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TULLY'S COFFEE CORPORATION
  
    REGISTRATION RIGHTS AGREEMENT    
  

    This Registration Rights Agreement (this "Agreement) is made and entered into as of this 14th day of December, 2000, by and between Tully's
Coffee Corporation, a Washington corporation (the "Company"), the persons listed on the attached Schedule 1 (the "Subscribers"). 

 
 

RECITALS    
  

    WHEREAS, each Subscriber has agreed, pursuant to a Subscription Agreement entered into with the Company, to purchase promissory notes, convertible to the
Company's Series A Preferred Stock, in the aggregate face amount of up to $5,304,340 (the "Note") and Warrant ("Warrants") to be paid in lieu of interest. As a condition to such investment, the
Subscribers have requested, and the Company has agreed to grant the Subscribers, certain registration rights, as more particularly set forth herein; 

    NOW,
THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto further agree as follows: 

1.  Registration Rights

    1.1.  Certain Definitions.  As used in this Agreement, the following terms shall have the meanings set
forth below: 

    (a) "Commission"
shall mean the U.S. Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 

    (b) "Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as
the same shall be in effect from time to time. 

    (c) "Holder"
shall mean any Subscriber who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 1.11 hereof. 

    (d) "Initiating
Holders" shall mean any Holder or Holders who in the aggregate hold not less than twenty-five percent (25%) of the outstanding Registrable
Securities. 

    (e) "Other
Shareholders" shall mean persons other than Subscribers who, by virtue of agreements with the Company, are entitled to include their securities in certain
registrations hereunder. 

    (f)  "Registrable
Securities" shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Series A Stock and shares of
Common Stock issued or issuable on conversion of the Note, as applicable, (ii) shares of Common Stock issued pursuant to the exercise of the Warrants, and (iii) any Common Stock issued
as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above, provided, however, that Registrable Securities shall not include
any shares of Common Stock which have previously been registered or which have been sold to the public, or which have been sold in a private transaction in which the transferor's rights under this
Agreement are not assigned. 

    (g) The
terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. 

    (h) "Registration
Expenses" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and expenses of any regular or special audits incident to
or required by any 

 

such registration, but shall not include Selling Expenses, fees and disbursements of counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event
by the Company. 

    (i)  "Rule 144"
shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission. 

    (j)  "Rule 145"
shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission. 

    (k) "Securities
Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the
same shall be in effect from time to time. 

    (l)  "Selling
Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and, except
as provided in Section 1.4, fees and disbursements of counsel for any Holder. 

    1.2.  Requested Registration.  

    (a)  Request for Registration.  If the Company shall receive from Initiating Holders at any time or times
not earlier than six (6) months after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general
public, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities the Company will: 

    (i)  promptly
give written notice of the proposed registration to all other Holders; and 

    (ii) as
soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered. 

    The
Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 1.2: 

    (A) In
any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration,
qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; 

    (B) After
the Company has initiated two such registrations pursuant to this Section 1.2(a) (counting for these purposes only registrations which have been
declared or ordered effective and pursuant to which securities have been sold and registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the
Registration Expenses pursuant to Section 1.4 hereof and would, absent such election, have been required to bear such expenses); 

    (C) During
the period starting with the date sixty (60) days prior to the Company's good faith estimate (as set forth in a certificate of the President of the
Company to the Initiating Holders) of the date of filing of, and ending on a date one hundred eighty 

2

 

(180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration
statement to become effective; or 

    (D) If
the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a
request made under Section 1.5 hereof; 

    (b) Subject
to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to
be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. The registration statement filed pursuant to the request of the Initiating Holders may, subject
to the provisions of Section 1.2(b) and 1.13 hereof, include other securities of the Company, with respect to which registration rights have been granted, and may include securities of the
Company being sold for the account of the Company. 

    (c)  Underwriting.  If the Initiating Holders request that a registration hereunder be firmly
underwritten by underwriters selected by the Initiating Holders (subject to the reasonable approval of the Company), the right of any other Holder to registration pursuant to Section 1.2 shall
be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. Subject to Sections 1.2(d) and 1.13, a Holder may elect to include in such underwriting all or
a part of the Registrable Securities he holds. 

    (d)  Procedures.  If the Company shall request inclusion in any registration pursuant to
Section 1.2 of securities being sold for its own account, or if other persons shall request inclusion in any such registration, the Initiating Holders shall, on behalf of all Holders, offer to
include such securities in the underwriting (if applicable) and may condition such offer on their acceptance of the further applicable provisions of this Section 1 (including
Section 1.12). If the registration involves an underwriting, the Company shall (together with all Holders and other persons proposing to distribute their securities through an underwriting)
enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders,
which underwriters are reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.2, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares to be included in the underwriting or registration shall be allocated as set forth
in Section 1.13 hereof. If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors pursuant to this Section 1.2(d), then the Company shall offer to all holders who have retained rights to include
securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among
such Holders requesting additional inclusion in accordance with Section 1.13. 

    1.3.  Company Registration.  

    (a) If
the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their
respective demand registration rights 

3

 

(other than pursuant to Section 1.2 or 1.5 hereof), other than a registration relating solely to employee benefit plans or a registration relating solely to a Rule 145 transaction, the
Company will: 

    (i)  promptly
give to each Holder written notice thereof; and 

    (ii) use
its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in
Section 1.3(b) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder and received by the Company within
ten (10) days after the written notice from the Company described in clause (i) above is mailed or delivered by the Company. Such written request may specify all or a part of a Holder's
Registrable Securities. 

    (b)  Underwriting.  If the registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. 

    Notwithstanding
any other provision of this Section 1.3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, the representative may (subject to the limitation set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included
in the registration and underwriting shall be allocated first to the Company for securities being sold for its own account and thereafter as set forth in Section 1.13. If any person does not
agree to the terms of any such underwriting, he shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration. 

    If
shares are so withdrawn from the registration or if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of
marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion in accordance with Section 1.13 hereof. 

    1.4.  Expenses of Registration.  All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Sections 1.2, 1.3 and 1.5 hereof, and reasonable fees of one counsel for the selling Holders (selected by a majority in interest of the Initiating Holders) in
the case of registrations pursuant to Section 1.2 shall be borne by the Company; provided, however, that if the Holders bear the Registration Expenses for any registration proceeding begun
pursuant to Section 1.2 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to
Section 1.2 hereof. Furthermore, in the event that a withdrawal by the Holders is based upon material adverse information relating to the Company that is different from the information relating
to the Company known or available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 1.2, such
registration shall not be treated as a 

4

 

counted registration for purposes of Section 1.2 hereof, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf, as shall any other expenses in connection with
the registration required to be borne by the Holders of such securities. 

    1.5.  Registration on Form S-3.  

    (a) After
its initial public offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 1, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such Holders or Holders); provided, however, that the Company shall not be obligated to effect any such registration
(i) unless the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other
securities (if any) on Form S-3 at an aggregate price to the public of at least $1,000,000, or (ii) in the event that the Company shall furnish the certification described in
paragraph 1.2(a)(ii)(C), or (iii) in a given twelve-month period, the Company has effected one (1) such registration in such period or (iv) it is it be effected more than
five (5) years after the Company's initial public offering. 

    (b) If
a request complying with the requirements of Section 1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the registration is for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to
such registration. 

    1.6.  Registration Procedures.  In the case of each registration effected by the Company pursuant to
Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its best efforts
to: 

    (a) Keep
such registration effective for a period of one hundred twenty (120) days or until the Holder or Holders have completed the distribution described in
the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock or other securities of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that the Securities Act and rules thereunder then permit an offering on a continuous or
delayed basis on Form S-3, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit,
in lieu of filing a post-effective amendment that (I) includes any prospectus required by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; 

    (b) Prepare
and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; 

5

 

    (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time
may reasonably request; 

    (d) Notify
each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the
request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement or an amendment of such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such shares, such prospectus shall not include any untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete in the light to the circumstances then existing; 

    (e) Cause
all such Registrable Securities registered pursuant hereunder to be listed or quoted on each securities exchange or automated quotation system of the National
Association of Securities Dealers on which similar securities issued by the Company are then listed or quoted; 

    (f)  Otherwise
use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and 

    (g) In
connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 1.2 hereof, the Company will enter into an
underwriting agreement in a form reasonably necessary to effect the offer and sale of Registrable Securities, provided such underwriting agreement contains customary underwriting provisions and
provided further that if the underwriter so requests the underwriting agreement will contain customary contribution provisions. 

    1.7.  Indemnification.  

    (a) The
Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 1 against all expenses,
claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation
by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder for any legal and
any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity 

6

 

agreement contained in this Section 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent
of the Company (which consent has not been reasonably withheld). 

    (b) Each
Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being
effected, indemnify the Company, each of its directors, officers, partners, legal counsel and accountants, each person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder or Other Subscriber, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement
therein not misleading, and will reimburse the Company and such Holder, Other Shareholders, director, officers, partners, legal counsel, and accountants, or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is made is such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity
with written information furnished to the Company by such Holder and stated to be specifically for use therein, provided, however, that the obligations of such Holder hereunder shall not apply to
amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 1.7 exceed the gross proceeds from the offering received by such Holder. 

