Document:

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                                                                   EXHIBIT 10.55

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                            PARTICIPATION AGREEMENT

                                     Among

                              BORDERS GROUP, INC.,

                                 BORDERS, INC.,

                           WILMINGTON TRUST COMPANY,
                         not in its individual capacity
                       except as expressly stated herein,
                          but solely as Owner Trustee,

                         SEQUOIA PROJECT FUNDING CORP.,
                             as Owner Beneficiary,

                        WELLS FARGO BANK NORTHWEST, N.A.
                             as Collateral Trustee,

                                      And

                        THE PURCHASERS IDENTIFIED HEREIN

                         Dated as of November 15, 2002

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                                                         Participation Agreement

                               TABLE OF CONTENTS

<TABLE>
<S>                        <C>                                                                              <C>
ARTICLE I                  TERMS OF ISSUANCE OF THE NOTES...............................................      1

         Section 1.1       Issuance and Sale of Notes...................................................      1
         Section 1.2       Closing......................................................................      1
         Section 1.3       Wire Transfer................................................................      2
         Section 1.4       Failure to Deliver...........................................................      2

ARTICLE II                 CONDITIONS TO THE CLOSING....................................................      2

         Section 2.1       Representations and Warranties...............................................      2
         Section 2.2       Performance; No Default......................................................      3
         Section 2.3       Indenture....................................................................      3
         Section 2.4       Notes........................................................................      3
         Section 2.5       Collateral Assignments of Project Loan Documentation.........................      3
         Section 2.6       Assignments of Mortgage, et al...............................................      3
         Section 2.7       Certification of Cost........................................................      4
         Section 2.8       Surveys, Appraisals, Environmental Reports and Zoning........................      4
         Section 2.9       Mortgagee's Title Insurance; Endorsements....................................      4
         Section 2.10      Estoppels....................................................................      4
         Section 2.12      Compliance Certificate.......................................................      4
         Section 2.13      Opinions of Counsel..........................................................      5
         Section 2.14      Purchase Permitted By Applicable Law, etc....................................      6
         Section 2.15      Payment of Special Counsel and other Fees....................................      6
         Section 2.16      Payment of Recording Fees, Charges and Taxes.................................      6
         Section 2.17      Private Placement Number.....................................................      6
         Section 2.18      Offeree Letter...............................................................      6
         Section 2.19      Proceedings and Documents....................................................      6

ARTICLE III                REPRESENTATIONS AND WARRANTIES...............................................      7

         Section 3.1       Representations of the Issuer................................................      7
         Section 3.2       Representations of the Collateral Trustee....................................      7
         Section 3.3       Representations of the Guarantor.............................................      7
         Section 3.4       Representations of the Tenant................................................      7
         Section 3.5       Representations of the Owner Beneficiary.....................................      7
         Section 3.6       Representations of the Purchasers............................................      8
</TABLE>

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                                                         Participation Agreement

<TABLE>
<S>                        <C>                                                                              <C>
ARTICLE IV                 GUARANTOR COVENANTS..........................................................      9

         Section 4.1       Reporting Requirements.......................................................      9
         Section 4.2       Inspection Rights............................................................     10
         Section 4.3       Transaction Expenses.........................................................     11
         Section 4.4       Payment of Certain Fees and Expenses.........................................     11

ARTICLE V                  DIRECT PAYMENT...............................................................     12

         Section 5.1       Direct Payment...............................................................     12

ARTICLE VI                 DEFINITIONS..................................................................     12

         Section 6.1       General Definitions..........................................................     12
         Section 6.2       Indenture Definitions........................................................     17

ARTICLE VII                OTHER COVENANTS AND AGREEMENTS...............................................     17

         Section 7.1       Covenants of the Trust Company, the Issuer, the Collateral Trustee and the
                           Owner Beneficiary............................................................     17
         Section 7.2       Guarantor's Operative Document Rights........................................     19
         Section 7.3       Covenants of the Collateral Trustee..........................................     19
         Section 7.4       Collateral Trustee Project Loan Agreement Rights.............................     19

ARTICLE VIII               TRANSFER OF INTEREST.........................................................     19

         Section 8.1       Restrictions of Transfer.....................................................     19
         Section 8.2       Effect of Transfer...........................................................     20

ARTICLE IX                 INDEMNIFICATION..............................................................     20

         Section 9.1       General Indemnity............................................................     20
         Section 9.2       General Tax Indemnity........................................................     21

ARTICLE X                  MISCELLANEOUS................................................................     25

         Section 10.1      Amendments, Etc..............................................................     25
         Section 10.2      Notices, Etc.................................................................     25
         Section 10.3      No Waiver; Remedies..........................................................     26
         Section 10.4      Binding Effect; Term; Assignability..........................................     26
         Section 10.5      Governing Law................................................................     26
         Section 10.6      Execution in Counterparts....................................................     26
         Section 10.7      Third Party Beneficiaries....................................................     27
         Section 10.8      Survival of Covenants and Representations....................................     27
</TABLE>

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                                                         Participation Agreement
<TABLE>
<S>                                                                                                          <C>
         Section 10.9      Severability.................................................................     27
         Section 10.10     Confidential Information.....................................................     27
         Section 10.11     Issuer Recourse..............................................................     28
         Section 10.12     Owner Beneficiary Exculpation................................................     29
</TABLE>

                                     -iii-

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                                                         Participation Agreement

ATTACHMENTS TO PARTICIPATION AGREEMENT

<TABLE>
<S>                <C>
SCHEDULE I         --  Name and Address of Purchasers
EXHIBIT A          --  Description of Closing Opinion of Special Counsel for Purchasers
EXHIBIT B          --  Description of Closing Opinion of Counsel for Issuer
EXHIBIT C          --  Description of Closing Opinion of Counsel for Collateral Trustee
EXHIBIT D          --  Description of Closing Opinion of Counsel for Guarantor and Tenant
EXHIBIT E-1        --  Description of Closing Opinion of Counsel for Project Borrowers
EXHIBIT E-2        --  Description of Closing Opinion of Special Counsel for Project Borrowers
EXHIBIT F          --  Representations and Warranties of Issuer
EXHIBIT G          --  Representations and Warranties of Collateral Trustee
EXHIBIT H-1        --  Representations and Warranties of Guarantor
EXHIBIT H-2        --  Representations and Warranties of Tenant
EXHIBIT I          --  Representations and Warranties of Owner Beneficiary
</TABLE>

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                                                         Participation Agreement

                             PARTICIPATION AGREEMENT

                                  INTRODUCTORY

         THIS PARTICIPATION AGREEMENT (the "Participation Agreement") is dated
as of November 15, 2002, and is among Borders Group, Inc., a Michigan
corporation (the "Guarantor"), Borders, Inc., a Colorado corporation (the
"Tenant"), Sequoia Project Funding Corp., a Delaware corporation, as owner
beneficiary under the Trust Agreement (as hereinafter defined) (the "Owner
Beneficiary"), Wilmington Trust Company, not in its individual capacity except
as expressly stated herein (in such individual capacity, referred to herein as
the "Trust Company"), but solely as owner trustee under the Trust Agreement (in
such capacity as owner trustee, the "Issuer"), Wells Fargo Bank Northwest, N.A.,
as Collateral Trustee under the Collateral Trust Indenture dated as of November
15, 2002 (the "Indenture") between the Issuer and the Collateral Trustee (the
"Collateral Trustee") and the Purchasers listed on Schedule I hereto (the
"Purchasers").

         WHEREAS, Issuer wishes to issue its 6.85% Senior Secured Notes due 2017
(the "Notes") in accordance with the terms of the Indenture (as hereinafter
defined), which Notes shall have the tenor, and shall be secured in the manner,
set forth in the Indenture.

         WHEREAS, subject to the terms and conditions set forth herein and on
the basis of the representations and warranties hereinafter set forth, the
Purchasers are willing to purchase from the Issuer all of the Notes.

         WHEREAS, capitalized terms used in this Participation Agreement shall
have the respective meanings as specified in Article VI hereof.

         NOW, THEREFORE, in consideration of and for the mutual benefit of the
parties hereto, each of the undersigned does hereby agree as follows:

                                    ARTICLE I
                         TERMS OF ISSUANCE OF THE NOTES

         Section 1.1 Issuance and Sale of Notes. The Issuer hereby agrees to
sell to the Purchasers, and each of the Purchasers agrees, severally and not
jointly, to purchase from the Issuer, the Notes on the Closing Date at a price
of 100% of the principal amount thereof and in the aggregate principal amount
set forth opposite its name on Schedule I hereto (the "Purchase Price"). The
Issuer hereby directs the Collateral Trustee to execute the certificate of
authentication appended to each Note.

         Section 1.2 Closing. The closing of the transaction contemplated by the
Indenture and this Participation Agreement, including, without limitation, the
issuance and sale of the Notes, shall be held at the offices of Dickinson Wright
PLLC, 38525 Woodward Avenue, Suite 2000, Bloomfield Hills, Michigan 48304, at
11:00 a.m., Bloomfield Hills, Michigan time, on

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                                                         Participation Agreement

November 25, 2002 or at such other date and time as may be mutually acceptable
to the parties hereto (the "Closing Date").

         Section 1.3 Wire Transfer. On the Closing Date, the Purchase Price for
each Note shall be paid by the Purchaser thereof directly to the Issuer by wire
transfer of immediately available funds for the account of the Issuer at
Comerica Bank, Detroit, Michigan, ABA #072 000 096, Account No. 1851004075, For
Credit of First American Title Insurance Company, Ref: Borders Trust 2002.

         Section 1.4 Failure to Deliver. If on the Closing Date the Issuer fails
to tender to any Purchaser the Notes to be purchased by such Purchaser or if the
conditions to the obligation of such Purchaser specified in Article II have not
been fulfilled, such Purchaser may thereupon elect to be relieved of all further
obligations under this Participation Agreement. Nothing in this Section shall
operate to relieve the Issuer, the Owner Beneficiary, the Guarantor or the
Tenant from their respective obligations hereunder or to waive any of such
Purchaser's rights against the Issuer, the Owner Beneficiary, the Guarantor or
the Tenant.

         In addition to execution and delivery of the Notes, the Issuer shall,
at the request of Purchaser, execute and deliver on the Closing Date such
receipts, endorsements, and other documents acknowledging receipt of the
Purchase Price as such Purchaser may reasonably request.

                                   ARTICLE II
                            CONDITIONS TO THE CLOSING

         The obligation of each Purchaser to purchase and pay for the Notes to
be sold to such Purchaser on the Closing Date is subject to the fulfillment to
its satisfaction, prior to or on the Closing Date, of the following conditions:

         Section 2.1 Representations and Warranties.

         (a)      The representations and warranties of the Issuer contained in
Exhibit F to this Participation Agreement shall be true and correct on and with
respect to the Closing Date.

         (b)      The representations and warranties of the Collateral Trustee
contained in Exhibit G to this Participation Agreement shall be true and correct
on and with respect to the Closing Date.

         (c)      The representations and warranties of the Guarantor contained
in Exhibit H-1 to this Participation Agreement shall be true and correct on and
with respect to the Closing Date.

         (d)      The representations and warranties of the Tenant contained in
Exhibit H-2 to this Participation Agreement shall be true and correct on and
with respect to the Closing Date.

         (e)      The representations and warranties of the Owner Beneficiary
contained in Exhibit I to this Participation Agreement shall be true and correct
on and with respect to the Closing Date.

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                                                         Participation Agreement

         Section 2.2 Performance; No Default.

         (a)      The Issuer and the Collateral Trustee shall have performed all
of their respective obligations and complied with all agreements and conditions
required to be performed and complied with on or prior to the Closing Date as
set forth in this Participation Agreement.

         (b)      No default or event of default shall have occurred and be
continuing with respect to any Project Loan Note, any Lease or any other Project
Loan Document and no event shall have occurred and be continuing under the
provisions of any such instrument or agreement which, with the lapse of time or
the giving of notice, or both, would constitute a default or an event of default
thereunder.

         Section 2.3 Indenture. The Indenture shall have been duly executed and
delivered by the Issuer and the Collateral Trustee, and such parties shall have
performed, complied with or satisfied all agreements and conditions contained in
the Indenture required to be performed or complied with on or prior to the
Closing Date to the satisfaction of such Purchaser.

         Section 2.4 Notes. The Issuer shall have issued, and the Collateral
Trustee shall have authenticated, each respective Note to be purchased by any
Purchaser, and each of the other Purchasers shall have purchased the Notes to be
purchased by them at the Closing as specified in Schedule I hereto.

         Section 2.5 Collateral Assignments of Project Loan Documentation. The
Issuer shall have executed and delivered in favor of the Collateral Trustee a
Collateral Assignment of Project Loan Documentation for each Project Loan,
together with, (i) with respect to each Project Loan, the related executed
original Project Loan Note, together with executed originals of the related
Project Loan Agreement, Mortgage, Assignment of Leases and Rents, Environmental
Indemnity and Property Owner Estoppel Certificate, and a duly completed UCC
financing statement listing the related Project Borrower, as debtor, and the
Issuer, as secured party, and listing as collateral all fixtures located on the
respective Mortgaged Property, to be filed in such filing offices as such
Purchaser may reasonably determine, (ii) with respect to each Project Loan, a
duly completed UCC financing statement listing the related Project Borrower, as
debtor, the Issuer, as secured party, and the Collateral Trustee, as assignee,
relating to the UCC financing statement referred to in clause (i) above, to be
filed in each filing office as such Purchaser may reasonably determine and (iii)
duly completed UCC financing statement listing the Issuer, as debtor, and the
Collateral Trustee, as secured party, and listing as collateral the security
interests created by each Collateral Assignment of Project Loan Documentation,
to be filed in such filing offices as such Purchaser shall reasonably determine.

         Section 2.6 Assignments of Mortgage, et al. The Issuer shall have
executed and delivered in favor of the Collateral Trustee an Assignment of
Mortgage for each Mortgage and a Reassignment of Leases and Rents for each
Assignment of Leases and Rents, in recordable form for recording in the
appropriate filing office in which the respective Mortgaged Property is located.

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                                                         Participation Agreement

         Section 2.7 Certification of Cost. Certification of the actual cost for
each of the Mortgaged Properties certified by the Guarantor shall have been
delivered to such Purchaser or its special counsel and shall be satisfactory to
such Purchaser in scope and form.

         Section 2.8 Surveys, Appraisals, Environmental Reports and Zoning.
Surveys, real property appraisals and environmental reports for each of the
Mortgaged Properties shall have been delivered to such Purchaser or its special
counsel and shall be satisfactory to such Purchaser in scope and form. Such
Purchaser shall have received sufficient evidence necessary to determine that
all zoning laws, regulations and ordinances have been complied with for each
Mortgaged Property.

         Section 2.9 Mortgagee's Title Insurance; Endorsements. Loan title
insurance policies issued by a title insurance company naming the Collateral
Trustee as the insured mortgagee reasonably satisfactory to such Purchaser (or,
in the alternative, a commitment to issue a loan title insurance policy issued
by a title insurance company reasonably satisfactory to such Purchaser and
marked and initialed by an authorized agent of such title insurance company to
show all changes to be made in connection with the actual issuance of such title
insurance policy) and dated the date of the recording of the Mortgages shall
have been issued for each Mortgaged Property and shall be satisfactory in scope
and form to such Purchaser.

