,   general
intangibles, goods, instruments, documents and chattel paper) which, or evidence
of which, are now or at any time in the future shall come into the possession or
under the  control  of or be in transit  to the Bank or any of its  nominees  or
agents for any  purpose,  whether or not  accepted for the purposes for which it
was delivered.  The term "Liabilities" shall mean the indebtedness  evidenced by
this Note and all other indebtedness, liabilities and obligations of any kind of
the maker (or any  partnership or other group of which the maker is a member) to
(a) the Bank,  (b) any  group of which  the Bank is a  member,  or (c) any other
person if the Bank has a participation  or other interest in such  indebtedness,
liabilities or  obligations,  whether (i) for the Bank's own account or as agent
for others,  (ii) acquired  directly or indirectly by the Bank from the maker or
others,  (iii) absolute or contingent,  joint or several,  secured or unsecured,
liquidated  or  unliquidated,  due or not  due,  contractual  or  tortious,  now
existing or  hereafter  arising,  or (iv)  incurred  by the maker as  principal,
surety,  endorser,  guarantor or otherwise, and including without limitation all
expenses, including attorneys' fees, incurred by the Bank in connection with any
indebtedness,  liabilities or obligations or any of the Property  (including any
sale or other disposition of the Property).

                                       -4-

<PAGE>

     Upon the  happening,  with  respect to any maker,  endorser or guarantor of
this Note or any assets of any such maker, endorser or guarantor,  of any of the
following events (each an "Event of Default"):  death of the maker,  endorser or
guarantor or any member of the maker,  endorser or guarantor (if a partnership);
the failure to furnish  the Bank with any  requested  information  or failing to
permit  inspection  of books or  records by the Bank or any of its  agents;  the
making of any misrepresentation to the Bank in obtaining credit for any of them;
dissolution  (if a  corporation  or  partnership);  the making of a mortgage  or
pledge; the commencement of a foreclosure proceeding;  default in the payment of
principal or interest on this Note or in the payment of any other  obligation of
any said maker,  endorser or guarantor  held by the Bank or holder  hereof or in
the  performance  or  observance  of any covenant or agreement  contained in the
instrument evidencing such obligation; default in the payment of principal of or
interest on any  indebtedness  for  borrowed  money owed to any other  person or
entity  (including any such indebtedness in the nature of a lease) or default in
the  performance or observance of the terms of any instrument  pursuant to which
such  indebtedness was created or is secured,  the effect of which default is to
cause or permit any hoder of any such  indebtedness  to cause the same to become
due prior to its stated  maturity  (and whether or not such default is waived by
the holder  thereof);  a change in the financial  condition or affairs of any of
them which in the opinion of the Bank or  subsequent  holder  hereof  materially
reduces  his,  their or its ability to pay all of his their or its  obligations;
the  suspension  of  business;  the making of an  assignment  for the benefit of
creditors,  or appointment  of a trustee,  receiver or liquidator for the maker,
endorser  or  guarantor  or  for  any of  his,  its or  their  property,  or the
commencement  of any  proceedings by the maker,  endorser or guarantor under any
bankruptcy,  reorganization,  arrangement of debt,  insolvency,  readjustment of
debt, receivership, liquidation or dissolution law or statute (including, if the
maker,  endorser or guarantor is a partnership,  its dissolution pursuant to any
agreement or statute),  or the commencement of any such proceedings  without the
consent  of the  maker,  endorser  or  guarantor,  as the case may be,  and such
proceedings shall continue  undischarged for a period of 30 days; the sending of
notice of an intended bulk sale; the entry of judgments or any attachment,  levy
or execution  against any of his, their or its properties shall not be released,
discharged  dismissed,  stayed or fully  bonded  for a period of 30 days or more
after its entry, issue or levy, as the case may be; or the issuance of a warrant
of distraint or assertion of a lien for unpaid taxes, this Note, if not then due
or payable on demand, shall become due and payable immediately without demand or
notice and all other debts or obligations of the makers and endorsers  hereof to
the  Bank  or  holder  hereof,  whether  due or not due and  whether  direct  or
contingent  and however  evidenced,  shall,  at the option of the Bank or holder
hereof, also become due and payable immediately without demand or notice.  After
this Note becomes due, at stated maturity or on acceleration, any unpaid balance
hereof shall bear interest from the date it becomes due until paid at a rate per
annum 3% above the rate borne by this Note when it becomes  due or, if such rate
shall not be lawful with respect to the undersigned,  then at the highest lawful
rate. The liability of any party to commercial  paper held by the Bank or holder
hereof,  other than the makers and  endorsers  hereof,  shall remain  unaffected
hereby and such  parties  shall remain  liable  thereon in  accordance  with the
original  tenor thereof.  Each maker and endorser  agrees that if an attorney is
retained to enforce or collect this Note or any other  obligations  by reason of
non-payment of this Note when due or made due hereunder, a reasonable attorneys'
fee shall be paid in addition, which fees shall be computed as follows:

                                       -5-

<PAGE>

15% of the principal,  interest and all other sums due and owing to the payee or
holder or the reasonable value of the attorneys' services, whichever is greater.