    (c) Each
party entitled to indemnification under this Section 1.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification
(the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claims or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such claim obligation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting therefrom. 

    (d) If
the indemnification provided for in this Section 1.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expenses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in 

7

 

such loss, liability, claim, damage, or expenses as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and the opportunity to correct or prevent such statement or omission. 

    (e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in
connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 

    1.8.  Information by Holder.  Each Holder of Registrable Securities shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1. 

    1.9.  Limitations on Subsequent Registration Rights.  From and after the date of this Agreement, the
Company shall not, without the prior written consent of a majority in interest of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder any registration rights the terms of which are more favorable that the registration rights granted to the Holders hereunder. 

    1.10.  Rule 144 Reporting.  With a view to making available the benefits of certain rules and
regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: 

    (a) Make
and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times
from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; 

    (b) File
with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after
it has become subject to such reporting requirements; 

    (c) So
long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a
Holder to sell any such securities without registration. 

    1.11.  Transfer or Assignment of Registration Rights.  The rights to cause the Company to register
securities granted to a Holder by the Company under this Section 1 may be transferred or assigned by a Holder only to a transferee or assignee of not less than twenty-five thousand
(25,000) shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), provided that the
Company is given written notice at the time of or within a reasonable time after said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or assigned, and, provided further, that the transferee or assignee of such rights assumes in writing the obligations of such
Holder under this Section 1. 

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    1.12.  "Market Stand-Off" Agreement.  If requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, a Subscriber shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Subscriber (other
than those
included in the registration) during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act, provided
that: 

    (a) such
agreement shall only apply to the first such registration statement of the Company, including securities to be sold on its behalf to the public in an
underwritten offering; and 

    (b) all
Holders and officers and directors of the Company are bound by and have entered into similar agreements. 

    The
obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-8 or similar forms that
may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.
The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day
period. 

    1.13.  Allocation of Registration Opportunities.  In any circumstance in which all of the Registrable
Securities and other shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of shares of any currently unissued series of Preferred Stock of the
Company) with registration rights (the "Other Shares") requested to be included in a registration on behalf of the Holders or Other Shareholders cannot be so included as a result of limitations of the
aggregate number of shares of Registrable Securities and Other Shares that may be so included, the number of shares of Registrable Securities and Other Shares that may be so included shall be
allocated among the Holders and Other Shareholders requesting inclusion of shares pro rata on the basis of the number of shares of Registrable Securities and Other Shares that would be held by such
Holders and Other Shareholders, assuming conversion; provided, however, that such allocation shall not operate to reduce the aggregate number of Registrable Securities and Other Shares to be included
in such registration, if any Holder or Other Subscriber does not request inclusion of the minimum number of shares of Registrable Securities and Other Shares allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be reallocated among those requesting Holders and Other Shareholders whose allocations did not satisfy their requests pro rata
on the basis of the number of shares of Registrable Securities and Other Shares that would be held by such Holders and Other Shareholders, assuming conversion, and this procedure shall be repeated
until all of the shares of Registrable Securities and Other Shares which may be included in the registration on behalf of the Holders and Other Shareholders have been so allocated. The Company shall
not limit the number of Registrable Securities to be included in a registration pursuant to this Agreement in order to include shares held by Subscribers with no registration rights or to include any
other shares of stock issued to employees, officers, directors, or consultants pursuant to the Company's employee stock option plan or other equity plans or arrangements, or with respect to
registrations under Sections 1.2 or 1.5 hereof, in order to include in such registration securities registered for the Company's own account. 

    1.14.  Delay of Registration.  No Holder shall have any right to take any action to restrain, enjoin, or
otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 

2.  Miscellaneous

    2.1.  Governing Law.  This Agreement shall be governed in all respects by the laws of the State of
Washington, as applied to agreements among Washington residents entered into and to be performed entirely within Washington. 

9

 

    2.2.  Successors and Assigns.  Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 

    2.3.  Entire Agreement; Amendment; Waiver.  This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written
instrument signed by the Company and the holders of at least seventy-five percent (75%) of the Registrable Securities and any such amendment, waiver, discharge or termination shall be
binding on all the Holders, but in no event shall the obligation of any Holder hereunder be materially increased, except upon the written consent of such Holder. 

    2.4.  Notices, etc.  All notices and other communications required or permitted hereunder shall be in
writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or delivered personally by hand or nationally recognized courier addressed (a) if to a Holder,
as indicated on the list of Holders attached hereto as Exhibit A, or at such other address as such Holder or permitted assignee shall have furnished to the Company in writing, or (b) if
the Company, at such address or facsimile number as the Company shall have furnished to each Holder in writing. All such notices and other written communications shall be effective on the date of
mailing, facsimile transfer or delivery. 

    2.5.  Delays or Omissions.  No delay or omission to exercise any right, power or remedy accruing to any
Holder, upon any breach or default of the Company under this Agreement shall impair any such rights, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or
default therefore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement or any waiver on the
part of any Holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any Holder, shall be cumulative and not alternative. 

    2.6.  Rights; Separability.  Unless otherwise expressly provided herein, a Holder's rights hereunder are
several rights, not rights jointly held with any of the other Holders. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby. 

    2.7.  Information Confidential.  Each Holder acknowledges that the information received by them pursuant
thereto may be confidential and for its use only, and it will not use such confidential information in violation of the Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of such information, and its attorneys), except in connection with the exercise of rights under this Agreement, unless the
Company has made such information available to the public generally or such Holder is required to disclose such information by a governmental body. 

    2.8.  Titles and Subtitles.  The titles of the paragraphs and subparagraphs of this Agreement are for
convenience of reference only and are not be considered in construing or interpreting this Agreement. 

    2.9.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument. 

10

 

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement effective as of the day and year first above written. 

	 	 	TULLY'S COFFEE CORPORATION
	

 	
 	

/s/ TOM T. O'KEEFE   
 Tom T. O'Keefe, Chairman and CEO
	

 	
 	

SUBSCRIBERS
	

 	
 	

KWM INVESTMENTS LLC
	

 	
 	

By MIG Corporation, Its Manager
	

 	
 	

By:	
 	

/s/ JOSEPH D. WEINSTEIN   

	 	 	 	 	Print Name: JOSEPH D. WEINSTEIN

	

 	
 	

Its:	
 	
ASSISTANT SECRETARY

11

 
 
 

EXHIBIT A
  
    Schedule of Subscribers    
  

KWM
INVESTMENTS LLC

1200 Westlake Avenue North, Suite 100

Seattle WA 98109 

12

QuickLinks

TULLY'S COFFEE CORPORATION REGISTRATION RIGHTS AGREEMENT

RECITALS

EXHIBIT A Schedule of Subscribers<PAGE>

                                                                  Exhibit 10(vi)

                         UNITED STATES BANKRUPTCY COURT
                            DISTRICT OF CONNECTICUT
                              BRIDGEPORT DIVISION

IN RE:                                                        CHAPTER 11

                                       )
POWER DESIGNS, INC. AND                )     CASE NOS. 98-50117
PDIXF ACQUISITION CORPORATION          )               98-50118
                                       )   JOINTLY ADMINISTERED
                                       )
DEBTORS-IN-POSSESSION                  )

                      FOURTH AMENDED PLAN OF REORGANIZATION FOR
                POWER DESIGNS, INC. AND PDIXF ACQUISITION CORPORATION

1.   INTRODUCTION

     This Plan is the proposal of PDI and PDIXF to their Creditors and the
holders of Equity Interests. The Plan is the product of discussions with the
Debtors' senior secured creditor, Inverness, and with the PDI and PDIXF
creditor's committees, all of which have agreed to support the Plan. The Plan
undertakes to resolve all secured claims, administrative claims, priority
claims, unsecured claims and equity interests. The Debtors believe that the
distributions to be made pursuant to the terms of this Plan will produce for
Creditors not less than they would receive if the Debtors' cases were converted
to cases under Chapter 7 of the Code, the Debtors' assets liquidated and
appropriate distributions therein were made as required by the Code.

                                       1
<PAGE>

2.   DEFINITIONS

     The following terms, when used in this Plan shall, unless the context
otherwise requires, have the following meanings:

     2.1 ADMINISTRATIVE CLAIM. Means a claim for payment of an administrative
expense of a kind specified in Section 503(b) of the Code and referred to in
Section 507(a)(1) of the Code, including, without limitation, the actual and
necessary costs and expenses incurred after the commencement of the Chapter 11
cases of preserving the estate and operating the business of the Debtors,
including wages, salaries or commissions for services, compensation for legal
and other services and reimbursement of expenses awarded under Section 330(a) or
331 of the Code, and all fees and charges assessed against the estates under
Chapter 123 of Title 28, United States Code.