         Section 2.10 Estoppels. The Tenant shall have executed and delivered
the Tenant Estoppel Certificate and shall deliver estoppel certificates in
respect of each reciprocal easement and/or operating agreement affecting any
Mortgaged Property in form and scope, and executed by such parties, as may be
reasonably satisfactory to each Purchaser. The Property Owner Estoppel
Certificate shall have been delivered to such Purchaser or its special counsel
and shall be satisfactory to such Purchaser in scope and form.

         Section 2.11 INTENTIONALLY OMITTED

         Section 2.12 Compliance Certificate.

         (a)      Issuer Officer's Certificate. The Issuer shall have delivered
to the Purchasers an Officer's Certificate, dated the Closing Date, certifying
that the conditions specified in Sections 2.1(a), 2.2 and 2.3 (to the extent
relating to the obligations of the Issuer) have been fulfilled.

         (b)      Issuer Existence and Authority. On or prior to the Closing
Date, such Purchaser shall have received, in form and substance reasonably
satisfactory to such Purchaser and special counsel to the Purchasers, such
documents and evidence with respect to the Issuer as special counsel to the
Purchasers may reasonably request in order to establish the existence and good
standing of the Issuer and the authorization of the transactions contemplated by
this Participation Agreement and all other Operative Agreements to which it is a
party.

         (c)      Collateral Trustee's Officer's Certificate. The Collateral
Trustee shall have delivered to the Purchasers an Officer's Certificate, dated
the Closing Date, certifying that the conditions specified in Sections 2.1(b),
2.2(a) and 2.3 (to the extent relating to the obligations of the Collateral
Trustee) have been fulfilled.

                                      -4-
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                                                         Participation Agreement

         (d)      Collateral Trustee's Existence and Authority. Such Purchaser
shall have received, in form and substance reasonably satisfactory to such
Purchaser and special counsel to the Purchasers, such documents and evidence
with respect to the Collateral Trustee as special counsel to the Purchasers may
reasonably request in order to establish the existence of the Collateral Trustee
and the authorization of the transactions contemplated by this Participation
Agreement and all other Operative Agreements to which it is a party.

         (e)      Guarantor's Officer's Certificate. The Guarantor shall have
delivered to the Purchasers an Officer's Certificate, dated the Closing Date,
certifying that, to such officer's knowledge, the representations and warranties
contained in Exhibit H-1 to this Participation Agreement are true and correct on
and with respect to the Closing Date.

         (f)      Guarantor's Existence and Authority. Such Purchaser shall have
received, in form and substance reasonably satisfactory to such Purchaser and
special counsel to the Purchasers, such documents and evidence with respect to
the Guarantor as special counsel to the Purchasers may reasonably request in
order to establish the existence and good standing of the Guarantor and the
authorization of the transactions contemplated by this Participation Agreement
and all other Operative Agreements to which it is a party.

         (g)      Tenant's Officer's Certificate. The Tenant shall have
delivered to the Purchasers an Officer's Certificate, dated the Closing Date,
certifying that, to such officer's knowledge, the representations and warranties
contained in Exhibit H-2 to this Participation Agreement are true and correct on
and with respect to the Closing Date.

         (h)      Tenant's Existence and Authority. Such Purchaser shall have
received, in form and substance reasonably satisfactory to such Purchaser and
special counsel to the Purchasers, such documents and evidence with respect to
the Tenant as special counsel to the Purchasers may reasonably request in order
to establish the existence and good standing of the Tenant and the authorization
of the transactions contemplated by this Participation Agreement and all other
Operative Agreements to which it is a party.

         Section 2.13 Opinions of Counsel. Each Purchaser shall have received
opinions in form and substance satisfactory to such Purchaser from:

         (a)      Richards, Layton & Finger, special counsel for the Issuer,
dated the Closing Date and covering the matters set forth in Exhibit B and
covering such other matters incident to the transactions contemplated hereby as
such Purchaser may reasonably request (and the Issuer hereby instructs its
counsel to deliver such opinions to the Purchasers),

         (b)      Ray, Quinney & Nebeker, counsel for the Collateral Trustee,
dated the Closing Date and covering the matters set forth in Exhibit C and
covering such other matters incident to the transactions contemplated hereby as
such Purchaser may reasonably request (and the Collateral Trustee hereby
instructs its counsel to deliver such opinion to the Purchasers),

         (c)      Dickinson Wright PLLC, special counsel for the Guarantor and
the Tenant, dated the Closing Date and covering the matters set forth in Exhibit
D and covering such other matters incident to the transactions contemplated
hereby as such Purchaser may reasonably request,

                                      -5-
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                                                         Participation Agreement

         (d)      various local counsel and special local counsel for the
Project Borrowers dated on or prior to the Closing Date and covering the matters
set forth in Exhibit E-1 and Exhibit E-2 and covering such other matters
incident to the transactions contemplated hereby as such Purchaser may
reasonably request, and

         (e)      McDermott, Will & Emery, special counsel to the Purchasers in
connection with such transactions, dated the Closing Date and substantially in
the form set forth in Exhibit A and covering such other matters incident to such
transactions as the Purchasers may reasonably request.

         Section 2.14 Purchase Permitted By Applicable Law, etc. On the Closing
Date, the purchase of the Notes by such Purchaser shall (a) be permitted by the
laws and regulations of each jurisdiction to which such Purchaser is subject,
without recourse to provisions (such as Section 1405(a)(8) of the New York
Insurance Law) permitting limited investments by insurance companies without
restriction as to the character of the particular investment, (b) not violate
any applicable law or regulation (including, without limitation, Regulation T, U
or X of the Board of Governors of the Federal Reserve System) and (c) not
subject such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on the
date hereof. If requested by any Purchaser, such Purchaser shall have received
an Officer's Certificate of the Issuer certifying as to such matters of fact as
it may reasonably specify to enable such Purchaser to determine whether such
purchase is so permitted.

         Section 2.15 Payment of Special Counsel and other Fees. The Guarantor
shall have paid, on or before the Closing Date, the fees, charges and
disbursements of McDermott, Will & Emery, special counsel for the Purchasers.

         Section 2.16 Payment of Recording Fees, Charges and Taxes. All title
insurance charges and premiums and all fees, charges and taxes in connection
with the recordation or filing and re-recordation or re-filing of the Project
Loan Documents and any other agreement or instrument, financing statement or any
publication of notice required to be filed or recorded to protect the validity
of the liens securing the obligations of the Project Loans shall have been paid
in full by the Guarantor.

         Section 2.17 Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.

         Section 2.18 Offeree Letter. An offeree letter shall have been issued
by Wachovia Securities, Inc. to the Purchasers satisfactory to each Purchaser in
scope and form.

         Section 2.19 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this
Participation Agreement and all documents and instruments incident to such
transactions shall be reasonably satisfactory to such Purchaser and its special
counsel, and such Purchaser and its special counsel shall have received all such
counterpart originals or certified or other copies of such documents as such
Purchaser may reasonably request.

                                      -6-
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                                                         Participation Agreement

         For purposes of this Article II, the payment of the Purchase Price by
such Purchaser for each Note to be purchased by it hereunder shall constitute
conclusive evidence that such Purchaser is satisfied that each and every
condition set forth in this Article II has been fulfilled or that such Purchaser
has waived compliance of any such condition; provided, however, that nothing
contained in this paragraph shall be construed as a waiver of the truth and
accuracy of any representation or warranty made by any party on or prior to the
Closing Date in connection with the transactions contemplated by this
Participation Agreement and the Indenture.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         Section 3.1 Representations of the Issuer. In order to induce each
Purchaser to purchase the Notes from the Issuer, the Issuer represents and
warrants that all representations and warranties set forth in Exhibit F to this
Participation Agreement are true and correct as of the date hereof and are
incorporated herein by reference with the same force and effect as though herein
set forth in full.

         Section 3.2 Representations of the Collateral Trustee. In order to
induce each Purchaser to purchase the Notes from the Issuer, the Collateral
Trustee represents and warrants that all representations and warranties set
forth in Exhibit G to this Participation Agreement are true and correct as of
the date hereof and are incorporated herein by reference with the same force and
effect as though herein set forth in full.

         Section 3.3 Representations of the Guarantor. In order to induce each
Purchaser to purchase the Notes from the Issuer, the Guarantor represents and
warrants that all representations and warranties set forth in Exhibit H-1 to
this Participation Agreement are true and correct as of the date hereof and are
incorporated herein by reference with the same force and effect as though herein
set forth in full.

         Section 3.4 Representations of the Tenant. In order to induce each
Purchaser to purchase the Notes from the Issuer, the Tenant represents and
warrants that all representations and warranties set forth in Exhibit H-2 to
this Participation Agreement are true and correct as of the date hereof and are
incorporated herein by reference with the same force and effect as though herein
set forth in full.

         Section 3.5 Representations of the Owner Beneficiary. In order to
induce each Purchaser to purchase the Notes from the Issuer, the Owner
Beneficiary represents and warrants that all representations and warranties set
forth in Exhibit I to this Participation Agreement are true and correct as of
the date hereof and are incorporated herein by reference with the same force and
effect as though herein set forth in full.

                                      -7-
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                                                         Participation Agreement

         Section 3.6 Representations of the Purchasers.

         (a)      Each Purchaser represents and warrants that at least one of
the following statements concerning each source of funds to be used by it to pay
the Purchase Price is accurate as of the Closing Date:

                  (i)      the source of funds to be used by it to pay the
         purchase price of the Notes is an "insurance company general account"
         within the meaning of Department of Labor Prohibited Transaction
         Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
         benefit plan, treating as a single plan, all plans maintained by the
         same employer or employee organization, with respect to which the
         amount of the general account reserves and liabilities for all
         contracts held by or on behalf of such plan, exceed ten percent (10%)
         of the total reserves and liabilities of such general account
         (exclusive of separate account liabilities) plus surplus, as set forth
         in the NAIC Annual Statement filed with its state of domicile;

                  (ii)     all or a part of such funds constitute assets of one
         or more separate accounts, trusts or a commingled pension trust
         maintained by it, and it has disclosed to each of the Collateral
         Trustee, the Issuer, the Owner Beneficiary and each Project Borrower,
         the names of such employee benefit plans whose assets in such separate
         account or accounts or pension trusts exceed 10% of the total assets or
         are expected to exceed 10% of the total assets of such account or
         accounts or trusts as of the date of such purchase (for the purpose of
         this clause (ii), all employee benefit plans maintained by the same
         employer or employee organization are deemed to be a single plan);

                  (iii)    all or part of such funds constitute assets of a bank
         collective investment fund maintained by it, and it has disclosed to
         each of the Collateral Trustee, the Issuer, the Owner Beneficiary and
         each Project Borrower, the names of such employee benefit plans whose
         assets in such collective investment fund exceed 10% of the total
         assets or are expected to exceed 10% of the total assets of such fund
         as of the date of such purchase (for the purpose of this clause (iii),
         all employee benefit plans maintained by the same employer or employee
         organization are deemed to be a single plan);

                  (iv)     all or part of such funds constitute assets of one or
         more employee benefit plans, each of which has been identified to each
         of the Collateral Trustee, the Issuer, the Owner Beneficiary and each
         Project Borrower, in writing;

                  (v)      it is acquiring the Notes for the account of one or
         more pension funds, trust funds or agency accounts, each of which is a
         "governmental plan" as defined in Section 3(32) of ERISA;

                  (vi)     the source of funds is an "investment fund" managed
         by a "qualified professional asset manager" or "QPAM" (as defined in
         Part V of PTE 84-14, issued March 13, 1984), provided that no other
         party to the transactions described in this Participation Agreement and
         no "affiliate" of such other party (as defined in Section V(c) of PTE
         84-14) has at this time, or during the immediately preceding one year
         exercised the authority to appoint or terminate said QPAM as manager of
         the assets of any plan

                                      -8-
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                                                         Participation Agreement

         identified in writing pursuant to this clause (vi) or to negotiate the
         terms of said QPAM's management agreement on behalf of any such
         identified plans; or

                  (vii)    if it is other than an insurance company, all or a
         portion of such funds consists of funds which do not constitute "plan
         assets".

         (b)      Each Purchaser represents that it is an "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act of 1933, as amended) acting for its own account (and not for the
account of others) or as a fiduciary or agent for others (which others are also
"accredited investors"). Each Purchaser further represents that such Purchaser
is acquiring the Notes for the purpose of investment and not with a view to the
distribution thereof, and that such Purchaser has no present intention of
selling, negotiating or otherwise disposing of the Notes; it being understood,
however, that the disposition of such Purchaser's property shall at all times be
and remain within its control.

         Each Purchaser understands that the Notes have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or under
any state securities laws, and may not be resold in the absence of registration
unless such sale is exempt from registration under the Securities Act and any
applicable state securities laws.

                                   ARTICLE IV
                               GUARANTOR COVENANTS

         Section 4.1 Reporting Requirements. The Guarantor hereby covenants and
agrees that until payment in full of all principal, premium, if any, and
interest outstanding from time to time under the Notes, the Guarantor will
furnish or cause to be furnished to the Collateral Trustee and each Noteholder:

         (a)      As soon as available and in any event within forty-five (45)
calendar days after the end of each of its first three fiscal quarters in each
fiscal year, consolidating and consolidated financial statements of the
Guarantor and its Subsidiaries, consisting of a consolidating and consolidated
balance sheet as of the end of such fiscal quarter and related consolidating and
consolidated statements of income, stockholders' equity and cash flows for the
fiscal quarter then ended and the fiscal year through that date, all in
reasonable detail and certified (subject to normal year-end audit adjustments)
by an authorized officer of the Guarantor as having been prepared in accordance
with GAAP, consistently applied, and setting forth in comparative form the
respective financial statements for the corresponding date and period in the
previous fiscal year.

         (b)      As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Guarantor, consolidating and
consolidated financial statements of the Guarantor and its Subsidiaries
consisting of a consolidating and consolidated balance sheet as of the end of
such fiscal year, and related consolidating and consolidated statements of
income, stockholders' equity and cash flows for the fiscal year then ended, all
in reasonable detail and setting forth in comparative form the financial
statements as of the end of and for the preceding fiscal year, and certified by
independent certified public accountants of nationally recognized standing

                                      -9-
<PAGE>

                                                         Participation Agreement

satisfactory to the Collateral Trustee. The certificate or report of accountants
shall be free of qualifications (other than any consistency qualification that
may result from a change in the method used to prepare the financial statements
as to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of the
Guarantor under any of the Credit Documents, the Project Loan Documents or the
other Operative Agreements to which it is a party.

         (c)      Concurrently with the delivery of the financial statements
described in the foregoing paragraphs (a) and (b), a certificate executed by the
President or any Vice President of the Guarantor certifying that no Event of
Default has occurred and is then continuing as of the date of such financial
statements and as of the date of such certificate.