     This Note shall be  governed by the laws of the State of New York and shall
be binding upon the maker and each endorser and the maker's and each  endorser's
heirs,  administrators,  successors  and  assigns.  The maker and each  endorser
hereby irrevocably  consent to the jurisdiction of any New York State or Federal
court located in New York City over any action or proceeding  arising out of any
dispute  between the maker and each endorser and the Bank, and the maker further
irrevocably  consents to the service of process in any such action or proceeding
by the  mailing of a copy of such  process to the maker at the address set forth
below. In the event of litigation between the Bank and the maker over any matter
connected with this Note or resulting from the transactions hereunder, the right
to a trial by jury is hereby  waived by the Bank and the  maker.  The maker also
waives the right to interpose  any set-off or  counterclaim  of any nature.  The
Bank or any holder may accept late payments,  or partial  payments,  even though
marked  "payment  in  full"  or  containing  words of  similar  import  or other
conditions,  without  waiving any of its rights.  No amendment,  modification or
waiver of any  provision  of this Note nor  consent  to any  departure  by maker
therefrom shall be effective,  irrespective of any course of dealing, unless the
same shall be in writing and signed by the Bank, and then such waiver or consent
shall be effective  only in the specific  instance and for the specific  purpose
for which given.

     The rights and remedies of the Bank provided for hereunder  (including  but
not limited to the right to  accelerate  Liabilities  of maker and to realize on
any  security  for any such  Liabilities)  are  cumulative  with the  rights and
remedies of the Bank available under any other  instrument or agreement or under
applicable law.

     The  undersigned,  if more than one, shall be jointly and severally  liable
hereunder.

                                           ELK ASSOCIATES FUNDING CORPORATION

                                           By:  /s/ Gary Granoff
                                              ----------------------------------
                                               Gary Granoff, President

                                           By:  /s/ Margaret Chance
                                              ----------------------------------
                                               Margaret Chance, Secretary

                                           (Address)

                                                    747 Third Avenue
                                                    New York, New York 10017

VALUE RECEIVED

                                       -6-<PAGE>   1

                                                                    EXHIBIT 10.1

                             KLA-TENCOR CORPORATION

                       2000 NONSTATUTORY STOCK OPTION PLAN

     1.   Purposes of the Plan. The purposes of this Nonstatutory Stock Option
Plan are:

          o    to attract and retain the best available personnel for positions
               of substantial responsibility,

          o    to provide additional incentive to Employees and Consultants, and

          o    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 KLA-Tencor Corporation.

          (h)  "Consultant" means any person, including an advisor, 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.

<PAGE>   2

          (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 exchange or system on
the date 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 date 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)  "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.

          (p)  "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (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.

                                      -2-

<PAGE>   3

          (t)  "Plan" means this 2000 Nonstatutory Stock Option Plan.

          (u)  "Service Provider" means an Employee, 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 5,600,000 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;

               (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,
including the ability to approve forms of agreement allowing for early exercise
of stock options prior to vesting, subject to the Optionee entering into a form
of restricted stock purchase agreement;

               (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

                                      -3-

<PAGE>   4

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 (but not more than 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. Options may be granted to Service Providers.

     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 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.

                                      -4-

<PAGE>   5

     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

                                      -5-

<PAGE>   6

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.

          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

                                      -6-

<PAGE>   7

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.

     11.  Transferability of Options. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or the Optionee's guardian,
legal representative or permitted transferees. Except as specified below, no
Option shall be assignable or transferable by the Optionee except by will or by
the laws of descent and distribution. At the sole discretion of the
Administrator, and subject to such terms and conditions as the Administrator
deems advisable, the Administrator may allow, by means of a writing to the
Optionee, for all or part of an Option to be assigned or transferred, during an
Optionee's lifetime, to a member of the Optionee's immediate family or to a
trust, LLC or partnership for the benefit of any one or more members of such
Optionee's immediate family. "Immediate family" as used herein means the spouse,
lineal descendants, father, mother, brothers and sisters of the Optionee. In
such case, the transferee shall receive and hold the Option subject to the
provisions of this Section 11, and there shall be no further assignation or
transfer of the Option. The terms of Options granted hereunder shall be binding
upon the transferees, purchasers, executors, administrators, heirs, successors
and assigns of the Optionee.

     12.  Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Corporate Reorganization.

          (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

                                      -7-

<PAGE>   8

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.

     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.

                                      -8-

<PAGE>   9

     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.

                                      -9-

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