     2.2 ALLOWED. When used in connection with any type of "Claim" or "Equity
Interest", means: (a) a Claim or Equity Interest, proof of which was timely
filed pursuant to the Orders of the Bankruptcy Court establishing the applicable
"bar dates" for the filing of Claims against the Debtors, and, as to which no
timely objection to allowance has been interposed within the applicable period
of limitation fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or
the Bankruptcy Court, or as to any such timely objection a Final Order of
allowance has been entered; (b) a Claim or Equity Interest allowed by a

                                       2
<PAGE>

Final Order; (c) a Claim or Equity Interest listed in either of the Debtor's
Schedules filed in connection with the Chapter 11 Cases and not identified as
contingent, unliquidated or disputed; (d) a Claim or Equity Interest which is
fixed and agreed to in amount in writing between the Debtors and any Claimant
and allowed by a Final Order or (e) any Claim which is deemed an Allowed
Claim pursuant to the provisions of this Plan.

     2.3 ALLOWED EMPLOYEE PRIORITY CLAIMS. Means an Allowed Claim of a current
or former employee of either of the Debtors which is entitled to the priority in
payment under Section 507(a)(3) and (4) of the Code. Any Allowed Claim of a
current or former employee not entitled to priority in payment under Section
507(a)(3) and (4) of the Code shall be considered an Allowed Unsecured Claim.

     2.4 ALLOWED SECURED CLAIM OF INVERNESS. Means the Allowed Secured Claim of
Inverness in the amount of $1,800,000.

     2.5 ALLOWED SECURED CLAIM. Means an Allowed Claim arising on or before the
Petition Date (January 22, 1998) that is secured by a valid Lien on property of
either of the Debtors which is not void or voidable under any state or federal
law, including any provision of the Code or an Allowed Claim for which the
holder asserts a setoff under Section 553 of the Code, to the extent of the
value (which is either agreed to by either of the Debtor pursuant to this Plan,
or in the absence of an agreement, has been determined in

                                       3
<PAGE>

accordance with Section 506(a) or 1111(b) of the Code) of the interest of the
holder of such Allowed Claim in either of the Debtors property, or an Allowed
Claim that is treated as an Allowed Secured Claim pursuant to this Plan. That
portion of such Allowed Claim exceeding the value of security held therefor
shall be an Allowed Unsecured Claim.

     2.6 ALLOWED UNSECURED CLAIM. Means an Allowed Claim which is not an Allowed
Secured Claim, an Allowed Employee Priority Claim or a Priority Tax Claim.

     2.7 BANKRUPTCY COURT. Means the United States Bankruptcy Court for the
District of Connecticut, or such other Court as may hereafter have jurisdiction
over the Debtors' pending bankruptcy cases.

     2.8 BRIDGE NOTEHOLDERS means the holders of the Subordinated Bridge Notes,
including Raymond Joslin ($200,000), David Hale Smith II Charitable Remainder
Trust ($50,000), Interim Advantage Fund ($50,000), Bruce MacDonald ($300,000),
Ian R. Kahn ($25,000), Dr. Justin Wernick ($40,000), Edward Benjamin MD Money
Purchase Pension Plan ($67,000), Dr. Edward Benjamin ($246,500), Alan N. Parnes
($50,000), Lee H. Silverstein ($25,000), Tri Ventures ($50,000), Alan Napack
($50,000), Michael Zuckerman and Hillary Davis ($50,000), Crescent Capital
Company LLC ($50,000), Steven Grapstein ($100,000), Ray Ingleby ($100,000),
Marshall Manley ($100,000),

                                       4
<PAGE>

Curran Partners (($100,000), John D. Shepherd ($100,000), and Phyllis and
Howard Silverman ($200,000) or their respective assignees.

     2.9 CASH. Means currency of the United States of America, or checks payable
in immediately available funds of such currency.

     2.10 CLAIM. Has the meaning set forth in Section 101(5) of the Code.

     2.11 CLASS. Means Claims or Equity Interests which are substantially
similar to the other Claims or Equity Interests in such Class as classified
pursuant to the Plan.

     2.12 CODE. Means the United States Bankruptcy Code, 11 U.S.C. Sections 101
ET SEQ., and all amendments thereto which are applicable to the case.

     2.13 CONFIRMATION. Means the entry by the Bankruptcy Court of an order
confirming the Plan in accordance with Chapter 11 of the Code.

     2.14 CONFIRMATION ORDER. Means the order entered by the Bankruptcy Court
confirming the Plan in accordance with Chapter 11 of the Code.

     2.15 CONSUMMATION. Means the accomplishments of all things provided for in
this Plan to occur on the Effective Date.

     2.16 DEBTORS OR DEBTORS IN POSSESSION. Means PDI and its wholly-owned
subsidiary, PDIXF.

                                       5
<PAGE>

     2.17 DIRECTOR LOANHOLDERS. Means the loans made by certain PDI directors or
related companies during October and December, 1997, including Equitas
($50,000), Robert Sparacino ($213,000), Bril Profit Sharing Plan ($25,000), and
Bril Money Purchase Plan ($25,000).

     2.18 DISALLOWED CLAIM. Means any Claim or portion thereof:

          (a) which is scheduled or proof of which is filed and an objection
              thereto has been sustained by a Final Order; or

          (b) which is scheduled as disputed, contingent or unliquidated and
              as to which either (i) no proof of claim has been timely filed,
              or (ii) proof of which has been timely filed and an objection
              thereto has been sustained by a Final Order.

     2.19 DISPUTED CLAIM. Means any Claim which is scheduled or proof of which
is filed and against which an objection to the allowance thereof has been
interposed, which objection has not been determined by a Final Order, except for
any Claim which is deemed an Allowed Claim by the provisions of this Plan.

     2.20 EFFECTIVE DATE. Means the first business day occurring after the 20th
day after the entry of the Confirmation Order or as such other date that the
Bankruptcy Court shall set forth in the Confirmation Order.

                                       6
<PAGE>

     2.21 EQUITY INTEREST(S). Means the issued and outstanding common stock of
PDI and any warrants, options or other contract to purchase or acquire such
common stock as of the Petition Date.

     2.22 FINAL ORDER. Means an order or judgment of the Bankruptcy Court which
has not been reversed or stayed as modified or amended, as to which no appeal is
pending, and as to which the time to appeal and to seek to appeal has expired.

     2.23 HAYES. Means Hayes Corporation f/k/a Access Beyond, Inc. as successor
in interest to Access Beyond, Inc., RDCAN Corp. (formerly Technipower, Inc.) and
Intist (formerly Constant Power, Inc.), which holds a Disputed Claim against the
Debtor that is unsecured within the meaning of Code Section 506.

     2.24 INVERNESS PERCENTAGE. Means that percentage equal to 49.9%.

     2.25 INVERNESS SECURED NOTE. Means that certain Secured Promissory Note in
the original principal amount equal to $1,800,000.00. The Inverness Secured Note
shall have a two year term commencing with the Effective Date and shall provide
for monthly payments of interest only at the rate of 10% per annum for each
month during the term thereof with payment in full on the second anniversary of
the Effective Date. The Inverness Secured Note shall be secured by Lien upon all
of the assets of Reorganized PDI

                                       7
<PAGE>

provided such Lien shall be junior and subordinate only to the Lien
authorized herein to secure the Working Capital Note.

     2.26 LIEN. Means any charge against or interest in property to secure
payment of a debt or performance of an obligation and includes, without
limitation, any judicial lien, security interest, mortgage, deed of trust and
statutory lien as defined in Section 101 of the Code.

     2.27 NOTEHOLDERS. Means the holders of the Subordinated Notes including
Equitas L.P. ($700,000), Lois Horn ($140,000), Antoinette Rose ($160,000),
Thomas O'Grady ($29,215.38), Davis H. Smith, II ($29,215.38), Dennis and Terri
Nesta ($16,000), and Bruce MacDonald ($12,984.62) or their respective assignees.

     2.28 PDI. Means Power Designs, Inc., a Delaware corporation and the debtor
in Case No. 98-50117.

     2.29 PDIXF. Means PDIXF Acquisition Corporation, a New York corporation and
the debtor in Case No. 98-50118.

     2.30 PETITION DATE. Means January 22, 1998, the date on which the Debtors
filed their petitions commencing their respective Chapter 11 cases.

     2.31 PLAN. Means this Plan of Reorganization for Power Designs, Inc. and
PDIXF Acquisition Corporation, as may be amended from time to time.

                                       8
<PAGE>

     2.32 PRIORITY TAX CLAIM. Means an Allowed Claim which is entitled to
priority pursuant to Section 507(a)(8) of the Code.

     2.33 PRO RATA SHARE. Means the proportion that an Allowed Claim in a
particular Class bears to the aggregate amount of all Allowed Claims in such
Class, calculated in accordance with the provisions of this Plan.

     2.34 REORGANIZED PDI. Means Power Designs, Inc., a Delaware corporation on
and after the Effective Date.

     2.35 REORGANIZED PDI COMMON STOCK. Means 2,000,000 shares of the common
stock of Reorganized PDI to be issued pursuant to this Plan.