         (d)      Concurrently with the delivery of the financial statements
described in the foregoing paragraph (b), a report setting forth for the
corresponding fiscal year (i) with respect to each Mortgaged Property (A) the
return on net assets for such Mortgaged Property, (B) the net sales for such
Mortgaged Property and the corresponding percentage changes for the year earlier
period, and (C) the net sales per square foot for such Mortgaged Property and
(ii) with respect to each Mortgaged Property on an average basis for all other
"super stores" operated by the Tenant and open in the same fiscal year of the
Tenant as such Mortgaged Property has opened (A) the average return on net
assets for all such "super stores," (B) the average net sales for all such
"super stores," (C) the average net sales per square foot for all such "super
stores" and (D) the corresponding figures and corresponding percentage change
for the year earlier period.

         (e)      Promptly, copies of all financial statements and reports and
all press releases that the Guarantor sends to its creditors or shareholders,
and copies of all financial statements and regular, periodic or special reports
(including Forms 10K, 10Q and 8K) that the Guarantor or the Tenant may make to,
or file with, the Securities and Exchange Commission, or any successor thereto.

         (f)      Such other information respecting the condition or operations,
financial or otherwise, of the Guarantor and the Tenant as the Collateral
Trustee or any Noteholder may from time to time reasonably request.

         Section 4.2 Inspection Rights. The Guarantor shall permit
representatives of the Noteholders:

         (a)      If no Default or Event of Default then exists, at the expense
of such Noteholders and upon reasonable prior notice to the Guarantor, to visit
the principal executive office of the Guarantor, to discuss the affairs,
finances and accounts of the Guarantor and its Subsidiaries with the Guarantor's
officers, and (with the consent of the Guarantor, which consent will not be
unreasonably withheld) its independent public accountants, and (with the consent
of the Guarantor, which consent will not be unreasonably withheld) to visit the
Mortgaged Properties, all at such reasonable times and as often as may be
reasonably requested in writing; and

         (b)      If a Default or an Event of Default then exists, at the
expense of the Guarantor, to visit and inspect any of the offices or properties
of the Guarantor or any Subsidiary, to examine

                                      -10-
<PAGE>

                                                         Participation Agreement

all their respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Guarantor authorizes said accountants to
discuss the affairs, finances and accounts of the Guarantor and its
Subsidiaries), all at such times and as often as may be requested.

It is understood and agreed by each such Noteholder that the confidentiality of
"Confidential Information" disclosed to such Noteholder under this Section 4.2
shall be maintained in accordance with the provisions of Section 10.10 hereof.

         Section 4.3 Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Guarantor will pay all costs and
expenses (including reasonable attorneys' fees of a special counsel and, if
reasonably required, local or other counsel) incurred by each Purchaser in
connection with such transactions. Guarantor will also pay all costs and
expenses (including reasonable attorneys' fees of a special counsel and, if
reasonably required, local or other counsel) incurred by any Noteholder in
connection with any amendments, waivers or consents under or in respect of this
Participation Agreement or the other Operative Agreements (whether or not such
amendment, waiver or consent becomes effective), including, without limitation:
(a) the costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under this Participation
Agreement or the other Operative Agreements or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Participation Agreement or the other Operative Agreements, or by reason of
being a holder of the Notes, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Guarantor or the Tenant or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes. The Guarantor will pay,
and will save each Purchaser harmless from, all claims in respect of any fees,
costs or expenses if any, of brokers and finders.

         The obligations of the Guarantor under this Section 4.3 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Participation Agreement or the other Operative Agreements, and
the termination of any Lease.

         Section 4.4 Payment of Certain Fees and Expenses. The Guarantor shall
pay or cause to be paid (a) the initial and annual fee and reasonable
out-of-pocket expenses of the Trust Company and any necessary co-trustees
(including reasonable counsel fees and expenses) or any successor, for acting as
owner trustee pursuant to the Trust Agreement, (b) the initial and annual fee of
the Owner Beneficiary (including reasonable counsel fees and expenses) and any
successor beneficial owner, for acting as beneficial owner pursuant to the Trust
Agreement, (c) the initial and annual fee of the Collateral Trustee and any
necessary co-trustees (including reasonable counsel fees and expenses) or any
successor collateral trustee, for acting as Collateral Trustee, (d) the initial
and annual fee of Lord Securities Corporation, a Delaware corporation,
(including reasonable counsel fees and expenses) as manager of the Owner
Beneficiary pursuant to a management agreement between the Owner Beneficiary and
Lord Securities Corporation which has been delivered to the Guarantor, and (e)
all costs and expenses incurred by the Trust Company, the Collateral Trustee and
the Owner Beneficiary in entering into any future amendments or supplements with
respect to any of the Operative Agreements, whether or not

                                      -11-
<PAGE>

                                                         Participation Agreement

such amendments or supplements are ultimately entered into, or in giving or
withholding of waivers or consents hereto or thereto or, in the case of the
Trust Company, in complying with any further assurances with respect to the
Collateral.

                                   ARTICLE V
                                 DIRECT PAYMENT

         Section 5.1 Direct Payment. Notwithstanding anything to the contrary
contained in the Indenture or the Notes, in the case of any Note owned by any
Purchaser or any other Noteholder which has given written notice to the
Collateral Trustee requesting that the provisions of this Section 5.1 shall
apply, the Collateral Trustee will punctually pay when due all distributions
thereof with respect to said Notes pursuant to the terms of the Indenture,
without any presentment thereof, directly to such Noteholder at its address set
forth in Schedule I hereto or such other address as such Noteholder may from
time to time designate in writing to the Collateral Trustee or, if a bank
account with a United States bank is so designated for such Noteholder, the
Collateral Trustee will make such payments in immediately available funds to
such bank account, no later than 11:00 a.m., New York City time, on the date
due, marked for attention as indicated, or in such other manner or to such other
account in any United States bank as such Noteholder may from time to time
direct in writing.

                                   ARTICLE VI
                                   DEFINITIONS

         Section 6.1 General Definitions. As used herein, the following terms
have the respective meanings set forth below:

         "After Tax Basis" shall mean with respect to any payment to be received
by a Tax Indemnitee, the amount of such payment supplemented by a further
payment or payments so that, after deducting from such aggregate payments the
amount of all taxes (net of any actual current credits, deductions or other tax
benefits arising from the payment by the Tax Indemnitee of any amount, including
taxes, for which the payment to be received is made) actually imposed currently
on the Tax Indemnitee by any Governmental Authority or taxing authority with
respect to such payments, the balance of such payment shall be equal to the
original payment to be received; provided, however, that for the purposes of
this definition it shall be assumed that for any Noteholder as an Indemnified
Person (or any Affiliate thereof) Federal, state and local income taxes are
payable at the highest marginal Federal, state and local statutory income tax
rates applicable to corporations from time to time.

         "Annual Statements" is defined on Exhibit H-1 paragraph (6).

         "Claims" shall mean any and all obligations, liabilities, losses,
actions, suits, penalties, claims, demands, costs and expenses (including,
without limitation, reasonable attorney's fees and expenses) of any nature
whatsoever.

                                      -12-
<PAGE>

                                                         Participation Agreement

         "Closing Date" is defined in Section 1.2.

         "Collateral Trustee" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Confidential Information" is defined in Section 10.10 of this
Participation Agreement.

         "Environmental Laws" shall have the meaning assigned thereto in the
Lease Appendix.

         "Environmental Violation" shall have the meaning assigned thereto in
the Lease Appendix.

         "GAAP" shall mean generally accepted accounting principles as are in
effect from time to time and applied on a basis consistent with the Historical
Statements both as to classification of items and amounts.

         "Governmental Authority" shall have the meaning assigned thereto in the
Lease Appendix.

         "Guarantor" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Hazardous Substance" shall have the meaning assigned thereto in the
Lease Appendix.

         "Historical Statements" is defined on Exhibit H-1 paragraph (6).

         "Impositions" shall mean, except to the extent described in the
following sentence, any and all liabilities, losses, expenses and costs of any
kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments
or withholdings ("Taxes") (including (i) real and personal property taxes,
including personal property taxes on any property covered by a Lease that is
classified by any governmental authority as personal property, and real estate
or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes
and other similar taxes (including rent taxes and intangibles taxes); (iii) any
excise taxes; (iv) real estate transfer taxes, conveyance taxes, stamp taxes and
documentary recording taxes and fees; (v) taxes that are or are in the nature of
franchise, income, value added, privilege and doing business taxes, license and
registration fees; and (vi) assessments on any Mortgaged Property, including all
assessments for public improvements or benefits, whether or not such
improvements are commenced or completed within the term of such Lease), and in
each case all interest, additions to tax and penalties thereon, which at any
time prior to, during or with respect to the term of such Lease or in respect of
any period for which the Tenant shall be obligated to pay Supplemental Rent (as
defined in the respective Leases), may be levied, assessed or imposed by any
Federal, state, city, county or local authority upon or with respect to (a) any
Mortgaged Property or any part thereof or interest therein; (b) the financing,
refinancing, demolition, construction, substitution, subleasing, assignment,
control, condition, occupancy, servicing, maintenance, repair, ownership,
possession, activity conducted on, delivery, insuring, use, operation,
improvement, transfer of title, return or other disposition of such Mortgaged
Property or any part thereof or

                                      -13-
<PAGE>

                                                         Participation Agreement

interest therein; (c) the Notes or the Project Loan Notes or other indebtedness
with respect to any Mortgaged Property or any part thereof or interest therein;
(d) the rentals, receipts or earnings arising from any Mortgaged Property or any
part thereof or interest therein; (e) the Operative Agreements or any payment
made or accrued pursuant thereto; (f) the income or other proceeds received with
respect to any Mortgaged Property, or any part thereof or interest therein upon
the sale or disposition thereof; (g) the issuance of the Notes or the Project
Loan Notes; or (h) otherwise in connection with the transactions contemplated by
the Operative Agreements.

         The term "Imposition" shall not mean or include:

                  (i)      Taxes and impositions (other than Taxes that are, or
         are in the nature of, sales, use, rental, value added, transfer or
         property taxes) that are imposed on a Tax Indemnitee by the United
         States federal government that are based on or measured by the net
         income (including taxes based on capital gains and minimum taxes) of
         such Person; provided that this clause (i) shall not be interpreted to
         prevent a payment from being made on an After Tax Basis if such payment
         is otherwise required to be so made;

                  (ii)     Taxes and impositions (other than Taxes that are, or
         are in the nature of, sales, use, rental, value added, transfer or
         property taxes) that are imposed by any state or local jurisdiction and
         that are based upon or measured by the gross or net income or gross or
         net receipts (including any minimum taxes, withholding taxes or taxes
         on or measured by capital stock, franchise or doing business taxes)
         except that this clause (ii) shall not apply to (and thus shall not
         exclude) any such Taxes imposed on a Tax Indemnitee by the state (or
         any local taxing authority thereof or therein) where any Mortgaged
         Property is located, possessed or used under each Lease; provided that
         this clause (ii) shall not be interpreted to prevent a payment from
         being made on an After Tax Basis if such payment is otherwise required
         to be so made;

                  (iii)    any Tax or imposition to the extent, but only to such
         extent, it relates to any act, event or omission that occurs after the
         termination of a Lease with respect to a Mortgaged Property (but not
         any Tax or imposition that relates to any period prior to the
         termination of each Lease);

                  (iv)     any Tax or imposition for so long as, but only for so
         long as, it is being contested in accordance with the provisions of
         Section 9.2(g);

                  (v)      any interest or penalties imposed on a Tax Indemnitee
         as a result of the failure of such Tax Indemnitee to file any return or
         report timely and in the form prescribed by law or to pay any Tax or
         imposition, except to the extent such failure is a result of a breach
         by such Tax Indemnitee of its obligations under Section 9.2; provided,
         that this clause (v) shall not apply (x) if such interest or penalties
         arise as a result of a position taken (or requested to be taken) by the
         Tenant in a contest controlled by the Tenant under Section 9.2(g) or
         (y) to any such interest or penalties that result from such Tax
         Indemnitee's complying with the reporting procedures set forth in
         Section 9.2;

                                      -14-
<PAGE>

                                                         Participation Agreement

                  (vi)     any Taxes or impositions imposed on the Tenant that
         are a result of the Tenant not being considered a "United States
         person" as defined in Section 7701(a)(30) of the Code;

                  (vii)    any Taxes or impositions that are enacted or adopted
         by their express terms as a substitute for any Tax that would not have
         been indemnified against pursuant to the terms of Section 9.2;

                  (viii)   any Taxes which are imposed on a Tax Indemnitee as a
         result of a breach of a covenant or representation by such Tax
         Indemnitee in any Operative Document (unless caused by the Tenant's
         breach of its representations, warranties and covenants) or as a result
         of the gross negligence or willful misconduct of such Tax Indemnitee
         itself (as opposed to gross negligence or willful misconduct imputed to
         such Tax Indemnitee), but not Taxes imposed as a result of ordinary
         negligence of such Tax Indemnitee;

                  (ix)     any Taxes or impositions imposed on the Tenant to the
         extent that such Taxes are actually reimbursed to the Tenant by another
         Person other than an Affiliate of the Tenant;

                  (x)      any Taxes or impositions imposed upon the Tenant with
         respect to any voluntary transfer, sale, financing or other voluntary
         disposition by a Project Borrower (other than a transfer contemplated
         and permitted by the Operative Agreements, including any transfer in
         connection with (1) the exercise by the Tenant of any purchase option
         under any Lease, (2) the occurrence of an Event of Default, or (3) a
         Casualty Event or Condemnation Event affecting any Mortgaged Property)
         of any interest in any Mortgaged Property or any interest in, or
         created pursuant to, the Operative Agreements or any voluntary transfer
         of any interest in the Tenant (other than in connection with the
         existence of a Lease Event of Default) or any involuntary transfer of
         any of the foregoing interests resulting from the bankruptcy or
         insolvency of the Tenant (other than in connection with the existence
         of an Event of Default);

                  (xi)     any gift or inheritance Taxes;

                  (xii)    any Taxes or impositions imposed on a Tax Indemnitee,
         to the extent such Tax Indemnitee actually receives a credit (or
         otherwise has a reduction in a liability for Taxes) in respect thereof
         against Taxes that are not indemnified hereunder (but only to the
         extent such credit is not taken into account in calculating the
         indemnity payment on an After Tax Basis);

                  (xiii)   any Tax or imposition to the extent that such Tax or
         imposition is imposed on a Tax Indemnitee in respect of a transaction
         or business in the jurisdiction imposing such Tax other than the
         transactions arising out of the Operative Agreements; or

                  (xiv)    any Tax or imposition imposed on a direct or indirect
         transferee, successor or assign of the Tenant to the extent of the
         excess of such Taxes over the amount of such

                                      -15-
<PAGE>

                                                         Participation Agreement

         Taxes that would have been imposed had there not been a transfer by the
         Tenant of an interest arising under the Operative Agreements; provided
         that there shall not be excluded under this clause (xiv) any such Tax
         or imposition if such direct or indirect transferee, successor or
         assign of the Tenant acquired its interest as a result of a transfer in
         connection with an Event of Default; provided, further, that there
         shall not be excluded under this clause (xiv) any amount necessary to
         make any payment on an After Tax Basis.

Any tax or imposition excluded from the defined term "Imposition" in any one of
the foregoing clauses (i) through (xiv) shall not be construed as constituting
an Imposition by any provision of any other of the aforementioned clauses.