     2.36 SUBORDINATED BRIDGE NOTES. Means those certain Subordinated Promissory
Notes of PDI in the allowed aggregate original principal amount of $1,953,500.00
and bearing interest at the rate of 10% per annum, as listed in Section 2.8
hereof.

     2.37 SUBORDINATED NOTES. Means those certain Subordinated Promissory Notes
of PDI dated October 9, 1996 in the allowed aggregate original principal amount
of $1,087,415.38 as listed in Section 2.28 hereof.

     2.38 WORKING CAPITAL NOTE. Means that certain Revolving Credit Agreement in
the original principal amount of up to $800,000. The Working Capital Note shall
bear

                                       9
<PAGE>

interest at the best rate available to Reorganized PDI on the Effective
Date. The Working Capital Note may be secured by a first Lien on all of
Reorganized PDI's assets.

3.   ADMINISTRATIVE AND TAX PRIORITY CLAIMS

     3.1 ADMINISTRATIVE CLAIMS. All post-petition payables and other ordinary
course expenses will be paid in the ordinary course of business as agreed
between the respective vendors and the Debtors and/or Reorganized PDI. Except
for the State of Connecticut Deparmtent of Labor, all other Administrative
Claims filed prior to Confirmation, other than claims of professionals, unless
objected to by the Effective Date, which have not been paid prior to the
Effective Date shall be paid in full in Cash on the Effective Date (or, if
later, the date on which any such Administrative Claim is allowed by a Final
Order of the Bankruptcy Court), or upon such terms as otherwise agreed between
the Debtors and the holder of such Administrative Claim. . Administrative Claims
include claims of professionals employed by order of the Bankruptcy Court, all
post-petition financing of the Debtors approved by the Court prior to
Confirmation (with all accrued interest), certain post-petition employee claims
and any unpaid fees due under 28 U.S.C. Section 1930. Administrative claims of
the State of Connecticut Deparmtent of Labor for post-petition taxes arising out
of the 1998 and 2000 Unemployment Tax Bond Assessments shall be paid in
accordance with an agreement at the rate of $2,500 per month until paid in full.

                                       10
<PAGE>

Professionals employed pursuant to Sections 327 and 1102 of the Bankruptcy Code,
and any other person who may be entitled to reimbursement of expenses or
allowance of fees pursuant to Sections 503(b)(2) through 503(b)(6) of the Code,
shall file final applications for allowance and payment of compensation and
expenses not later than twenty (20) days after the Effective Date. Each such
professional or person shall be paid, in Cash, the full amount awarded to such
professional or person by the Bankruptcy Court after notice and a hearing,
within 10 days after the date on which an Order allowing such claims, fees
and/or disbursements becomes a Final Order.

3.2  PRIORITY TAX CLAIMS.

     (a) The Allowed Priority Tax Claim of the Internal Revenue Service shall be
paid in the amount and manner provided in EXHIBIT 3.2 and shall be governed by
the terms and conditions set forth in EXHIBIT 3.2, which is attached hereto and
made a part hereof and which is incorporated herein by reference as if set forth
in full in this Section 3.2.

     (b) The Allowed Priority Tax Claim filed by the Commissioner of Labor,
Unemployment Tax Division of the Department of Labor of the State of
Connecticut, in the amount of $4,799.21, shall bear interest at a rate of 7% per
annum from the Effective Date and shall be paid in full in equal monthly
installments of principal and interest,

                                       11
<PAGE>

commencing one month following the Effective Date and continuing in one-month
intervals, such that each payment is made one month after the immediately
preceding payment, until November, 2003.

     (c) All other Allowed Priority Tax Claims, if any, shall be paid by
Reorganized PDI in its sole discretion in Cash and in full on the Effective Date
or in equal quarterly payments beginning on April 1, 2000 and continuing
thereafter for twenty (20) additional quarters (payments shall be made on
January 1, April 1, July 1 and October 1). The deferred payments on such Allowed
Priority Tax Claims shall bear interest at the rate of seven (7%) percent per
annum. The Debtors are not aware of any significant Allowed Priority Tax Claims
other than the Allowed Priority Tax Claim of the Internal Revenue Service and
the Allowed Priority Tax Claim of the Department of Labor of the State of
Connecticut. Other than the Claim of the Internal Revenue Service, Claims
asserted by various taxing authorities for periods prior to PDI's first
bankruptcy proceeding are not considered Allowed Priority Tax Claims but shall,
upon Confirmation, be conclusively deemed Allowed Unsecured Claims and will be
treated as Allowed Unsecured Claims.

                                       12
<PAGE>

4.   DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS

     All Claims against and Equity Interests in the Debtors, of whatever nature,
whether or not scheduled, liquidated or unliquidated, absolute or contingent,
including all Claims arising from transactions with either of the Debtors and
all equity interests arising from the ownership of the stock of either of the
Debtors, whether resulting in an Allowed Claim or not, shall be bound by the
provisions of this Plan. The Claims and Equity Interests are classified as
follows:

     4.1  CLASS 1.  The Allowed Secured Claims of Inverness.
          CLASS 1A. Allowed Secured Claim of Inverness against PDI.
          CLASS 1B. Allowed Secured Claim of Inverness against PDIXF.

     4.2  CLASS 2.  The Allowed Claims of Hayes.
          CLASS 2A. The Allowed Claim of Hayes against PDI.
          CLASS 2B. The Allowed Claim of Hayes against PDIXF.

     4.3  CLASS 3.  Allowed Employee Priority Claims.

     4.4  CLASS 4.  Allowed Unsecured Claims.
          CLASS 4A. Allowed Unsecured Claims against PDI.
          CLASS 4B. Allowed Unsecured Claims against PDIXF

     4.5  CLASS 5.  Allowed Equity Interests in PDI.

     4.6  CLASS 6.  Allowed Equity Interest in PDIXF.

                                       13
<PAGE>

5.   IDENTIFICATION OF IMPAIRED CLASSES OF CLAIMS AND EQUITY INTERESTS

     5.1 IMPAIRED CLASSES OF CLAIMS. All Classes of Claims are impaired under
the Plan.

     5.2 IMPAIRED CLASSES OF EQUITY INTERESTS. All Classes of Equity Interests
are impaired.

     5.3 IMPAIRMENT CONTROVERSIES. If a controversy arises as to whether any
Claim or Equity Interest, or any Class of Claims or of Equity Interests, are
impaired under the Plan, the Bankruptcy Court shall, after notice and a hearing,
determine such controversies.

     5.4 SPECIAL NOTE CONCERNING VOTING ON PLAN. Each subclass will be
considered a separate class for voting purposes. For example, Class 4A and Class
4B will be considered separate and distinct classes for voting purposes.

6.   TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN

     6.1 CLASS 1 (INCLUDING CLASS 1A AND CLASS 1B). On the Effective Date,
Inverness shall receive in satisfaction of its Allowed Secured Claims the
following:

         a) the Inverness Secured Note; and

         b) that number of shares of Reorganized PDI Common Stock equal to
            2,000,000 x .489.

After expiration of the one hundred and eighty day period set forth in
Section 10.4a,

                                       14
<PAGE>

Inverness shall return its share certificate and shall receive a new share
certificate representing that number of shares equal to the number of shares of
Reorganized PDI Common Stock still outstanding (not including shares of stock
returned by Inverness) multiplied by .996 so that the shares of stocks held by
Inverness plus 20,000 share of stock shall equal 49.9% of the issued and
outstanding shares of Reorganized PDI common stock.

     6.2 CLASS 2 (INCLUDING CLASS 2A AND 2B). On the Effective Date, all claims
of Hayes shall be deemed settled, compromised and allowed in the amount of
$150,000.00 and Hayes shall receive in satisfaction of its claims the following:
(a) the Hayes Unsecured Note in a principal amount of $150,000.00, with a two
year term, with interest-only payable until maturity at an interest rate of 10%
per annum, which shall be subordinate to the Working Capital Note and the
Inverness Secured Note, and (b) shares of Reorganized PDI Common Stock, the
number of said Shares to be determined by the inclusion of Hayes in Class 4A,
with an imputed Allowed Claim in said Class of $150,000.00, solely for purposes
of determining the number of shares but not for purposes of the conditional
payment referred to in Section 6.4 of the Plan.

     6.3 CLASS 3. Except as set forth hereinafter in this Section 6.3, holders
of Allowed Employee Priority Claims shall receive the full amount of their
Allowed Employee Priority Claims in eight (8) equal monthly payments, together
with interest at

                                       15
<PAGE>

the rate of seven (7%) percent per annum. The Allowed Employee Priority Claim
filed by the Commissioner of Labor of the State of Connecticut in the amount
of $18,040.93 shall be paid in cash in full within ten (10) days after the
Effective Date to the extent, if any, not already paid.

     6.4 CLASS 4 (INCLUDING CLASS 4A AND CLASS 4B). Subject to Section 10.2 of
the Plan, on the Effective Date, (i) the holders of Allowed Claims in Class 4A
shall receive their Pro Rata Share of that number of shares of Reorganized PDI
Common Stock equal to 50.1% of 2,000,000 and, except with respect to Hayes, an
annual conditional payment equal to 10% of one-half of the face amount of their
Allowed Claims, payable (without interest) only to the extent that Reorganized
PDI's free cash flow (net income, plus depreciation, plus amortization, less
capital expenses) is greater than $400,000.00 in any fiscal year unless there is
a payment default on the Inverness Secured Note, in which event the conditional
payment may not be made until the default is cured. For purposes hereof,
"capital expenses" shall not be deemed to include the purchase of any equipment
that involves either lease or other purchase financing for which the Company's
cash flow is only reduced by future monthly payments. If Reorganized PDI's free
cash flow in excess of $400,000 in any fiscal year is insufficient to make the
conditional payment, then such conditional payment shall be accrued. No
conditional payment or accrual, however, shall

                                       16
<PAGE>

occur within six months after the Effective Date, nor shall a conditional
payment amount ever be accrued which exceeds 20% of one-half of the face
amount of such Allowed Claims. To the extent that the accrued conditional
payment would exceed 20% of one-half of the face amount of such Allowed
Claims, entitlement to such amount shall be waived. The terms and conditions
of the conditional payment and its termination events are more fully set
forth on EXHIBIT 6.4A, attached hereto and made a part hereof ("Conditional
Distribution Agreement"); and ii) on the Effective Date, the holders of
Allowed Claims in Class 4B shall receive 5% of the amount of their Allowed
Claims in complete and full satisfaction of their claims.

     Confirmation of this Plan and the issuance of Class 4A Stock to holders of
Allowed Claims in Class 4A as provided herein shall be deemed consent to the
terms and conditions of the Conditional Distribution Agreement attached hereto,
which Conditional Distribution Agreement shall immediately become effective upon
the Effective Date hereof without the need for execution thereof by any or all
of the parties thereto and without the need for any further action with respect
thereto.

     6.5 CLASS 5. All Equity Interests in Power Design, Inc. shall be deemed
cancelled as of the Effective Date and holders of such Equity Interests shall
not receive any distribution on account of such Equity Interests.

                                       17
<PAGE>

     6.6 CLASS 6. All Equity Interests in PDIXF Acquisition Corporation shall be
deemed cancelled as of the Effective Date and holders of such Equity Interests
shall not receive any distribution on account of such Equity Interests.

7.   PROVISIONS RELATING TO CORPORATE STRUCTURE OF REORGANIZED PDI

     7.1 MERGER. On the Effective Date, PDIXF shall be authorized to merge, and
shall merge, into PDI which shall be the corporation surviving the merger
("MERGER"). The name of the surviving corporation shall be Power Designs Inc.,
or such other name as may be selected by the Debtors on or before the
Confirmation Date. The Merger shall be in accordance with the applicable laws of
the States of New York and Delaware (except as may be affected by this Plan or
by bankruptcy law), this Plan and that certain Plan and Agreement of Merger
substantially attached hereto as EXHIBIT 7.1 and made a part hereof.
Confirmation of this Plan shall be deemed consent by all parties to the Plan and
Agreement of Merger to the terms thereof without necessitating any further
action with respect to same.

     7.2 PROHIBITION AGAINST THE ISSUANCE OF NON-VOTING EQUITY SECURITIES. On
the Effective Date, the Certificate of Incorporation of Reorganized PDI will be
amended to include, among other things, provisions prohibiting the issuance of
non-voting equity securities, increasing the number of authorized shares and
authorizing the Board to issue

                                       18
<PAGE>

shares and to designate classes of preferred stock with such rights and
privileges as the Board may determine ("Amended Certificate"). The Amended
Certificate shall be in form substantially as attached hereto as EXHIBIT 7.2
and made a part hereof.

     7.3 NEW BOARD OF DIRECTORS. On the Effective Date, all directors of PDI
then remaining in office shall be deemed to have resigned. The new Board
thereupon will be reconstituted to consist of seven members and shall consist,
upon the effectiveness of the Merger, of the designees set forth below. The fact
that any designee has or has had a business relationship with PDI shall not, in
and of itself, disqualify the selection of that person to be a member of the
initial board. Notwithstanding anything to the contrary in the Certificate of
Incorporation or By-laws or Delaware law, but subject to the terms of that
certain Shareholders Agreement defined below, the initial board of directors of
Reorganized PDI shall serve for a period of not more than two years following
the Effective Date. Any vacancies arising on the board prior to the expiration
of two years following the Effective Date, shall be filled by the same designee
group that initially appointed the board member whose position was being
vacated, all in accordance with the Shareholders Agreement. Thereafter, the
board of directors of Reorganized PDI shall be elected in accordance with the
Amended Certificate and Delaware law, provided, however,

                                       19
<PAGE>

that during the term of the Shareholders Agreement, the number of directors
can only be increased upon the unanimous consent of all directors.

        MANAGEMENT DESIGNEE.

        (1) Initially, Melvin Becker Vice President of Operations until a
            Chief Executive Officer ("CEO") is retained by Reorganized PDI
            and thereafter the CEO shall be the Management Designee.

        INVERNESS DESIGNEES.

        (2) Two persons designated by Inverness.

        NOTEHOLDERS' DESIGNEE.

        (1) Shannon LeRoy.

        BRIDGE NOTEHOLDERS' DESIGNEES.

        (2) Raymond E. Joslin and Robert Dorfman.

        DIRECTOR LOANHOLDERS' DESIGNEE.

        (1) Robert Sparacino.

     A shareholders voting agreement in form as set forth on EXHIBIT 7.3
attached hereto and made a part hereof ("Shareholders Agreement") will require
each to vote their shares to elect as a director the designee(s) of each party
to the Shareholders Agreement. Confirmation of the Plan shall be deemed consent
to the terms of the Shareholders

                                       20
<PAGE>

Agreement attached hereto and such Shareholders Agreement shall immediately
become effective upon the Effective Date hereof without the need for
execution thereof by any or all of the parties thereto and without the need
for any further action with respect thereto.

     7.4 POST CONFIRMATION MANAGEMENT. Anthony Intino serving as Chief
Financial Officer & General Manager and Melvin Becker as Vice President of
Operation and Secretary shall continue to serve as the senior management of
Reorganized PDI until such time as the Board retains a permanent Chief
Executive or Operating Officer and a Chief Financial Officer.

     7.5 REORGANIZED PDI COMMON STOCK. The Reorganized PDI Common Stock will be
issued as of the Effective Date. As of the Effective Date, there shall be
2,000,000 issued and outstanding shares of Reorganized Common Stock, $0.01 par
value per share. Each share of Reorganized PDI Common Stock shall be entitled to
one vote with respect to all elections and matters.

     7.6 DIVIDENDS; LIQUIDATION. All shares of Reorganized PDI Common Stock will
be entitled: (a) to share equally in dividends from funds legally available
therefor when, as, and if declared by the Board; and (b) to share equally in the
assets available for distribution to shareholders upon liquidation or
dissolution of Reorganized PDI, whether voluntary or involuntary. Holders of the
Reorganized PDI Common Stock shall have no

                                       21
<PAGE>

preemptive rights to acquire shares of Reorganized PDI Common Stock except as
set forth in the Shareholders Agreement. Shares of the Reorganized PDI Common
Stock, when issued, will be deemed duly and validly issued, fully-paid and
nonassessable.

     7.7 EXEMPTION FROM REGISTRATION. Pursuant to Section 1145 of the Code, all
Reorganized PDI Common Stock issued under the Plan will be exempt from state and
federal laws requiring registration of securities. Except with respect to a
person that is an "underwriter" within the meaning of Section 1145 of the
Bankruptcy Code, the distribution of Reorganized PDI Common Stock will be deemed
to be a "public offering" which is not subject to the registration or prospectus
delivery requirements contained in Section 5 of the Securities Act of 1933, as
amended ("SECURITIES ACT").

     7.8 RESTRICTIONS ON TRANSFER OF REORGANIZED PDI COMMON STOCK. The
Reorganized PDI Certificate of Incorporation will be amended to reflect certain
restrictions on the transfer of Reorganized PDI Common Stock. The Amended
Certificate of Incorporation will provide that no person or entity may acquire
any shares of capital stock of Reorganized PDI, other than pursuant to this
Plan, if, at the date of such acquisition, such person or entity is, or would be
after giving effect to any such proposed acquisition, either directly,
indirectly or by attribution, either (a) one of the 10 largest holders of
Reorganized PDI capital stock, or (b) a holder of five percent or more of
Reorganized PDI

                                       22
<PAGE>

issued and outstanding capital stock. The restrictions imposed with regard to
the right of certain stockholders to acquire capital stock shall be effective
until the first business day following the second anniversary of the
Effective Date. All certificates representing Reorganized PDI Common Stock
will bear the legend described in Section 7.10 below.

     7.9 REVIEW OF PROPOSED TRANSACTIONS. The restrictions on the
transferability are intended to prevent any acquisition which could result in
the disallowance or limitation of Reorganized PDI's federal income tax net
operating loss carryovers and other tax attributes, unless such acquisition is
approved by the Board upon review of the proposed transaction. Any such review
will be at the sole cost and expense of the proposed transferor regardless of
whether the Board approves the proposed transfer. Any purported transfer not
approved by the Board will be void and ineffective.