         "Indemnified Person" shall mean the Trust Company, the Issuer, the
Collateral Trustee, in its individual capacity and its trust capacity, each
Noteholder, and the Owner Beneficiary and their respective successors, assigns,
directors, shareholders, partners, officers, employees, agents and Affiliates.

         "Indenture" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Interim Statements" is defined on Exhibit H-1 paragraph (6).

         "Issuer" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Lease Appendix" shall mean the appendix of defined terms attached to
each Lease.

         "Material Adverse Effect" shall have the meaning assigned thereto in
the Lease Appendix.

         "Noteholder" shall mean the Person in whose name a Note is registered
in accordance with the provisions of the Indenture.

         "Notes" is defined in the Introductory paragraphs of this Participation
Agreement.

         "Officer's Certificate" shall mean a certificate of the chief financial
officer, treasurer, or other officer of such Person whose responsibilities
extend to the subject matter of such certificate.

         "Owner Beneficiary" is defined in the Introductory paragraph of this
Participation Agreement.

         "Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.

                                      -16-
<PAGE>

                                                         Participation Agreement

         "Purchase Price" is defined in Section 1.1.

         "Purchasers" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Related Person" is defined in Section 10.12 of this Participation
Agreement.

         "Subsidiary" of any Person shall mean any corporation, partnership,
joint venture, trust or estate of which (or in which) more than 50% of:

                  (i)      the outstanding capital stock having voting power to
         elect a majority of the board of directors of such corporation
         (irrespective of whether at the time capital stock of any other class
         or classes of such corporation shall or might having voting power upon
         the occurrence of any contingency),

                  (ii)     the interest in the capital or profits of such
         partnership or joint venture, or

                  (iii)    the beneficial interest of such trust or estate,

is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.

         "Tax Indemnitee" shall mean a Project Borrower, the Noteholders, the
Issuer, the Trust Company, the Collateral Trustee, in its individual capacity
and its trust capacity, the Owner Beneficiary and their respective successors,
assigns, participants, directors, shareholders, partners, officers, employees,
agents and Affiliates.

         "Taxes" is defined in the definition of "Imposition."

         "Tenant" is defined in the Introductory paragraph of this Participation
Agreement.

         "Trust Company" is defined in the Introductory paragraphs of this
Participation Agreement.

         "Trust Estate" shall have the meaning assigned thereto in the Trust
Agreement.

         Section 6.2 Indenture Definitions. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned thereto in the
Indenture.

                                  ARTICLE VII
                         OTHER COVENANTS AND AGREEMENTS

         Section 7.1 Covenants of the Trust Company, the Issuer, the Collateral
Trustee and the Owner Beneficiary. The Trust Company, the Issuer, the Collateral
Trustee and the Owner

                                      -17-
<PAGE>

                                                         Participation Agreement

Beneficiary hereby covenant and agree (as to itself only) with the other parties
hereto that, so long as this Participation Agreement is in effect:

         (a)      Discharge of Lien. Each of the Owner Beneficiary, the Issuer
and the Trust Company will not create or permit to exist at any time, and will,
at its own cost and expense, promptly take such action as may be necessary duly
to discharge, or to cause to be discharged, all Liens on the Mortgaged Property
or the other Collateral (other than the Liens arising under or contemplated by
the Operative Agreements) attributable to it or any of its Affiliates.

         (b)      Trust Agreement. Without prejudice to any right under the
Trust Agreement of the Trust Company to resign, or the Owner Beneficiary's right
under the Trust Agreement to remove the institution acting as owner trustee
under the Trust Agreement, the Owner Beneficiary hereby agrees with the
Collateral Trustee and the Tenant (i) not to terminate or revoke the trust
created by the Trust Agreement, (ii) not to amend, supplement, terminate or
revoke or otherwise modify any provision of the Trust Agreement in such a manner
as to adversely affect the rights of any such party without the prior written
consent of such party, (iii) to comply with all of the terms of the Trust
Agreement, the nonperformance of which would adversely affect such party and
(iv) not to remove the Trust Company as owner trustee under the Trust Agreement.

         (c)      Successor Trust Company. Subject to Section 8.1 of the Trust
Agreement, a successor owner trustee under the Trust Agreement may be appointed,
and a corporation may become the owner trustee under the Trust Agreement, only
with the consent of the Tenant and the Collateral Trustee, which consent shall
not be unreasonably withheld or delayed.

         (d)      Indebtedness; Other Business. Neither the Issuer nor the Owner
Beneficiary shall contract for, create, incur or assume any indebtedness, or
enter into any business or other activity, other than pursuant to or under the
Operative Agreements.

         (e)      No Violation. Neither the Collateral Trustee nor the Owner
Beneficiary will instruct the Issuer to take any action in violation of the
terms of any Operative Document.

         (f)      No Voluntary Bankruptcy. The Owner Beneficiary shall not (i)
commence any case, proceedings or other action under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, arrangement, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (ii) seek appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial benefit of its creditors; and neither the Owner Beneficiary nor the
Issuer shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in this paragraph.

         (g)      Change of Principal Place of Business. The Issuer and the
Owner Beneficiary shall give prompt notice to the Tenant and the Collateral
Trustee if the Trust Company's principal place of business or chief executive
office, or the office where the records concerning the accounts or contract
rights relating to the Mortgaged Properties are kept, shall cease to be located
at the location described in Exhibit F, paragraph 8 or if it shall change its
name, identity or corporate structure.

                                      -18-
<PAGE>

                                                         Participation Agreement

         (h) Operative Agreements. Neither the Issuer nor the Owner Beneficiary
shall consent to or permit, and the Owner Beneficiary shall not take any action
for the purpose of permitting the Issuer to consent to or permit, any amendment,
supplement or other modification of the terms and provisions of the Operative
Agreements, in each case without the prior written consent of the Tenant and the
Collateral Trustee.

         Section 7.2 Guarantor's Operative Document Rights. Each of the parties
hereto agrees that, unless and until any Lease Event of Default shall have
occurred and be continuing, it will not enter into any amendments or
modifications of any Operative Document without the prior written consent of the
Guarantor.

         Section 7.3 Covenants of the Collateral Trustee The Collateral Trustee
(in its individual capacity and in its trust capacity) hereby covenants and
agrees with the other parties hereto that, so long as this Participation
Agreement is in effect:

         (a) Discharge of Lien. The Collateral Trustee (in its individual
capacity and in its trust capacity) will not create or permit to exist at any
time, and will, at its own cost and expense, promptly take such action as may be
necessary duly to discharge, or to cause to be discharged, all Liens on any
Mortgaged Property or the Collateral attributable to it or any of its Affiliates
(other than Liens arising under or pursuant to any Operative Document);
provided, however, that the Collateral Trustee shall not be required to so
discharge any such Lien while the same is being contested in good faith by
appropriate proceedings diligently prosecuted so long as such proceedings shall
not involve any material danger or impairment of the Liens of the Operative
Agreements or of the sale, forfeiture or loss of, and shall not interfere with
the use or disposition of, any Mortgaged Property or title thereto or any
interest therein or the payment of rent under any Lease or the Trust Estate (as
defined in the Trust Agreement).

         (b) Successor Collateral Trustee. A successor Collateral Trustee may be
appointed, and a corporation may become the Collateral Trustee under the
Indenture, only with the consent of the Tenant and the Purchasers, which consent
in the case of the Tenant shall be limited to approval of such successor
Collateral Trustee's fees.

         Section 7.4 Collateral Trustee Project Loan Agreement Rights.
Notwithstanding anything to the contrary contained in any Project Loan Document,
the Collateral Trustee, the Guarantor, the Tenant, the Purchasers, the Issuer,
the Trust Company and the Owner Beneficiary hereby agree that the Collateral
Trustee, as agent on behalf of the Issuer in accordance with the Collateral
Trust Indenture, shall have the right to make all decisions, receive all
payments and take all actions on behalf of the Issuer under each Project Loan
Document.

                                  ARTICLE VIII
                              TRANSFER OF INTEREST

         Section 8.1 Restrictions of Transfer. The Owner Beneficiary may not,
directly or indirectly, assign, convey or otherwise transfer any of its right,
title or interest in or to the Trust Estate or the Trust Agreement. Any transfer
by the Owner Beneficiary as above provided shall

                                      -19-
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                                                         Participation Agreement

only be effected pursuant to an agreement in form and substance reasonably
satisfactory to the Collateral Trustee, the Trust Company, the Tenant and their
respective counsel.

         Section 8.2 Effect of Transfer. From and after any transfer effected in
accordance with this Section 8, the transferor shall be released, to the extent
of such transfer, from its liability hereunder and under the other documents to
which it is a party in respect of obligations to be performed on or after the
date of such transfer. Notwithstanding any transfer of all or a portion of the
Owner Beneficiary's interest as provided in this Section 8, the transferor shall
be entitled to all benefits accrued and all rights vested prior to such
transfer, including, without limitation, rights to indemnification under any
such document.

                                   ARTICLE IX
                                 INDEMNIFICATION

         Section 9.1 General Indemnity. The Guarantor and the Tenant, jointly
and severally, hereby assume liability for and agree to defend, indemnify and
hold harmless each Indemnified Person on an After Tax Basis from and against any
and all Claims, which may be imposed on, incurred by or asserted against an
Indemnified Person (other than to the extent such Claims arise from the gross
negligence, willful misconduct or willful breach of such Indemnified Person) in
any way relating to or arising out of the execution, delivery, performance or
enforcement of this Participation Agreement, or any other Operative Document or
on or with respect to any Mortgaged Property, including, without limitation,
Claims in any way relating to or arising out of (a) the financing or
refinancing, purchase, acceptance, rejection, ownership, design, leasing,
subleasing, possession, use, operation, repair, modification, condition, sale,
return, repossession (whether by summary proceedings or otherwise), or any other
disposition of a Mortgaged Property or any part thereof; (b) any latent or other
defects in any Property whether or not discoverable by any Indemnified Person or
the Tenant; (c) the Operative Agreements, or any transaction contemplated
thereby; (d) any breach by the Guarantor or the Tenant of any of their
representations or warranties under the Operative Agreements or failure by the
Guarantor or the Tenant to perform or observe any covenant or agreement to be
performed by them under any of the Operative Agreements; and (e) personal
injury, death or property damage, including Claims based on strict liability in
tort; but excluding (i) Claims (except Claims against the Trust Company
(including claims arising from Taxes or other impositions set forth in clause
(iii) of the exclusions to the definition of "Impositions" set forth in Article
VI)) to the extent such Claims arise solely out of events occurring after the
expiration of the terms of all Leases and after the Tenant's discharge of all
its obligations under the Operative Agreements or (ii) any Taxes (disregarding
with respect to the Trust Company the exclusions set forth in clause (v), to the
extent attributable to action taken or not taken by the Issuer at the direction
of the Owner Beneficiary or the Collateral Trustee, and clause (ix) of the
exclusions to the definition of Impositions set forth in Article VI) including
any Claim (or any portion of a Claim) made upon an Indemnified Person by a third
party that at its origin is based upon a Tax (other than amounts necessary to
make any payments hereunder on an After Tax Basis, where the Tenant is otherwise
specifically required to make such payments on an After Tax Basis). The
Guarantor and the Tenant shall be entitled to control, and shall assume full
responsibility for the defense of any Claim; provided, however, that any
Indemnified Person named in such Claim, may each retain

                                      -20-
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                                                         Participation Agreement

separate counsel at the expense of the Tenant and the Guarantor; provided,
further, that such parties shall use reasonable efforts to share counsel to the
extent practicable and minimize the fees of counsel being reimbursed hereunder.
The Tenant, the Guarantor and each Indemnified Person agree to give each other
prompt written notice of any Claim hereby indemnified against but the giving of
any such notice by an Indemnified Person shall not be a condition to the
Tenant's and Guarantor's obligation under this Section 9.1, except to the extent
failure to give such notice prejudices the Tenant's or Guarantor's rights
hereunder. After an Indemnified Person has been fully indemnified for a Claim
pursuant to this Section 9.1, and so long as no default shall have occurred and
be continuing under any Lease, the Tenant and the Guarantor shall be subrogated
to any right of such Indemnified Person (except against another Indemnified
Person) with respect to such Claim.

         Section 9.2 General Tax Indemnity.

         (a) Indemnification. The Tenant shall pay and assume liability for, and
hereby agrees to indemnify, protect and defend each Mortgaged Property and all
Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax
Basis. Each Tax Indemnitee agrees to use good-faith efforts (but not including
increasing liability for Taxes not indemnifiable hereunder) to minimize the
amount of Taxes indemnifiable by the Tenant during any taxable year; provided
that this sentence shall not be construed to limit or impair any right of the
Issuer set forth in the Operative Agreements. Each Tax Indemnitee further agrees
to comply with recommendations made by the Tenant regarding techniques to
minimize Taxes indemnifiable hereunder; provided that (i) the Tenant agrees to
make payments to (or otherwise indemnify) such Tax Indemnitee against any cost
or expense arising from instituting the Tenant's recommendations and (ii) such
Tax Indemnitee determines in its sole discretion that such recommendations will
not have an adverse impact on such Tax Indemnitee.

         (b) Refunds. Provided that no Default or Event of Default has occurred
and is continuing, if any Tax Indemnitee obtains a refund or a reduction in a
liability (but only if such reduction relates to a Tax not otherwise
indemnifiable hereunder and has not been taken into account in determining the
amount of a payment on an After Tax Basis) as a result of any Imposition paid or
reimbursed by the Tenant (in whole or in part), such Tax Indemnitee shall
promptly pay to the Tenant the lesser of (x) the amount of such refund or
reduction in liability and (y) the amount previously so paid or advances by the
Tenant, in each case net of reasonable expenses not already paid or reimbursed
by the Tenant.

         (c) Payments. (i) Subject to the terms of Section 9.2(g), the Tenant
shall pay or cause to be paid all Impositions directly to the taxing authorities
where feasible and otherwise to the Tax Indemnitee, as appropriate, and the
Tenant shall at its own expense, upon such Tax Indemnitee's reasonable request,
furnish to such Tax Indemnitee copies of official receipts or other satisfactory
proof evidencing such payment.

                  (ii) In the case of Impositions for which no contest is
         conducted pursuant to Section 9.2(g) and which the Tenant pays directly
         to the taxing authorities, the Tenant shall pay such Impositions prior
         to the latest time permitted by the relevant taxing authority for
         timely payment. In the case of Impositions for which the Tenant
         reimburses a Tax Indemnitee, the Tenant shall do so within twenty (20)
         days after receipt by the

                                      -21-
<PAGE>

                                                         Participation Agreement

         Tenant of demand by such Tax Indemnitee describing in reasonable detail
         the nature of the Imposition and the basis for the demand (including
         the computation of the amount payable), but in no event shall the
         Tenant be required to pay such reimbursement prior to thirty (30) days
         before the latest time permitted by the relevant taxing authority for
         timely payment. In the case of Impositions for which a contest is
         conducted pursuant to Section 9.2(g), the Tenant shall pay such
         Impositions or reimburse such Tax Indemnitee for such Impositions, to
         the extent not previously paid or reimbursed pursuant to Section
         9.2(a), prior to the latest time permitted by the relevant taxing
         authority for timely payment after conclusion of all contests under
         Section 9.2(g).

                  (iii) Impositions imposed with respect to a Mortgaged Property
         for a billing period during which a Lease expires or terminates with
         respect to such Mortgaged Property (unless the Tenant has exercised the
         purchase option set forth in the respective Lease with respect to such
         Mortgaged Property) shall be adjusted and prorated on a daily basis
         between the Tenant and the applicable Project Borrower, whether or not
         such Imposition is imposed before or after such expiration or
         termination and each party shall pay or reimburse the other for each
         party's pro rata share thereof.

                  (iv) At the Tenant's request, the amount of any
         indemnification payment by the Tenant pursuant to Section 9.2(a) shall
         be verified and certified by an independent public accounting firm
         mutually acceptable to the Tenant and the Tax Indemnitee. The fees and
         expenses of such independent public accounting firm shall be paid by
         the Tenant unless such verification shall result in an adjustment in
         the Tenant's favor of 5% or more of the payment as computed by the Tax
         Indemnitee, in which case such fee shall be paid by the Tax Indemnitee.

         (d) Reports and Returns. The Tenant shall be responsible for preparing
and filing any real and personal property or ad valorem tax returns in respect
of each Mortgaged Property. In case any other report or tax return shall be
required to be made with respect to any obligations of the Tenant under or
arising out of Section 9.2(a) and of which the Tenant has knowledge or should
have knowledge, the Tenant, at its sole cost and expense, shall notify the
relevant Tax Indemnitee of such requirement and (except if such Tax Indemnitee
notifies the Tenant that such Person intends to file such report or return) (i)
to the extent required or permitted by and consistent with applicable laws, make
and file in its own name such return, statement or report; and (ii) in the case
of any other such return, statement or report required to be made in the name of
such Tax Indemnitee, advise such Tax Indemnitee of such fact and prepare such
return, statement or report for filing by such Tax Indemnitee or, where such
return, statement or report shall be required to reflect items in addition to
any obligations of the Tenant under or arising out of Section 9.2(a), provide
such Tax Indemnitee at the Tenant's expense with information sufficient to
permit such return, statement or report to be properly made with respect to any
obligations of the Tenant under or arising out of Section 9.2(a). Such Tax
Indemnitee shall, upon the Tenant's request and at the Tenant's expense, provide
any data maintained by such Tax Indemnitee (and not otherwise within the control
of the Tenant) with respect to each Mortgaged Property which the Tenant may
reasonably require to prepare any required tax returns or reports.

         (e) Income Inclusions. If as a result of the payment or reimbursement
by the Tenant of any costs and expenses of the Issuer, the Owner Beneficiary or
any of their respective

                                      -22-
<PAGE>

                                                         Participation Agreement

Affiliates incurred in connection with the transactions contemplated by the
Operative Agreements, the Issuer, the Owner Beneficiary or any of their
respective Affiliates shall suffer a net increase in any federal, state or local
income tax liability, the Tenant shall indemnify the Issuer, the Owner
Beneficiary or any of their respective Affiliates (without duplication of any
indemnification required by Section 9.2(a)) on an After Tax Basis for the amount
of such increase. The calculation of any such net increase shall take into
account any current or future tax savings realized or reasonably expected to be
realized by the Issuer, the Owner Beneficiary or any of their respective
Affiliates, in respect thereof, as well as any interest, penalties and additions
to tax payable by the Issuer, the Owner Beneficiary or any of their respective
Affiliates.

         (f) Withholding Taxes. As between the Tenant and the Issuer, the Tenant
shall be responsible for, and the Tenant shall indemnify and hold harmless the
Issuer (without duplication of any indemnification required by Section 9.2(a))
on an After Tax Basis against, any obligation for United States withholding
taxes imposed in respect of the interest payable on the Project Loan Notes to
the extent, but only to the extent, the Issuer has actually paid funds to a
taxing authority with respect to such withholding taxes (and, if the Issuer
receives a demand for such payment from any taxing authority, the Tenant shall
discharge such demand on behalf of the Issuer).

         (g) Contests of Tax. (i) If a written claim is made against any Tax
Indemnitee or if any proceeding shall be commenced against such Tax Indemnitee
(including a written notice of such proceeding), for any Imposition, such Tax
Indemnitee shall promptly notify the Tenant in writing and shall not take action
with respect to such claim or proceeding without the consent of the Tenant for
thirty (30) days after the receipt of such notice by the Tenant; provided,
however, that, in the case of any such claim or proceeding, if action shall be
required by law or regulation to be taken prior to the end of such 30-day
period, such Tax Indemnitee shall, in such notice to the Tenant, inform the
Tenant, and no action shall be taken with respect to such claim or proceeding
without the consent of the Tenant before the termination of such shorter period;
provided, further, that the failure of such Tax Indemnitee to give the notices
referred to this sentence shall not diminish the Tenant's obligation hereunder
except to the extent such failure precludes the Tenant from contesting all or
part of such claim.

                  (ii) If, within thirty (30) days of receipt of such notice
         from the Tax Indemnitee (or such shorter period as the Tax Indemnitee
         is required by law or regulation for the Tax Indemnitee to commence
         such contest), the Tenant shall request in writing that such Tax
         Indemnitee contest such Imposition, the Tax Indemnitee shall, at the
         expense of the Tenant, in good faith conduct and control such contest
         (including, without limitation, by pursuit of appeals) relating to the
         validity, applicability or amount of such Tax (provided, however, that
         (A) if such contest can be pursued independently from any other
         proceeding involving a tax liability of such Tax Indemnitee, the Tax
         Indemnitee, at the Tenant's request, shall allow the Tenant to conduct
         and control such contest and (B) in the case of any contest, the Tax
         Indemnitee may request the Tenant to conduct and control such contest)
         by, in the sole discretion of the Person conducting and controlling
         such contest, (1) resisting payment thereof, (2) not paying the same
         except under protest, if protest is necessary and proper, (3) if the
         payment be made, using reasonable efforts to obtain a refund thereof in
         appropriate administrative and judicial proceedings, or (4)

                                      -23-
<PAGE>

                                                         Participation Agreement

         taking such other action as is reasonably requested by the Tenant from
         time to time.

                  (iii) The party controlling any contest shall consult in good
         faith with the noncontrolling party and shall keep the non-controlling
         party reasonably informed as to the conduct of such contest; provided
         that all decisions ultimately shall be made in the sole discretion of
         the controlling party. The parties agree that a Tax Indemnitee may at
         any time decline to take further action with respect to the contest of
         any Imposition and may settle such contest if such Tax Indemnitee shall
         waive its rights to any indemnity from the Tenant that otherwise would
         be payable in respect of such claim (and any future claim by any taxing
         authority with respect to other taxable periods that are based, in
         whole or in part, upon the resolution of such claim) and shall pay to
         the Tenant any amount previously paid or advanced by the Tenant
         pursuant to this Section 9.2 by way of indemnification or advance for
         the payment of an Imposition.

                  (iv) Notwithstanding the foregoing provisions of this Section
         9.2, a Tax Indemnitee shall not be required to take any action and the
         Tenant shall not be permitted to contest any Tax in its own name or
         that of the Tax Indemnitee unless (A) the Tenant shall have agreed to
         pay and shall pay to such Tax Indemnitee on demand and on an After Tax
         Basis all reasonable costs, losses and expenses that such Tax
         Indemnitee actually incurs in connection with contesting such Tax,
         including, without limitation, all reasonable legal, accounting and
         investigatory fees and disbursements, (B) in the case of a claim that
         must be pursued in the name of a Tax Indemnitee (or an Affiliate
         thereof), the amount of the potential indemnity (taking into account
         all similar or logically related claims that have been or could be
         raised in an audit involving such Tax Indemnitee) for which the Tenant
         may be liable to pay an indemnity under this Section 9.2 exceeds
         $1,000,000, (C) the Tax Indemnitee shall have reasonably determined
         that the action to be taken will not result in any material danger of
         sale, forfeiture or loss of any Mortgaged Property, or any part thereof
         or interest therein, will not interfere with the payment of rent under
         any Lease, and will not result in risk of criminal liability, (D) if
         such contest shall involve the payment of the Imposition prior to the
         contest, the Tenant shall provide to the Tax Indemnitee an
         interest-free advance in an amount equal to the Imposition that the Tax
         Indemnitee is required to pay (with no additional net after-tax cost to
         such Tax Indemnitee), (E) in the case of a claim that must be pursued
         in the name of a Tax Indemnitee (or an Affiliate thereof), the Tenant
         shall have provided to such Tax Indemnitee an opinion of independent
         tax counsel selected by the Tax Indemnitee and reasonably satisfactory
         to the Tenant stating that a reasonable basis exists to contest such
         claim (or, in the case of an appeal of an adverse determination, an
         opinion of such counsel to the effect that there is substantial
         authority for the position asserted in such appeal) and (F) no Event of
         Default shall have occurred and be continuing. In no event shall a Tax
         Indemnitee be required to appeal an adverse judicial determination to
         the United State Supreme Court. In addition, a Tax Indemnitee shall not
         be required to contest any claim in its name (or that of an Affiliate)
         if the subject matter thereof shall be of a continuing nature and shall
         have previously been decided adversely by a court of competent
         jurisdiction pursuant to the contest provisions of this Section 9.2,
         unless there shall have been a change in law (or interpretation
         thereof) and the Tax Indemnitee shall have received, at the Tenant's
         expense, an opinion of independent tax counsel selected by the Tax
         Indemnitee and reasonably acceptable to the Tenant stating that as a
         result of

                                      -24-
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                                                         Participation Agreement

         such change in law (or interpretation thereof), it is more likely than
         not that the Tax Indemnitee will prevail in such contest.

                                    ARTICLE X
                                  MISCELLANEOUS

         Section 10.1 Amendments, Etc. No amendment or waiver of any provision
of this Participation Agreement, and no consent to any departure by any party
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the parties hereto, and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

         Section 10.2 Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and
telecopied, if the sender on the same day sends a confirming copy of such notice
by a recognized overnight delivery service (charges prepaid), or sent by
courier, charges prepaid, for delivery at the following address (or at such
other address as shall be designated by such party in a written notice to the
other Persons listed below):

                  (a)      if to the Issuer, to

                           Wilmington Trust Company
                           Rodney Square North
                           1100 North Market Street
                           Wilmington, Delaware  19890-0001
                           Attention: Corporate Trust Administration
                           Facsimile: (302) 651-8882

                  (b)      if to Guarantor or Tenant, to:

                           Borders Group, Inc.
                           100 Phoenix Drive
                           Ann Arbor, MI  48108
                           Attention: Vice President and General Counsel
                           Facsimile: (734) 477-1285

                           With a copy to:

                           Dickinson Wright PLLC
                           38525 Woodward Avenue
                           Suite 2000
                           Bloomfield Hills, MI  48304
                           Attention:  Judith E. Gowing

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<PAGE>

                                                         Participation Agreement

                  (c)      if to Owner Beneficiary, to:

                           c/o Lord Securities Corporation
                           Two Wall Street
                           New York City, NY 10005
                           Attention: Orlando Figueroa, Vice President
                           Facsimile: (212) 346-9012

                  (d)      if to the Collateral Trustee, to:

                           Wells Fargo Bank Northwest, N.A.
                           299 South Main Street, 12th Floor
                           Salt Lake City, UT  84111
                           Attention: Corporate Trust Services
                           Facsimile: (801) 246-5053

                  (e)      if to a Purchaser, to its address specified in
                           Schedule I hereto

Unless otherwise stated herein, all such notices and communications shall be
effective (i) if sent by courier, when delivered by hand on the day of delivery
or (ii) if telecopied, when received (provided such receipt is (x) verified by a
telephone call to the recipient or (y) confirmed by a transmission report
evidencing successful transmission). Copies of all notices and other
communications sent pursuant to the Indenture and the Trust Agreement shall be
sent to the Guarantor and Tenant.

         Section 10.3 No Waiver; Remedies. No remedy conferred herein is
intended to be exclusive of any other remedy, but every such remedy shall be
cumulative and shall be in addition to every other remedy herein conferred or
now or hereafter existing in law or in equity. No failure to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right.

         Section 10.4 Binding Effect; Term; Assignability. This Participation
Agreement shall be binding upon the parties hereto and shall inure to the
benefit of the parties hereto and their respective successors and assigns.

         Section 10.5 Governing Law. This Participation Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of New York excluding choice-of-law
principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.

         Section 10.6 Execution in Counterparts. This Participation Agreement
may be executed in two or more counterparts and by each party hereto in a
separate counterpart, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.

                                      -26-
<PAGE>

                                                         Participation Agreement

         Section 10.7 Third Party Beneficiaries. Nothing expressed or implied
herein is intended or shall be construed to confer upon or to give to any
Person, other than the parties hereto, any right, remedy or claim under or by
reason of this Participation Agreement, and any terms, covenants, conditions,
promises and agreements contained herein shall be for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.

         Section 10.8 Survival of Covenants and Representations. All covenants,
representations and warranties made by any party to any other party herein or in
any Note delivered pursuant hereto, whether or not in connection with the
Closing Date, shall be considered to have been relied upon by such other party
and shall survive the issuance of the Notes and the delivery of this
Participation Agreement and shall survive until all of the Project Loans have
been paid in full.

         Section 10.9 Severability. Should any part of this Participation
Agreement for any reason by declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in full
force and effect as if this Participation Agreement had been executed with the
invalid portion thereof eliminated and it is hereby declared the intention of
the parties hereto that they would have executed the remaining portion of this
Participation Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared invalid.

         Section 10.10 Confidential Information. For the purposes of this
Section 10.10, "Confidential Information" means information delivered to the
Collateral Trustee or Noteholder by or on behalf of the Guarantor or the Tenant
in connection with the transactions contemplated by or otherwise pursuant to
this Participation Agreement that is confidential or proprietary in nature and
that was clearly marked or labeled or otherwise adequately identified when
received by the Collateral Trustee or any Noteholder as being confidential
information of the Guarantor or the Tenant, provided that such term does not
include information that (a) was publicly known or otherwise known to the
Collateral Trustee or any Noteholder prior to the time of such disclosure, (b)
subsequently becomes publicly known through no act or omission by the Collateral
Trustee or any Noteholder or any Person acting on behalf of the Collateral
Trustee or any Noteholder, (c) otherwise becomes known to the Collateral Trustee
or any Noteholder other than through disclosure by the Guarantor or the Tenant
or (d) constitutes financial statements delivered to the Collateral Trustee or
any Noteholder under Section 4.1 that are otherwise publicly available.