     7.10 REQUIRED LEGEND. All certificates evidencing ownership of shares of
Reorganized PDI Common Stock, shall bear a conspicuous legend substantially as
follows:

          "The securities represented by this certificate have not been
          registered under the Securities Act of 1933, as amended, and
          are issued pursuant to an exemption provided by 11 U.S.C.
          Section 1145 under an order confirming the Amended Plan of
          Reorganization for Power Designs, Inc. and PDIXF Acquisition
          Corporation ("Plan") in cases entitled IN RE POWER DESIGNS INC.,
          DEBTOR, Case No. 98-50117, and IN RE PDIXF ACQUISITION CORPORATION,
          DEBTOR, Case No. 98-50118, jointly administered, in the United
          States Bankruptcy Court for District of Connecticut. These
          securities are subject to certain provisions of the company's
          Certificate of Incorporation which provide, INTER ALIA,

                                       23
<PAGE>

          restrictions (a) limiting the transferability of, and (b) affecting
          the voting rights relating to, such securities. Photocopies of such
          Plan and Certificate of Incorporation have been deposited with the
          company at its principal office, and the company will furnish a copy
          thereof to the record holder of these securities without charge
          upon written request to the company at its principal place of
          business. The holder of this certificate is also referred to
          11 U.S.C. Sections 1145(b) and (c) for guidance as to the
          sale of these securities."

8.   MEANS FOR FUNDING OF THE PLAN

     8.1 FUNDING OF PAYMENTS REQUIRED UNDER THE PLAN. The payments required
under the Plan will be made from Cash accumulated by Debtors from the Petition
Date to the Effective Date, and the proceeds available under the Working Capital
Note and/or accounts receivable financing from Portereter Capital Corporation
approved hereunder.

9.   TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

     9.1 GENERAL TREATMENT. Except as set forth herein, all executory contracts
and unexpired leases of PDI or PDIXF shall be assumed by Reorganized PDI upon
entry of the Confirmation Order unless specifically rejected by order entered on
or prior to the Confirmation Date or unless a motion to reject any such
executory contract or unexpired lease is pending before the Bankruptcy Court on
the Confirmation Date.

     9.2 LEASE OF 14 COMMERCE DRIVE, DANBURY, CT FROM MELVIN AND MARY POWERS.
The Debtor's unexpired lease (the "Lease") of the premises located at 14
Commerce Drive,

                                       24
<PAGE>

Danbury, Connecticut (the "Premises") from Melvin Powers and Mary Powers
(collectively "Landlord") expires on January 31, 2003. Reorganized PDI shall
assume this Lease as modified herein as of the Effective Date. The
outstanding prepetition arrearage owed to the Landlord by the Debtor shall be
reduced and fixed at $15,000 which shall be paid in three equal monthly
installments due and payable on the same date as the monthly rent payments
under the Lease for February, March and April 2001, respectively. In
exchange, the Landlord shall withdraw their unsecured nonpriority proof of
claim. In the event of a material default under the Lease and/or the
arrearage payments to Landlord outlined herein, Landlord may exercise its
rights in accordance with applicable non-bankruptcy law and the Lease and
shall not be required to seek relief from the automatic stay in Case No.
98-50117 or 98-50118.

     9.3 PURCHASE AGREEMENT - VARIAC TRADEMARK. By Purchase Agreement dated
March 30, 1993, Genrad, Inc. ("Genrad") agreed to assign all of its right and
title to the Variac Trademark in certain countries to Technipower, Inc. (the
"Agreement") for the sum of $500,000 to be paid in the form of a licensing fee.
Pursuant to an Asset Purchase Agreement dated October 11, 1996, the Debtor
purchased from Technipower, Inc., Constant Power, Inc. and Penril

                                       25
<PAGE>

Datacomm Networks, Inc. their rights, title and interest to certain assets
including but not limited to the "Variac" Trademark (the "Asset Purchase
Agreement"). Although neither Technipower nor the Debtor have paid Genrad a
licensing fee, the Debtor believes that Genrad's inaction and delay in
defending and registering the Variac Trademark under the Agreement have
caused it damage, entitling it to reduce the arrearage of approximately
$60,000 to $10,000 under the equitable doctrine of recoupment as of the
Effective Date. Reorganized PDI shall receive a credit of $50,000 from Genrad
against the purchase price of the Variac Trademark under the Agreement.
Reorganized PDI shall assume the Agreement with Genrad acquired through the
Asset Purchase Agreement as of the Effective Date and shall pay $10,000
within a reasonable time as the cure of all defaults.

     9.4 PORTER CAPITAL CORPORATION. Subject to execution of the documents
acceptable to Porter Capital Corporation which may be similar to documents
annexed hereto as Exhibit 9.4 by Reorganized PDI and the guarantors, the
post-petition financing order as amended and modified between Porter Capital
Corporation and PDI shall be assumed by the Reorganized PDI as set forth in
Exhibit 9.4. In lieu of a cure of arrears and any other claims whether post-

                                       26
<PAGE>

petition or pre-petition, Porter Capital Corporation shall receive 20,000
shares of Reorganized PDI common stock on the Effective Date in full
satisfaction thereof.

     9.5 BAR TO REJECTION DAMAGES. If the rejection of an executory contract or
unexpired lease by either of the Debtors results in damages to the other party
or parties to such contract or lease, a Claim for such damages, if not
previously evidenced by a filed proof of Claim or barred by a Final Order, shall
be forever barred and shall not be enforceable against the Debtors or
Reorganized PDI, or their properties or agents, successors, or assigns, unless a
proof of Claim relating thereto is filed with the Bankruptcy Court within thirty
(30) days after the later of (i) the entry of a Final Order authorizing such
rejection and (ii) the Confirmation Date, or within such shorter period as may
be ordered by the Bankruptcy Court or as set forth herein.

     9.6 CURE OF DEFAULTS FOR EXECUTORY CONTRACTS AND UNEXPIRED LEASES. Each
executory contract and unexpired lease to be assumed pursuant to the Plan shall
be reinstated and rendered unimpaired in accordance with sections 1124(2) and
365(b)(1) of the Code. In connection therewith, Reorganized PDI obligated on
each such contract and lease to be assumed pursuant to the Plan shall cure or
provide adequate assurance that it will cure any monetary default (other than of
the kind specified in section 365(b)(2) of the

                                       27
<PAGE>

Bankruptcy Code), by payment of the default amount in Cash on the Effective
Date or on such other terms as the parties to such executory contract or
unexpired lease may otherwise agree, compensate, or provide adequate
assurance that the Reorganized PDI will promptly compensate, parties to such
contract or lease for any actual pecuniary loss to such parties resulting
from such default and provide adequate assurance of future performance under
such contract or lease. In the event of a dispute regarding: (i) the amount
of any cure payments, (ii) the ability of Reorganized PDI or any of its
assignees to provide "adequate assurance of future performance" (within the
meaning of section 365 of the Bankruptcy Code) under the contract or lease to
be assumed, or (iii) any other matter pertaining to assumption, the cure
payments or performance required by section 365(b)(1) of the Bankruptcy Code
shall be made following the entry of a Final Order resolving the dispute and
approving the assumption.

10.  PROVISIONS GOVERNING DISTRIBUTIONS

     10.1 PAYMENTS. Except as otherwise provided in this Plan or ordered by
the Court, all payments required under the Plan to Creditors in all Classes will
be made on the Effective Date of Plan.

     10.2 ENFORCEMENT OR WAIVER OF CONTRACTUAL SUBORDINATION RIGHTS. The
Subordinated Notes and the Subordinated Bridge Notes are contractually either
fully or

                                       28
<PAGE>

partially subordinate to Claims held by Inverness. Pursuant to Section 510(b)
of the Code, contractual subordination agreements are enforceable in a
bankruptcy proceeding. Nonetheless, Inverness has agreed to waive enforcement
of its rights of subordination as to the holder of any Claim that is
contractually subordinated to Inverness PROVIDED that the class of which such
holder is a member votes to accept this Plan.

     10.3 FRACTIONAL SHARES. Fractional shares of Reorganized PDI Common
Stock shall not be issued or distributed. If the holder of an Allowed Claim
would receive a fraction of a share of Reorganized PDI Common Stock, the Stock
Transfer Agent shall attempt to round the number of shares issued to all such
holders up or down to the nearest whole number; PROVIDED, that the Stock
Transfer Agent shall in no event deliver certificates representing more than
2,000,000 shares of Reorganized PDI Common Stock. Any shares of Reorganized PDI
Common Stock which remain unissued as a result of such rounding shall become the
property of Reorganized PDI and shall be cancelled.