         The Collateral Trustee and each Noteholder will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by the Collateral Trustee and each Noteholder in good faith to protect
confidential information of third parties delivered to the Collateral Trustee or
such Noteholder, provided that the Collateral Trustee and each Noteholder may
deliver or disclose Confidential Information to: (i) directors, trustees,
officers, employees, attorneys and affiliates of the Collateral Trustee or any
Noteholder (to the extent such disclosure reasonably relates to the
administration of the investment represented by the Notes); (ii) financial
advisors and other professional advisors of the Collateral Trustee or any
Noteholder who agree to hold confidential the Confidential Information in
accordance with the terms of this Section 10.10; (iii) with prior written notice
to the Guarantor, any Institutional Holder to which any Noteholder sells or
offers to sell a Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by

                                      -27-
<PAGE>

                                                         Participation Agreement

the provisions of this Section 10.10 and a copy of such written agreement has
been delivered to the Guarantor); (v) with prior written notice to the
Guarantor, any Person from which any Noteholder offers to purchase any security
of the Guarantor (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section
10.10 and a copy of such written agreement has been delivered to the Guarantor);
(vi) any federal or state regulatory authority having jurisdiction over the
Collateral Trustee or any Noteholder but only to the extent such information is
expressly required to be disclosed by such regulatory authority (with written
notice of such disclosure given to the Guarantor promptly following such
disclosure); (vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires
access to information about the investment portfolio of any Noteholder (with
written notice of such disclosure given to the Guarantor promptly following such
disclosure); or (viii) with prior written notice to the Guarantor, any other
Person to which such delivery or disclosure may be necessary, but only (w) to
effect compliance with any law, rule, regulation or order applicable to the
Collateral Trustee or any Noteholder, (x) in response to any subpoena or other
legal process, (y) in connection with any litigation to which the Collateral
Trustee or any Noteholder is a party or (z) if an Event of Default has occurred
and is continuing, to the extent the Collateral Trustee or any Noteholder may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the enforcement or for the protection of the rights and remedies under the
Notes and this Participation Agreement.

         Each Noteholder, by its acceptance of a Note or participation interest
therein, will be deemed to have agreed to be bound by and to be entitled to the
benefits of this Section 10.10 as though it were a party to this Participation
Agreement. On reasonable request by the Guarantor or the Tenant in connection
with the delivery to any Noteholder of information required to be delivered to
such Noteholder under this Participation Agreement or requested by such
Noteholder (other than a Noteholder that is a party to this Participation
Agreement or its nominee), such Noteholder will enter into an agreement with the
Guarantor and the Tenant embodying the provisions of this Section 10.10.

         Section 10.11 Issuer Recourse. The parties hereto agree that all of the
statements, representations, warranties, covenants and agreements made by the
Issuer contained in this Participation Agreement are made and intended only for
the purpose of binding the Trust Estate (as defined in the Trust Agreement) and
establishing the existence of rights and remedies which can be exercised and
enforced against the Trust Estate. Therefore, anything contained in this
Participation Agreement to the contrary notwithstanding, no recourse shall be
had with respect to this Participation Agreement against the Trust Company or
against any institution or person which becomes a successor trustee or
co-trustee under the Trust Agreement or any officer, director, trustee, servant
or direct or indirect parent or controlling person or persons of any of them;
provided, however, that this Section 10.11 shall not be construed to prohibit
any action or proceeding against any party hereto for its own willful misconduct
or grossly negligent conduct; and provided, further, that nothing contained in
this Section 10.11 shall be construed to limit the exercise and enforcement in
accordance with the terms of this Participation Agreement of rights and remedies
against the Trust Estate. The foregoing provisions of this Section 10.11 shall
survive the termination of this Participation Agreement.

                                      -28-
<PAGE>

                                                         Participation Agreement

         Section 10.12 Owner Beneficiary Exculpation. Notwithstanding any other
provision herein, no recourse under any obligation, covenant, agreement or
instrument of the Owner Beneficiary contained in any Operative Document or with
respect hereto shall be had against any incorporator, member, manager, officer,
director, employee, agent or partner of the Owner Beneficiary or its
stockholders or their affiliates (each a "Related Person") whether arising by
breach of contract, otherwise at law or in equity (including any and all claims
or torts, whether express or implied); it being expressly understood that the
agreements and other obligations of the Owner Beneficiary herein and with
respect hereto are solely its corporate obligations. Any and all personal
liability of any Related Person for breaches of any such obligation, covenant,
agreement or instrument as aforesaid are hereby expressly waived as a condition
of and in consideration of the Owner Beneficiary's execution of this
Participation Agreement. Notwithstanding any other provision herein, the
provisions of this Section 10.12 shall survive the termination of this
Participation Agreement.

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<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                              WILMINGTON TRUST COMPANY,
                                              not in its individual capacity
                                              except as expressly stated herein,
                                              but solely as Issuer

                                              By:_______________________________
                                                 Name:__________________________
                                                 Title:_________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                              SEQUOIA PROJECT FUNDING CORP.
                                              as Owner Beneficiary

                                              By:_______________________________
                                                 Name: Orlando Figueroa
                                                 Title: Vice President

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                              WELLS FARGO BANK NORTHWEST, N.A.,
                                              as Collateral Trustee

                                              By:_______________________________
                                                 Name:__________________________
                                                 Title:_________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                              BORDERS GROUP, INC.

                                              By:_______________________________
                                                 Name: Edward W. Wilhelm
                                                 Title: Sr. Vice President
<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                               BORDERS, INC.

                                               By:______________________________
                                                  Name: Edward W. Wilhelm
                                                  Title: Sr. Vice President

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                               EMPLOYERS REINSURANCE
                                               CORPORATION

                                               By:______________________________
                                                  Name:_________________________
                                                  Title:________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                          FIRST COLONY LIFE INSURANCE COMPANY

                                          By: GE Asset Management Incorporated,
                                              its investment advisor

                                             By:________________________________
                                                Name:___________________________
                                                Title:__________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                        GENERAL ELECTRIC CAPITAL ASSURANCE
                                        COMPANY

                                        By: GE Asset Management Incorporated,
                                            its investment advisor

                                          By:___________________________________
                                             Name:______________________________
                                             Title:_____________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                         GENERAL ELECTRIC CAPITAL ASSURANCE
                                         COMPANY

                                         By: GE Asset Management Incorporated,
                                             its investment advisor

                                          By:___________________________________
                                             Name:______________________________
                                             Title:_____________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                        GE CAPITAL LIFE ASSURANCE COMPANY
                                        OF NEW YORK

                                        By: GE Asset Management Incorporated,
                                            its investment advisor

                                          By:___________________________________
                                             Name:______________________________
                                             Title:_____________________________

<PAGE>

                                                         Participation Agreement

         IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

                                        STATE OF WISCONSIN
                                        INVESTMENT BOARD

                                          By:___________________________________
                                             Name:______________________________
                                             Title:_____________________________

<PAGE>

                                                         Participation Agreement

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
EMPLOYERS REINSURANCE CORPORATION                                          $6,000,000               18.51%
</TABLE>

GE Asset Management Incorporated
Account: ERAC FIF (EFIF)
Two Union Square, 601 Union Street
Seattle, WA  98101
Attn: Investment Dept., Private Placements
Telephone No: (206) 516-4954
Fax No: (206) 516-4578

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Bankers Trust Company
         14 Wall Street
         New York, NY 10005
         SWIFT Code: BKTR US 33
         ABA #021001033
         Account Number 99-911-196
         FCC: ERAC FIF (EFIF) #090824
         Ref: security description, coupon, maturity, PPN #, identify principal
              or interest.

Notices

All notices and communications to be addressed as first provided above, except
with respect to physical delivery of the note to be addressed to:

         Bankers Trust Co.
         14 Wall Street, 4th Floor
         Mail Stop 4042, Window 61
         New York, NY  10005
         Acct #090824
         Attn: Lorraine Squires (212) 618-2200

Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 48-1024691

                                   SCHEDULE I
                          (to Participation Agreement)

<PAGE>

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
FIRST COLONY LIFE INSURANCE COMPANY                                        $1,000,000                3.09%
</TABLE>

GE Financial Assurance
Account:  First Colony Life Insurance Company
Two Union Square, 601 Union Street
Seattle, WA  98101
Attn: (see below)

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Bankers Trust Company
         14 Wall Street
         New York, NY 10005
         SWIFT Code: BKTR US 33
         ABA #021001033
         Account Number  99-911-145
         FCC #: 098069
         Ref: security description, coupon, maturity, PPN #, identify principal
              or interest.

Notices

All notices and communications to be addressed as first provided above, except
that the original note agreement, conformed copy of the note agreement,
amendment requests, financial statements to be addressed as follows:

         Attn: Investment Dept., Private Placements
         Telephone No: (206) 516-4954
         Fax No: (206) 516-4578

and except that notices with respect to payments and written confirmation of
each such payment, to be addressed as follows:

         Attn: Investment Accounting
         Telephone No.: (206) 516-4649
         Fax No.: (206) 516-4740

and except with respect to physical delivery of the note to be
addressed to:

         Bankers Trust Co.
         14 Wall Street, 4th Floor
         Mail Stop 4042, Window 61
         New York, NY  10005
         Acct #098069
         Attn: Lorraine Squires (212) 618-2200

Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 54-0596414

                                      I-2

<PAGE>

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY                                 $1,000,000                3.09%
</TABLE>

GE Financial Assurance
Account: General Electric Capital Assurance Company
Two Union Square, 601 Union Street
Seattle, WA  98101

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Bankers Trust Company
         14 Wall Street
         New York, NY  10005
         SWIFT Code:   BKTR US 33
         ABA #021001033
         Account Number  99-911-145
         FCC #: 097833
         Ref: security description, coupon, maturity, PPN #, identify principal
              or interest.

Notices

All notices and communications to be addressed as first provided above, except
that the original note agreement, conformed copy of the note agreement,
amendment requests, financial statements to be addressed as follows:

         Attn: Investment Dept., Private Placements
         Telephone No: (206) 516-4954
         Fax No: (206) 516-4578

and except that notices with respect to payments and written confirmation of
each such payment, to be addressed as follows:

         Attn: Investment Accounting
         Telephone No.: (206) 516-4649
         Fax No.: (206) 516-4740

and except with respect to physical delivery of the note to be addressed to:

         Bankers Trust Co.
         14 Wall Street, 4th Floor
         Mail Stop 4042, Window 61
         New York, NY 10005
         Acct #097833
         Attn: Lorraine Squires (212) 618-2200

Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 91-6027719

                                      I-3

<PAGE>

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY                                $7,681,855.75             23.69%
</TABLE>

GE Financial Assurance
Account: GECA LTC
Two Union Square, 601 Union Street
Seattle, WA  98101
Attn: (see below)

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Bankers Trust Company
         14 Wall Street
         New York, NY  10005
         SWIFT Code: BKTR US 33
         ABA #021001033
         Account Number 99-911-145
         FCC #: 097817
         Ref: security description, coupon, maturity, PPN #, identify principal
              or interest.

Notices

All notices and communications to be addressed as first provided above, except
that the original note agreement, conformed copy of the note agreement,
amendment requests, financial statements to be addressed as follows:

         Attn: Investment Dept., Private Placements
         Telephone No: (206) 516-4954
         Fax No: (206) 516-4578

and except that notices with respect to payments and written confirmation of
each such payment, to be addressed as follows:

         Attn: Investment Accounting
         Telephone No.: (206) 516-4649
         Fax No.: (206) 516-4740

and except with respect to physical delivery of the note to be addressed to:

         Bankers Trust Co.
         14 Wall Street, 4th Floor
         Mail Stop 4042, Window 61
         New York, NY 10005
         Acct #097817
         Attn: Lorraine Squires (212) 618-2200

Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 91-6027719

                                      I-4

<PAGE>

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK                              $2,000,000                6.17%
</TABLE>

GE Financial Assurance
Account:  GE Capital Life Assurance Company of New York
Two Union Square, 601 Union Street
Seattle, WA  98101
Attn: (see below)

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Bankers Trust Company
         14 Wall Street
         New York, NY  10005
         SWIFT Code: BKTR US 33
         ABA #021001033
         Account Number 99-911-145
         FCC #: 097836
         Ref: security description, coupon, maturity, PPN #, identify principal
              or interest.

Notices

All notices and communications to be addressed as first provided above, except
that the original note agreement, conformed copy of the note agreement,
amendment requests, financial statements to be addressed as follows:

         Attn: Investment Dept., Private Placements
         Telephone No: (206) 516-4954
         Fax No: (206) 516-4578

and except that notices with respect to payments and written confirmation of
each such payment, to be addressed as follows:

         Attn: Investment Accounting
         Telephone No.: (206) 516-4649
         Fax No.: (206) 516-4740

and except with respect to physical delivery of the note to be addressed to:

         Bankers Trust Co.
         14 Wall Street, 4th Floor
         Mail Stop 4042, Window 61
         New York, NY 10005
         Acct #097836
         Attn: Lorraine Squires (212) 618-2200

Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 22-2882416

                                      I-5

<PAGE>

<TABLE>
<CAPTION>
                                                                            PRINCIPAL
                                                                            AMOUNT OF             FRACTIONAL
                                                                              NOTES                UNDIVIDED
NAME AND ADDRESS OF PURCHASER                                            TO BE PURCHASED           INTEREST
<S>                                                                      <C>                      <C>
STATE OF WISCONSIN INVESTMENT BOARD                                      $14,734,879.79             45.45%
</TABLE>

121 East Wilson Street
Madison, WI  53702
Attention: Private Placements - National
Facsimile Number: 608-266-2436
Confirmation Number: 608-266-2381

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds through the automated clearing
house system identifying each payment as "Borders CTL 2002" to:

         Mellon/Boston Safe
         ABA #011001234
         FAO/State of Wisconsin Investment Board
         Account Number: 064300

Notices

All notices and communications to be addressed as first provided above except
with respect to payments, including a message as to the source and application
of funds, to be addressed to:

         Mellon Bank                              Ms. Linda Nelson
         Attn: MBS Income Department     and      Ms. Eve Hampton
         P.O. Box 3195                            State of Wisconsin Investment
         Pittsburgh, PA 15320-3195                Board
                                                  121 East Wilson Street
                                                  Madison, WI  53702

Name of Nominee in which Notes are to be issued:  None
Taxpayer I.D. Number:  39-6006423

                                      I-6

<PAGE>

                                                         Participation Agreement

                         DESCRIPTION OF CLOSING OPINION
                            OF COUNSEL FOR PURCHASERS

         The closing opinion of McDermott, Will & Emery, special counsel to the
Purchasers, called for by SECTION 2.13(e) of the Participation Agreement, shall
be dated the Closing Date and addressed to each Purchaser, shall be satisfactory
in form and substance to each Purchaser and shall cover such matters relating to
the sale of the Notes as each Purchaser may reasonably request. With respect to
matters of fact on which such opinion is based, such counsel shall be entitled
to rely on appropriate certificates of public officials and other officers of
the parties involved in the transaction.

                                    EXHIBIT A
                          (to Participation Agreement)

<PAGE>

                                                         Participation Agreement

                         DESCRIPTION OF CLOSING OPINIONS
                              OF COUNSEL FOR ISSUER

         The closing opinions of Richards, Layton & Finger, special counsel to
the Issuer, called for by SECTION 2.13(a) of the Participation Agreement, shall
be dated the Closing Date and addressed to each Purchaser, shall be satisfactory
in form and substance to each Purchaser and shall be to the effect that:

         1. The Trust Company is a Delaware banking corporation, duly organized
and validly existing in good standing under the laws of the State of Delaware
and has all necessary power and authority to enter into and perform its
obligations under the Indenture and act as the Owner Trustee and to enter into
and perform its obligations, as Trust Company or Owner Trustee, as the case may
be, under each of the other Operative Agreements to which the Trust Company or
the Owner Trustee, as the case may be, is a party.

         2. The execution, delivery and performance of each Operative Document
to which it is a party, either in its individual capacity or as the Owner
Trustee, as the case may be, has been duly authorized by all necessary action on
its part and neither the execution and delivery thereof, nor the consummation of
the transactions contemplated thereby, nor compliance by it with any of the
terms and provisions thereof (i) does or will require, to our knowledge, any
approval or consent of any trustee or holder of any of its indebtedness or
obligations, (ii) does or will contravene any current State of Delaware or
United States federal law, governmental rule or regulations relating to its
banking or trust powers, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation of any Lien upon
any of its property under, its charter or by-laws, or, to our knowledge, without
independent investigation, any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it is a party or by which it or its properties
may be bound or affected or (iv) does or will require any approval, consent,
filing (other than the filing of the financing statements in the Office of the
Secretary of State of the State of Delaware as described in paragraph 7 below),
registration or qualification with any governmental body of the State of
Delaware or any of the federal governmental body of the United States of America
governing the banking or trust powers of the Trust Company.

         3. The Indenture and each other Operative Document to which Trust
Company is a party have been duly executed and delivered by Trust Company, and
the Indenture and each such other Operative Document to the extent entered into
by the Trust Company constitutes a legal, valid and binding obligation
enforceable against the Trust Company in accordance with the terms thereof.

         4. Each Operative Document to which the Owner Trustee is a party have
been duly executed and delivered by the Owner Trustee and constitutes a legal,
valid and binding obligation of the Owner Trustee, enforceable against the Owner
Trustee in accordance with the terms thereof.

                                    EXHIBIT B
                          (to Participation Agreement)
<PAGE>

         5.       To our knowledge, without independent investigation, no
investigation or proceeding of or before any arbitrator or any governmental
body, federal, state or local, is pending or threatened by or against the Trust
Company or the Owner Trustee (a) with respect to any of the Operative Agreements
or any of the transactions contemplated thereby, or (b) which could reasonably
be expected to have a material adverse effect on the assets, liabilities,
operations, business or financial condition of the Trust Company or the Owner
Trustee.

         6.       Insofar as Article 9 of the Uniform Commercial Code as in
effect in the State of Delaware (the "UCC") is applicable (without regard to
conflicts of laws principles), and assuming that the security interests of the
Collateral Trustee in the Collateral have been duly created and have attached
(and are of the type that may be perfected by the filing of a UCC financing
statement), no action is required to perfect such security interests in the
State of Delaware, except for the filing of a UCC financing statement in the
Office of the Secretary of State of the State of Delaware.

         The opinion of Richards, Layton & Finger shall cover such other matters
of Delaware law relating to the collateral assignment of the Project Loans and
the issuance of the Notes and the transactions contemplated thereby as each
Purchaser may reasonably request. With respect to matters of fact on which such
opinions are based, such counsel shall be entitled to rely on appropriate
Certificates of public officials and other officers of the parties involved in
the transaction and the representations contained in the Participation
Agreement.

                                      B-2

<PAGE>

                                                         Participation Agreement

                         DESCRIPTION OF CLOSING OPINIONS
                        OF COUNSEL FOR COLLATERAL TRUSTEE

         The closing opinion of Ray, Quinney & Nebeker, counsel to the
Collateral Trustee, called for by SECTION 2.13(b) of the Participation
Agreement, shall be dated the Closing Date and addressed to each Purchaser and
shall be satisfactory in form and substance to each Purchaser and shall be to
the effect that:

         1.       The Collateral Trustee is a national banking association
validly existing under the laws of the United States and is duly qualified to
act as Collateral Trustee.

         2.       The Collateral Trustee has the requisite power and authority
to execute, deliver and perform its respective obligations under the
Participation Agreement and the Indenture and the other Operative Agreements to
which it is a party ( the "Collateral Trustee Documents") and has taken all
necessary action to authorize the execution, delivery and performance by it of
each of the Collateral Trustee Documents.

         3.       Each of the Collateral Trustee Documents has been duly
authorized, executed and delivered by the Collateral Trustee and constitutes the
legal, valid and binding obligation or contract of the Collateral Trustee
enforceable against the Collateral Trustee in accordance with its respective
terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law).

         4.       The Notes delivered on the date hereof have been duly
authenticated by the Collateral Trustee in accordance with the terms of the
Indenture.

         5.       No authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality by the Collateral Trustee or any
affiliate thereof is necessary to the valid execution, delivery or performance
of the Collateral Trustee Documents.

         The opinion of Ray, Quinney & Nebeker shall cover such other matters
relating to the transactions contemplated by the Operative Agreements as each
Purchaser may reasonably request. With respect to matters of fact on which such
opinion is based, such counsel shall be entitled to rely on appropriate
certificates of public officials and other officers of the parties involved in
the transaction.

                                   EXHIBIT C
                          (to Participation Agreement)

<PAGE>

                                                         Participation Agreement

                         DESCRIPTION OF CLOSING OPINION
                            OF COUNSEL FOR GUARANTOR
                                   AND TENANT

         The closing opinion of Dickinson Wright PLLC, special counsel to the
Guarantor and the Tenants, called for by SECTION 2.13(c) of the Participation
Agreement, shall be dated on the Closing Date and shall be satisfactory in form
and substance to each Purchaser and shall be to the effect that:

         1.       The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of Michigan and has the corporate
power and authority to enter into and perform its obligations under the
Participation Agreement and each other Operative Document to which the Guarantor
is a party (the "Guarantor Documents").

         2.       Each of the Guarantor Documents has been duly authorized,
executed and delivered by the Guarantor and constitutes the legal, valid and
binding obligations of the Guarantor, enforceable against the Guarantor in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law).

         3.       The execution, delivery and compliance by the Guarantor with
all of the provisions of the Guarantor Documents will not conflict with or
result in any breach of any of the provisions or constitute a default under or
result in the creation or imposition of any lien or encumbrance upon any of the
property of the Guarantor pursuant to the provisions of the charter or the
by-laws of the Guarantor or any material agreement or other instrument to which
the Guarantor is a party or by which the Guarantor may be bound or any existing
law or governmental regulation relating to or having jurisdiction over the
Guarantor or its activities.

         4.       No approval, consent or withholding of objection on the part
of, or filing, registration or qualification with, any governmental body,
federal or state, is necessary in connection with the execution, delivery and
performance by the Guarantor of the Guarantor Documents.

         5.       The Tenant is a corporation duly organized, validly existing
and in good standing under the laws of Colorado and has the corporate power and
authority to enter into and perform the Participation Agreement and each other
Operative Document to which the Tenant is a party (the "Tenant Documents").

         6.       The Tenant is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction in which any Mortgaged
Property is located.

         7.       Each of the Tenant Documents has been duly authorized,
executed and delivered by the Tenant and constitutes the legal, valid and
binding obligations of the Tenant, enforceable

                                    EXHIBIT D
                          (to Participation Agreement)

<PAGE>

against the Tenant in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).

         8.       The execution, delivery and compliance by the Tenant with all
of the provisions of the Tenant Documents will not conflict with or result in
any breach of any of the provisions of or constitute a default under or result
in the creation or imposition of any lien or encumbrance upon any of the
property of the Tenant pursuant to the provisions of the charter or the by-laws
of the Tenant or any material agreement or other instrument to which the Tenant
is a party or by which the Tenant may be bound or any existing law or
governmental regulation relating to or having jurisdiction over the Tenant or
its activities.

         9.       No approval, consent or withholding of objection on the part
of, or filing, registration or qualification with, any governmental body,
federal or state, is necessary in connection with the execution, delivery and
performance by the Tenant of the Tenant Documents.

         10.      The issuance and sale of the Project Loan Notes under the
circumstances contemplated by the Project Loan Agreements do not, under existing
law, require the registration of the Project Loan Notes under the Securities Act
of 1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.

         11.      To the best of our knowledge after due inquiry, there is no
action, proceeding or governmental investigation pending or threatened that (i)
questions the validity of or challenges any of the Tenant Documents or any of
the transactions contemplated thereby, (ii) would have an adverse effect on the
benefits intended to be realized by the Issuer, the Collateral Trustee or the
Purchasers under any of the Tenant Documents, or (iii) could reasonably be
expected to have, either in any case or in the aggregate, a materially adverse
effect on the business, properties, assets, operations or financial condition of
Guarantor or the Tenant.

         12.      The issuance and delivery of the Notes under the circumstances
contemplated by the Participation Agreement and the Indenture do not, under
existing law, require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust Indenture
Act of 1939, as amended.

         13.      [NON-CONSOLIDATION OPINION CONCERNING PROJECT BORROWERS].

         The opinion of Dickinson Wright PLLC shall cover such other matters
relating to the transactions contemplated by the Operative Agreements as each
Purchaser may reasonably request. With respect to matters of fact on which such
opinion is based, such counsel shall be entitled to rely on appropriate
Certificates of public officials and other officers of the parties involved in
the transaction.

                                      D-2

<PAGE>

                                                         Participation Agreement

                         DESCRIPTION OF CLOSING OPINION
                 OF EACH LOCAL COUNSEL FOR THE PROJECT BORROWERS

         The closing opinion of various local counsel to the Project Borrowers,
called for by SECTION 2.13(d) of the Participation Agreement, shall be dated the
Closing Date and shall be satisfactory in form and substance to each Purchaser
and shall be to the effect that:

         1.       The Project Borrower is duly formed, validly existing and in
good standing under the laws of its jurisdiction of formation, and is duly
qualified to transact business as a limited liability company in the State of
[insert the state in which the Mortgaged Property is located] (the "STATE").

         2.       Each of the Lease Documents has been duly authorized, executed
and delivered by the Project Borrower.

         3.       Each of the Project Loan Documents has been duly authorized,
executed and delivered by the Project Borrower.

         4.       No authorization, consent, approval, license, exemption or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality in the State by the Project Borrower or
any affiliate of the Project Borrower is necessary for the valid execution,
delivery or performance by the Project Borrower of any of the Lease Documents or
any of the Project Loan Documents.

         5.       The execution, delivery and performance by the Project
Borrower of each Lease Document and each Project Loan Document do not (i)
violate (A) the organizational documents pursuant to which the Project Borrower
is organized, or (B) to our knowledge, any order, writ, judgment, injunction,
decree, determination or award applicable to the Project Borrower, (ii) result
in a breach or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument (including, without
limitation, the Lease) to which it is a party or by which it or its properties
are bound, where such breach or default would have a material adverse effect on
the financial condition, properties or operations of the Project Borrower, or
(iii) result in, or require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance (other
than those arising pursuant to the Project Loan Documents).

         6.       There are no actions, suits or proceedings pending or, to our
knowledge after due inquiry, threatened against or affecting the Project
Borrower in any court or before any governmental authority or arbitration board
or tribunal that could reasonably be expected to materially and adversely affect
the execution, delivery or performance by the Project Borrower of its
obligations under any of the Lease Documents or any of the Project Loan
Documents, or the enforceability of the Project Borrower's obligations
thereunder.

                                   EXHIBIT E-1
                          (to Participation Agreement)

<PAGE>

                         DESCRIPTION OF CLOSING OPINION
                          OF EACH SPECIAL LOCAL COUNSEL
                            FOR THE PROJECT BORROWERS

         The closing opinion of various special local counsel to the Project
Borrowers, called for by SECTION 2.13(d) of the Participation Agreement, shall
be dated the Closing Date and shall be satisfactory in form and substance to
each Purchaser and shall be to the effect that:

         1.       The Project Loan Documents constitute the legal, valid and
binding obligations of the Project Borrower, enforceable against the Project
Borrower in accordance with their respective terms.

         2.       The Lease Documents constitute the legal, valid and binding
obligations of the Project Borrower, the Tenant, and the Guarantor (where
applicable), enforceable against each in accordance with their respective terms.

         3.       The Mortgage is in proper form satisfactory for recording in
the [insert recording office] (the "Recorder's Office"), and upon such
recordation shall create in favor of the Issuer a valid, enforceable and
perfected lien upon the real property interest described therein, as security
for the Project Loan and the Project Borrower's obligations under the Project
Loan Agreement. No other recordation or filing is required to create or preserve
the validity of such lien.

         4.       The Assignment of Leases and Rents is in proper form
satisfactory for recording in the Recorder's Office, and upon such recordation
shall create in favor of the Issuer a valid collateral or assignment of, or a
valid security interest in, the Project Borrower's interests described therein,
as security for the Project Loan and the Project Borrower's obligations under
the Project Loan Agreement.

         5.       The Memorandum of Lease is in proper form satisfactory for
recording in the Recorder's Office.

         6.       The Assignment of Mortgage is in proper form satisfactory for
recording in the Recorder's Office, and upon such recordation shall create in
favor of the Collateral Trustee a valid collateral assignment of, or a valid
security interest in, the Issuer's interests described therein.

         7.       The Reassignment of Leases and Rents is in proper form
satisfactory for recording in the Recorder's Office, and upon such recordation
shall create in favor of the Collateral Trustee a valid collateral assignment
of, or a valid security interest in, the Issuer's interests described therein.

         8.       The Mortgage creates a security interest in the portions of
the Mortgaged Property constituting fixtures, if any, and no financing or other
statements are required to be filed to perfect such security interest under the
Uniform Commercial Code as in effect in the State (the "UCC"), provided that the
Mortgage is properly recorded in the Recorder's Office.

                                   EXHIBIT E-2
                          (to Participation Agreement)

<PAGE>

         9.       To the extent that any property which secures the Project Loan
or which constitutes Collateral and in which a security interest can be granted
under the UCC (the "CODE COLLATERAL") is deemed located in the State for
purposes of the UCC, upon the recordation or filing of the Financing Statements
(as defined in the opinion) in the Filing Offices (as defined in the opinion),
the Issuer and the Collateral Trustee, as applicable, shall have a perfected
security interest in and perfected lien upon the Code Collateral to the extent
that perfection thereof is obtained by the filing of financing statements. To
continue the effectiveness of the Financing Statements, continuation statements
must be filed in the office in which the Financing Statements have been filed
within six months prior to the expiration of each fifth anniversary of the date
of filing of the Financing Statements. Any such continuation statement must be
signed by the secured party, who should identify the original statement by file
number and state that the original statement is still effective. No other
recordation or filing is required to preserve such interest in or lien upon the
Code Collateral.

         10.      The execution, delivery and performance by the Project
Borrower of the Lease Documents and the Project Loan Documents do not violate
any provision of law, rule or regulation of the State. The execution, delivery
and performance by the Tenant of the Lease Documents do not violate any
provision of law, rule or regulation of the State. The execution, delivery and
performance by the parties thereto of the Credit Documents do not violate any
provision of law, rule or regulation of the State.

         11.      Based solely on the interest specified in the Project Loan
Documents of 6.85% per annum on the outstanding but unpaid principal on the
Project Loan Note, the Project Loan Documents and the transactions contemplated
thereby do not violate the usury laws of the State.

         12.      No fees, taxes, or other charges, including, without
limitation, intangible documentary stamp, mortgage, transfer or recording taxes
or similar charges, are payable to the government of the State or to any
jurisdiction therein on account of the execution, delivery or ownership of the
Project Loan Documents, the Lease Documents or the Credit Documents, the
creation of the indebtedness evidenced or secured thereby, the creation of the
liens and security interests thereunder, or the filing, recording, or
registration of the Mortgage, the Assignment of Mortgage, the Assignment of
Leases and Rents, the Reassignment of Leases and Rents or the Financing
Statements, except for nominal filing or recording fees.