     10.4 UNCLAIMED DISTRIBUTIONS.

          a. ESCHEAT TO DEBTOR. Monies sent by checks issued by or on
behalf of the Debtors or Reorganized PDI, or stock certificates or documents
evidencing equity interests in the Reorganized PDI, sent to holders of Allowed
Claims or other parties in interest pursuant to this Plan shall permanently and
irrevocably escheat to Reorganized PDI and

                                       29
<PAGE>

shall not be honored if (i) such checks are NOT negotiated within ninety (90)
days after issuance by the Debtors or Reorganized PDI, (ii) stock
certificate(s) or other documents evidencing equity interests in the
Reorganized PDI are returned as undeliverable, or (iii) a written
acknowledgment by the recipient of the stock certificate is not received by
the Reorganized PDI within one hundred and eighty (180) days after the
Effective Date Upon the expiration of such ninety day or one hundred eighty
day period as the case may be, the Debtors' and Reorganized PDI's obligation
and liability to any holder of an Allowed Claim or other party in interest
whose check from the Debtors or Reorganized PDI is not negotiated during such
period or whose stock certificate(s) or other documents evidencing equity
interests in the Reorganized PDI are returned as undeliverable, shall be
deemed satisfied in full and the Debtors and Reorganized PDI and their
respective attorneys, agents, employees, directors and officers shall be
forever released and discharged from any liability or obligation whatsoever
to that creditor or party in interest. For purposes of this section, a check,
stock certificate or other document evidencing an equity interest in the
Reorganized PDI shall be conclusively deemed appropriately delivered to a
creditor or party in interest if it is sent by first class, postage prepaid,
mail to the address of that creditor or party in interest as set forth on the
Debtors' schedules, the proof of claim register in the above-captioned cases,
or the Debtors' books and records.

                                       30
<PAGE>

          b. AFTER DISTRIBUTIONS BECOME UNDELIVERABLE. Undeliverable cash and
stock in Reorganized PDI shall not be entitled to any interest, dividends or
other accruals of any kind. In such cases, any property held for distribution on
account of such claims until the expiration of the ninety (90) day period set
forth herein shall be property of the Reorganized PDI, free and clear of any
restrictions thereon. The Reorganized PDI shall not be required to attempt to
locate any holder of an Allowed Claim.

11.  PROCEDURES FOR RESOLVING AND TREATING CONTESTED AND CONTINGENT
     CLAIMS AND EQUITY INTERESTS

     11.1 ALLOWANCE OF INVERNESS CLAIMS. Pursuant to Section 1123(b)(3)(A)
and Rule 9019 of the Rules of Bankruptcy Procedure, this Plan shall constitute a
compromise and settlement of all claims of or on behalf of the Debtors against
Inverness and all persons acting on its behalf. Inverness shall be deemed to
have an Allowed Claim of $7,259,019.02 as of the Petition. A portion of
Inverness' Allowed Claim will be considered an Allowed Secured Claim. The
balance of Inverness' Allowed Claim not treated as an Allowed Secured Claim will
be deemed an Allowed Unsecured Claim, but shall not be treated in Class 4.

     11.2 OBJECTION DEADLINE. As soon as practicable, but in no event later
than the Effective Date, objections to Disputed Claims shall be filed with the
Bankruptcy Court and subsequently served upon the Holders of each of the
Disputed Claims.

                                       31
<PAGE>

     11.3 RESPONSIBILITY FOR OBJECTION TO DISPUTED CLAIMS AND PROSECUTION OF
OBJECTIONS. Reorganized PDI shall have the exclusive responsibility for
objecting to Claims following the Confirmation Date. On and after the
Confirmation Date, except as the Bankruptcy Court may otherwise order, the
filing, litigation, settlement, or withdrawal of all objections to Disputed
Claims shall be the responsibility of Reorganized PDI.

     11.4 NO DISTRIBUTIONS PENDING ALLOWANCE. Notwithstanding any other
provision of the Plan, no payments or distributions shall be made with respect
to a Disputed Claim unless and until all objections to such Disputed Claim have
been determined by Final Order.

     11.5 DISTRIBUTION AFTER ALLOWANCE. Payments and distributions from
Reorganized PDI to each Holder of a Disputed Claim, to the extent that it
ultimately becomes an Allowed Claim, shall be made in accordance with the
provisions of the Plan governing the Class of Claims to which the Disputed Claim
belongs. As soon as practicable after the date the order of judgment of the
Bankruptcy Court allowing such Claim becomes a Final Order, but in no event
later than thirty (30) days after such Claim becomes an Allowed Claim, any Cash
or other consideration that would have been distributed in respect of the
Disputed Claim had it been an Allowed Claim at the Effective Date shall be
distributed, without interest, to the Holder of such Claim.

                                       32
<PAGE>

     11.6 TREATMENT OF CONTINGENT CLAIMS. Until such time as a Contingent
Claim becomes fixed and absolute, such Claim shall be treated as a Disputed
Claim for purposes related to estimations, allocations, and distributions under
the Plan.

12.  RELEASE, INDEMNIFICATION AND EXCULPATION

     12.1 RELEASE AND INJUNCTION. Upon Confirmation, Reorganized PDI, the
Debtors, the Creditors' Committees, Inverness Corp., and Venture Partners, Ltd.
and their respective present and former officers, directors, employees,
professionals, representatives, shareholders and agents and such persons' or
entities' heirs, representatives, administrators, successors and assigns
(hereinafter, collectively, the "Releasees") shall, without the execution or
delivery of any further documents, be absolutely, unconditionally and fully
released from any and all claims, debts, demands, damages, costs, offsets,
expenses, obligations, liabilities, losses, actions, causes of actions, and/or
suits of whatever kind, nature or type, arising at law or equity, by statute or
otherwise, whether known or unknown, choate or inchoate, suspected or
unsuspected, or whether having arisen, accrued or matured or hereafter to arise,
accrue or mature, which any person or entity or any one or more of them ever
had, now has, claims to have, or hereafter can, shall or may for any reason have
or assert against the Releasees, or any one or more of them, arising out of any
matter or event at or prior to such time and relating in any way to the Debtors,
the Debtors'

                                       33
<PAGE>

businesses, the Debtors' liabilities, loans to the Debtors, or the Chapter 11
Cases, or the actions, failure to act, omission, conduct, duties,
responsibilities, decisions, receipt of money, conduct or behavior of any one
or more of the Releasees in connection with the Chapter 11 Cases, the
Debtors, the Debtors' businesses, the Debtors' liabilities, or loans to the
Debtors. The filing, assertion, prosecution, or continuation of prosecution
of any such matter against any one or more of the Releasees shall, without
any further order of the Court, be prohibited and enjoined upon Confirmation.
This Section 12.1 does not apply to the Pension Benefit Guaranty Corporation
with respect to obligations owed by Inverness Corp. under the two promissory
notes made by Inverness Corp. dated October 1, 1996, and March 10, 1997, and
held by the Pension Benefit Guaranty Corporation, nor does it apply to
judgments in favor of Bruce MacDonald and Robert Layton in that certain civil
action entitled Layton, et al. V. Inverness Corp., U.S. District Court, D.
Conn., Civil Action No. 3:97-CV-2296 (AHN), or to any claims now pending or
hereafter arising in favor of Bruce MacDonald and/or MacDonald Moving
Services against any person and/or entity and/or such persons' or entities'
representatives, present and former officers, directors, employees,
professionals, representatives, shareholders and agents and such persons' or
entities' heirs, representatives, administrators, successors and assigns,
except for the Creditors' Committees and the members of the Creditors'
Committees, or their respective

                                       34
<PAGE>

employees or professionals regarding any acts
or omissions of such parties or the employment or retention of such parties'
respective employees or professionals in connection with the administration
of Bankruptcy Case No. 98-50117 and Case No. 98-50118 and except for the
Debtors and Reorganized PDI. Section 12.1 shall not apply to any responsible
parties respecting tax obligations owed to the Internal Revenue Service
treated in this Plan.

     12.2 INDEMNIFICATION. The Debtors' officers, directors, employees,
professionals, shareholders, representatives and other agents shall be entitled
to be exonerated and indemnified from time to time by the Debtors, Reorganized
PDI and/or the Estates against any and all losses, claims, causes, liabilities,
and reasonable and necessary expenses relating thereto, arising out of or in
connection with the Debtors, the Debtors' businesses, loans to the Debtors, the
Debtors' liabilities, property of the Estates, the affairs of the Estates, or
their performance of duties hereunder. Without limiting the generality of this
Section 12.2, all of the defendants in that action pending in the Superior
Court, State of Conn., bearing Docket Number CV-98-0417463S ("MacDonald Action")
shall be exonerated and indemnified by the Debtors, Reorganized PDI and/or the
Estates from time to time in a prompt and timely manner for any and all monies
which they pay or are required to pay by way of judgment or settlement or by way
of expenses actually and

                                       35
<PAGE>

reasonably incurred, including attorneys' fees, in defense of the MacDonald
Action. Expenses to be paid or reimbursed hereunder shall be paid or
reimbursed when and as incurred, in advance of the final disposition of the
MacDonald Action.

     12.3 EXCULPATION. Neither the Debtors nor any of their respective
officers, directors, employees, professionals, representatives or other agents
shall have or incur any liabilities to the Estates, to Claimants or to any other
person or entity for any act or omission in connection with or arising out of
the administration, implementation or consummation of the Plan or the cash or
other property, including securities, to be distributed under the Plan except
for willful misconduct or gross negligence. Such persons and entities shall in
all respects be entitled to rely upon the advice of counsel, accountants and/or
other professional persons with respect to their rights, duties and
responsibilities but shall not be liable for their failure to seek such advice.
Notwithstanding the foregoing, nothing contained herein shall preclude the
enforcement of the Plan, or any payments or distributions contemplated therein
or in any motion approved in connection with the Plan related to directors of
the Debtors or Reorganized PDI.

13.  JURISDICTION

                                       36
<PAGE>

     13.1 CONTINUING JURISDICTION. The Bankruptcy Court shall retain and have
exclusive jurisdiction over the Debtors' Chapter 11 cases for purposes (a)
through (i) below:

          (a) To determine any and all objections to and proceedings involving
the allowance, estimation, classification, and subordination of Claims or Equity
Interests;

          (b) To determine any and all applications for allowances of
compensation and reimbursement of expenses and any other fees and expenses
authorized to be paid or reimbursed under the Code or the Plan;

          (c) To determine any application pending on the Effective Date for
the rejection or assumption of executory contracts or unexpired leases or for
the assumption and assignment, as the case may be, of executory contracts or
unexpired leases to which either of the Debtors' is a party or with respect
to which either of the Debtors' may be liable, and to hear and determine, and
if need be, to liquidate, any and all claims arising therefrom;

          (d) To determine any and all applications, adversary proceedings,
and contested or litigated matters that may be pending on the Effective Date;

                                       37
<PAGE>

          (e) To consider any modifications of the Plan, remedy any defect or
omission or reconcile any inconsistency on any Order of the Bankruptcy Court,
including the Confirmation Order, to the extent authorized by the Code;

          (f) To determine all controversies, suits, and disputes that may
arise in connection with the interpretation, enforcement, or consummation of
the Plan or obligations arising thereunder;

          (g) To consider and act on the compromise and settlement of any
Claim against or cause of action by or against either of the Debtors'
bankruptcy estate;

          (h) To issue such orders in aid of execution of the Plan to the
extent authorized by Section 1142 of the Code; and

          (i) To determine such other matters as may be set forth in the
Confirmation Order or which may arise in connection with the Plan or the
Confirmation Order.

14.  MODIFICATION.

     14.1 MODIFICATION OF PLAN. The Plan may be modified at any time after
Confirmation and before its substantial Consummation, provided that the Plan, as
modified, meets the requirements of Sections 1122 and 1123 of the Code, and the
Bankruptcy Court, after notice and a hearing, confirms the Plan, as modified,
under Section 1129 of the Code. A holder of a Claim or Equity Interest that has
accepted or

                                       38
<PAGE>

rejected the Plan shall be deemed to have accepted or rejected, as the case
may be, such Plan as modified, unless, within the time fixed by the
Bankruptcy Court, such holder changes its previous acceptance or rejection by
a writing filed with the Bankruptcy Court.

15.  DISCHARGE.

     15.1 DISCHARGE AND REVERSION OF PROPERTY.

          (a) Pursuant to Section 1141(b) of the Code and, except as
otherwise dealt with in this Plan, Confirmation of the Plan vests all of the
property of each of the Debtors' estates in Reorganized PDI. Property of each
of the Debtors' estates, which shall vest in Reorganized PDI shall include,
without limitation, all rights and interests in, to and under all patents,
trademarks, patents and trademark applications, trade names, licenses,
copyrights and inventions used in the business acquired from Constant Power,
Inc., Penril Datacomm Networks, Inc., Technipower, Inc., and/or Genrad, Inc.
including the trade name "Technipower" and the trademark "Variac".

                                       38
<PAGE>

          (b) Pursuant to Section 1141(c) of the Code, on the Effective
Date of the Plan, the property dealt with by the Plan shall become free and
clear of all liens, claims, encumbrances, and interests of creditors, except as
otherwise provided for in the Plan or the Confirmation Order.

     15.2 DISCHARGE OF THE DEBTORS. Except as otherwise provided in
the Plan, all consideration distributed under the Plan shall be in exchange for
and in complete satisfaction, discharge, and release of all claims of any nature
whatsoever against either of the Debtors; and except as otherwise provided
herein, upon the Effective Date, each of the Debtors shall be deemed discharged
and released (but only to the extent permitted by Section 1141 of the Code,
including specifically Section 1141(d)(3)) from any and all claims, including
but not limited to, demands and liabilities that arose before the Effective
Date, and all debts of the kind specified in Sections 502(g), 502(h), or 502(i)
of the Code, whether or not (a) a proof of claim based upon such debt is filed
or deemed filed under Section 501 of the Code; (b) a claim based upon such debt
is allowed under Section 502 of the Code; or (c) the holder of a claim based
upon such debt has accepted the Plan. Except as provided herein, the
Confirmation Order shall be a judicial determination of discharge of all
liabilities of each of the Debtors. As provided in Section 524 of the Code, such
discharge shall void any judgment against either of the Debtors at any time
obtained to the

                                       40
<PAGE>

extent it relates to a claim discharged, and operate as an injunction against
the prosecution of any action against either of the Debtors or its property
to the extent it relates to a claim discharged.

     15.3 DISCHARGE OF CLAIMS. Except as otherwise provided herein or in the
Confirmation Order, (a) the rights afforded in this Plan and the payments and
distributions to be made hereunder shall be in complete exchange for, and in
full satisfaction, discharge and release of all existing debts and claims of any
kind, nature or description whatsoever against either of the Debtors or against
its bankruptcy estate, assets or properties, (b) all existing claims against
either of the Debtors shall be deemed to be satisfied, discharged, and released
in full upon the Effective Date, and (c) all holders of claims shall be forever
barred and precluded from asserting against Reorganized PDI or its assets or
properties based upon any act or omission.

16.  PROVISIONS TO INVOKE CRAMDOWN PROCEEDINGS AND/OR SECTION 506
     HEARING, IF NECESSARY

     16.1 CRAMDOWN. If all of the applicable requirements of Section 1129(a)
of the Code, other than subparagraph 8, are found to have been met with respect
to the Plan, the Debtors will seek Confirmation pursuant to Section 1129(b) of
the Code. For purposes of seeking Confirmation under the cramdown provisions of
the Code, the Debtors reserve the

                                       41
<PAGE>

right to modify or vary the treatment of the claims of any rejecting Class so
as to comply with the requirements of Section 1129(b) of the Code.

17.  GENERAL PROVISIONS

     17.1 POST-CONFIRMATION ACTIONS. Nothing herein contained shall prevent
the Debtors from taking such action as may be necessary to enforce any rights or
prosecute any cause of action existing on its behalf, which may not have been
heretofore enforced or prosecuted.

     17.2 RULES OF CONSTRUCTION. Unless otherwise specified, all references
to the single shall include the plural and vice versa. The headings in the Plan
are for convenience of reference only and shall not limit or otherwise effect
the provisions of the Plan. Words and terms defined in Section 101 of the Code
shall have the same meaning when used in the Plan, unless a different definition
is given in the Plan. The Rules of Construction contained in Section 102 of the
Code shall apply to the construction of the Plan.

     17.3 GOVERNING LAW. Unless an applicable rule of law or procedure is
supplied by federal law (including the Bankruptcy Code and the Bankruptcy Rules)
or the Delaware General Corporation Law, the internal laws of the State of
Connecticut shall govern the construction and implementation of the Plan and any
agreements, documents, and

                                       42
<PAGE>

instruments executed in connection with the Plan, except as may otherwise be
provided in such agreements, documents, and instruments.

     17.4 FILING OF ADDITIONAL DOCUMENTS. On or before the conclusion of the
Confirmation Hearing, the Debtors shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.

     17.5 SEVERABILITY. Should any provision in the Plan be determined to be
unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any other provisions of the Plan.

     17.6 NOTICES. All notices, requests, or demands for payments provided
for in the Plan shall be in writing and shall be deemed to have been given when
personally delivered by hand, or deposited in any general or branch post office
of the United States postal service, or received by telex or telecopier;
notices, requests and demands for payments shall be addressed and sent, postage
prepaid, or delivered as follows:

          (a) in the case of notices, requests, or demands for payments
              to the Debtors or the Reorganized PDI, at 14 Commerce Drive,
              Danbury, Connecticut, Attn: Chief Financial Officer, and at
              any other address designated by the Debtors by notice to each
              Holder of an Allowed Claim.

                                       43
<PAGE>

          (b) in the case of notices to Holders of Claims or Equity Interests,
              at the last known address according to Reorganized PDI books and
              records, or at any other address designated by a Holder of a
              Claim or Interest, by notice to Reorganized PDI; PROVIDED,
              HOWEVER, any notice of change of address shall be effective
              only upon receipt.

     Dated this 23rd day of January, 2001.

                             POWER DESIGNS, INC. and
                             PDIXF ACQUISITION CORPORATION

                         By: /s/
                             ------------------------------------------
                              Anthony Intino
                              President of Power Designs, Inc.
                              and President
                              of PDIXF Acquisition Corporation

                                       44

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