         13.      Neither the Issuer, the Collateral Trustee nor any of the
Noteholders is required to pay any tax, to be qualified to do business in the
State, to file any reports, or to comply with any statutory or regulatory rule
or requirement applicable only to financial institutions chartered or qualified
to do business in the State solely by reason of the execution, delivery or
acceptance of the Project Loan Documents, the Lease Documents or the Credit
Documents. The validity and enforceability of, and the exercise of any right or
remedy under or with respect to, the Project Loan Documents, the Lease Documents
and the Credit Documents will not be precluded by any failure to so qualify or
file.

                                     E-2-2

<PAGE>

         14.      The Mortgage and the Financing Statements conform to all
requirements of the laws of the State and the Mortgage contains remedial, waiver
and other provisions which will allow the Issuer and, upon recording of the
Assignment of Mortgage, the Collateral Trustee to realize the practical benefits
intended to be conferred thereby. The Project Loan Documents and the Lease
Documents grant to the Issuer and, upon recording of the Credit Documents, to
the Collateral Trustee, remedies including, but not limited to, the rights to
(a) foreclose the Project Borrower's interests in the property securing the
Project Loan, (b) execute upon the Project Borrower's interests in the property
securing the Project Loan, (c) apply to a state court of the State for the
appointment of a receiver, (d) cite the Project Borrower's failure to pay taxes
as evidence of waste, and (e) collect the rents from the property securing the
Project Loan. Each of the remedies listed in the preceding sentence is a remedy
commonly sought by lenders whose loans are secured by real and personal property
in the State. Enforcement of the remedies provided in the Project Documents and
the Lease Documents with respect to the Project Borrower or its property will
not, except as expressly limited by the terms of the Project Documents and the
Lease Documents, deprive the Issuer and, upon recording of the Credit Documents,
the Collateral Trustee of their rights to seek a deficiency judgment or limit
the rights of the Issuer and the Collateral Trustee to foreclose on other
security or collateral securing the Project Loan.

         15.      In connection with the remedies provided in the Mortgage:

                  (a)      The exercise at any time and in any order of any
remedies available against the Code Collateral or any other Mortgaged Property
will not affect nor be affected by the exercise of any remedies relating to the
Mortgaged Property, unless the Project Loan has been paid in full and all
obligations under the Project Loan Documents have been performed in full.

                  (b)      The exercise of any remedies with respect to any
security or collateral located outside of the State securing the Project Loan
will not affect or limit the Issuer's or the Collateral Trustee's ability to
foreclose against, or exercise any other remedies with respect to the Mortgaged
Property, except to the extent that the fair value of such security or
collateral so sold or disposed of has been appropriately applied to the
repayment of the Project Loan or unless the Project Loan has been paid in full
and all obligations under the Project Loan Documents have been performed in
full.

                  (c)      There is no "one form of action" or similar law in
the State that would limit the Issuer or the Collateral Trustee or any other
secured party from choosing only one remedy to enforce its or their rights under
the Mortgage or the other Project Loan Documents.

                                     E-2-3

<PAGE>

                    REPRESENTATIONS AND WARRANTIES OF ISSUER

         Capitalized terms used herein shall have the respective meanings as set
forth in the Participation Agreement.

         Each of the Trust Company and the Issuer represents and warrants (as to
itself only) as follows (provided that the representations in the following
paragraphs 6 through 17 are made solely by the Issuer):

         1.       It is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to enter into and perform its obligations under the Operative
Agreements to which the Trust Company is a party (the "Issuer Documents").

         2.       The execution, delivery and performance by the Issuer of each
of the Issuer Documents have been duly authorized by all necessary action on its
part and neither the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the terms
and provisions thereof does or will (i) require any approval or consent of any
trustee or holders of any of its indebtedness or obligations, (ii) contravene
any current law, governmental rule or regulation of the State of Delaware or any
United States federal law, rule or regulation, in each case relating to it,
(iii) contravene or result in any breach of or constitute any default under, or
result in the creation of any Lien upon any of its property under, its
organizational documents, or any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it is a party or by which it or its properties
may be bound or affected or (iv) require any authority, approval or other action
by any Governmental Authority or agency of the State of Delaware or any federal
authority governing the banking or trust powers of the Issuer.

         3.       Each of the Issuer Documents has been, or will be, duly
executed and delivered by the Trust Company or the Issuer, as the case may be,
and constitutes, or upon execution and delivery will constitute, a legal, valid
and binding obligation enforceable against the Trust Company (to the extent
expressly provided therein) or the Issuer, as the case may be, in accordance
with its respective terms.

         4.       No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority of the State of Delaware or of the United
States government governing the banking or trust powers of the Issuer is pending
or, to the knowledge of the Issuer, threatened by or against the Issuer (a) with
respect to any of the Issuer Documents or any of the transactions contemplated
thereby, or (b) which could have a material adverse effect on the business or
financial condition of the Issuer or the validity or enforceability of any of
the Issuer Documents.

                                    EXHIBIT F
                          (to Participation Agreement)

<PAGE>

         5.       It has not assigned or transferred, or granted any lien in
respect of, any of its rights, title or interest in or under any Project Loan,
except in accordance with the Issuer Documents.

         6.       The Issuer is not in default under or with respect to any of
its contractual obligations in any respect which could have a material adverse
effect on the business or financial condition of the Issuer or the validity or
enforceability of any of the Issuer Documents. No Default or Event of Default
has occurred and is continuing.

         7.       The proceeds of the Loans shall be applied by the Issuer
solely to make Project Loans to the Project Borrowers.

         8.       The Issuer's principal place of business, chief executive
office and office where the documents, accounts and records relating to the
transaction contemplated by this Participation Agreement and each other
Operative Document are located is in Wilmington, Delaware and the Issuer's
mailing address is: c/o Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890.

         9.       No part of the proceeds of any Loans will be used for
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect. If
requested by any Purchaser, the Issuer will furnish to such Purchaser a
statement to the foregoing effect in conformity with the requirements of FR Form
U-1 referred to in said Regulation U.

         10.      The Issuer is not an "investment company" or a company
controlled by an "investment company" within the meaning of the Investment
Company Act.

         11.      The originally executed copy of each Project Loan Note and an
originally executed copy of each other Project Loan Document has been delivered
to the Collateral Trustee on or prior to the Closing Date.

         12.      As of the Closing Date, no Project Loan Note or any related
Project Loan Document has been assigned or pledge to a third party other than
the Collateral Trustee. The Issuer has good and marketable title to each Project
Loan Note and related Project Loan Documents purported to be collaterally
assigned by the Issuer, and the Issuer is the sole owner thereof and has full
right and power to hold and to create a Lien on such Project Loan Note and
related Project Loan Documents in favor of the Trustee.

         13.      The Issuer has collaterally assigned to the Collateral Trustee
the Project Loan Documents and the Collateral Trustee has a first perfected Lien
on all such Project Loan Documents.

         14.      The Issuer represents and warrants that the Issuer has not,
directly or indirectly, nor has any agent on its behalf, offered or will offer
any Note or any similar security to or has solicited or will solicit an offer to
acquire any Note or any similar security from any person in

                                      F-2

<PAGE>

such manner as to bring the issuance and sale of the Notes within the provisions
of Section 5 of the Securities Act of 1933, as amended.

         15.      The consummation of the transactions provided for in the
Issuer Documents and compliance by the Issuer with the provisions thereof and
the collateral assignment of the Project Loans thereunder will not involve any
prohibited transaction within the meaning of the Employee Retirement Income
Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code
of 1986, as amended.

         16.      The Issuer has not waived or agreed to any waiver under, or
agreed to any amendment or other modification of, any Project Loan Note, or any
Project Loan Document.

         17.      The Issuer has not nor has anyone acting on its behalf
offered, transferred, pledged, sold or otherwise disposed of any Note, any
interest in any Note or any other similar security to, or solicited any offer to
buy or accept a transfer, pledge or other disposition of any Note, any interest
in the Notes or any other similar security, or otherwise approached or
negotiated with respect to the Notes, any interest in the Notes or any other
similar security with, any person in any manner which would, or made any general
solicitation by means of general advertising or in any other manner or taken any
other action which would, constitute a distribution of the Notes under the
Securities Act of 1933, as amended, or which would render the disposition of the
Notes a violation of Section 5 of the Securities Act of 1933, as amended, or
require registration pursuant thereto.

                                      F-3

<PAGE>

                                                         Participation Agreement

              REPRESENTATIONS AND WARRANTIES OF COLLATERAL TRUSTEE

         Capitalized terms used herein shall have the respective meanings as set
forth in the Participation Agreement.

         The Collateral Trustee hereby represents and warrants that:

         1.       The Collateral Trustee is a national banking association duly
organized, validly existing, and in good standing under the laws of the United
States of America.

         2.       The Collateral Trustee has full power, authority and legal
right under the laws of the United States pertaining to its banking and trust
powers to execute, deliver, and perform each of the Operative Agreements to
which it is a party (the "Trustee Documents") and to authenticate and deliver
the Notes and has taken all necessary action to authorize the execution,
delivery, and performance by it of each of the Trustee Documents and to
authenticate and deliver the Notes.

         3.       The execution, delivery and performance by the Collateral
Trustee of each of the Trustee Documents will not contravene any law, rule or
regulation of the States of New York or Utah or any United States governmental
authority or agency regulating the Collateral Trustee's banking or trust powers
or any judgment or order applicable to or binding on the Collateral Trustee and
will not contravene or result in any breach of, or constitute a default under,
the Collateral Trustee's articles of association or by-laws or the provision of
any indenture, mortgage, contract or other agreement to which it is a party or
by which it or any of its properties is bound.

         4.       The execution, delivery and performance by the Collateral
Trustee of each of the Trustee Documents and the authentication of the Notes
will not require the authorization, consent, or approval of, the giving of
notice to, the filing or registration with, or the taking of any other action in
respect of, any United States or State of Utah governmental authority or agency
regulating the banking and trust activities of the Collateral Trustee.

         5.       Each of the Trustee Documents have been duly executed and
delivered by the Collateral Trustee and constitutes the legal, valid, and
binding agreements of the Collateral Trustee, enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, fraudulent conveyance
and similar laws affecting creditors' rights generally, and general principles
of equity (regardless of whether the application of such principles is
considered in a proceeding in equity or at law).

         6.       The Collateral Trustee is not or will not, as a result of the
performance of its duties under the Indenture, be required to be registered as
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

                                    EXHIBIT G
                          (to Participation Agreement)

<PAGE>

                                                         Participation Agreement

                         REPRESENTATIONS AND WARRANTIES
                                  OF GUARANTOR

         1.       The Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Guarantor has the lawful power to own or lease its properties
and to engage in the business it presently conducts or proposes to conduct.

         2.       The Guarantor has full power to enter into, execute, deliver
and carry out the Operating Documents to which it is a party (the "Guarantor
Documents") and to perform obligations under each of the Guarantor Documents and
all such actions have been duly authorized by all necessary proceedings on its
part.

         3.       The Guarantor has duly and validly executed and delivered each
of the Guarantor Documents. Each such Guarantor Document constitutes the legal,
valid and binding obligation of the Guarantor enforceable against the Guarantor
in accordance with its terms, except to the extent that enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforceability of creditors' rights generally or
limiting the right of specific performance.

         4.       Neither the execution and delivery of the Guarantor Documents
nor the consummation of the transactions therein contemplated nor the compliance
with the terms and provisions thereof will (i) violate any provision of any
existing law, statute, rule or regulation applicable to the Guarantor or (ii)
conflict with, constitute a default under or result in any breach of (a) the
terms and conditions of the certificate of incorporation, by-laws or other
organizational documents of the Guarantor or (b) any agreement or instrument or
order, writ, judgment, injunction or decree to which the Guarantor is a party or
by which the Guarantor or any of its properties may be subject or bound, or
(iii) result in the creation or enforcement of any Lien, charge or encumbrance
whatsoever upon any property (now or hereafter acquired) of the Guarantor.

         5.       Except as disclosed in the Form 10Q for the quarter ending
July 23, 2000 (including Note 2 - Commitments and Contingencies to Financial
Statements) filed by Guarantor with the Securities and Exchange Commission,
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of the Guarantor threatened against the Guarantor or any of its
Subsidiaries before any Governmental Authority which individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
Neither the Guarantor nor any of its Subsidiaries is in violation of any order,
writ, injunction or any decree of any Governmental Authority which individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect.

         6.       The Guarantor has delivered to each of the Purchasers copies
of its audited consolidated financial statements dated January 27, 2002 (the
"Annual Statements"). In addition, the Guarantor has delivered to each of the
Purchasers copies of its unaudited

                                   EXHIBIT H-1
                          (to Participation Agreement)

<PAGE>

consolidated interim financial statements dated July 28, 2002 (the "Interim
Statements") (the Annual Statements and the Interim Statements being
collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by the
Guarantor's management, are correct and complete and fairly represent the
consolidated financial condition of the Guarantor and its Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied (except as
disclosed in such financial statements), subject (in the case of the Interim
Statements) to normal year end audit adjustments.

         7.       Neither the Guarantor nor any of its Subsidiaries (including
the Tenant) has any material liabilities, contingent or otherwise, or forward or
long-term commitments that are not disclosed in the Historical Statements
referenced in the foregoing paragraph (6) or in the notes thereto, other than as
incurred in the ordinary course of business after the date of such statements.
Except as disclosed therein or on the schedules thereto, there are no unrealized
or anticipated losses from any commitments of the Guarantor or any Subsidiary of
the Guarantor which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect. Since the date of the Interim
Statements, no circumstances or events have occurred which could reasonably be
expected to have a Material Adverse Effect.

         8.       On the Closing Date, no Guarantor Documents or any
certificate, statement, financial or otherwise, agreement or other documents
furnished to the Purchasers in connection therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. On the Closing Date, there is no
fact known to the Guarantor which could reasonably be expected to have a
Material Adverse Effect and which has not been set forth in this Certificate or
in the certificates, Historical Statements, agreements or other documents
furnished in writing to the Purchasers prior to or on the Closing Date in
connection with the transactions contemplated by the Guarantor Documents.

         9.       No consent, approval, exemption, order or authorization of, or
registration or filing with any Governmental Authority or any other Person is
required by law or any agreement in connection with the execution and delivery
by the Guarantor of the Guarantor Documents, the consummation of the
transactions therein contemplated and the compliance with the terms and
provisions thereof.

         10.      No Event of Default or Default has occurred and is continuing.
Neither the Guarantor nor any of its Subsidiaries (including the Tenant) is in
violation of (i) any term of its certificate of incorporation, by-laws, or other
organizational documents or (ii) any agreement or instrument or order, writ,
judgment, injunction or decree to which it is a party or by which it or any of
its properties may be subject or bound where such violation individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect.

         11.      The Guarantor and its Subsidiaries (including the Tenant) are
in compliance in respects with all applicable laws in all jurisdictions in which
the Guarantor or any of its Subsidiaries is presently or will be doing business
except where the failure to do so individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect.

                                     H-1-2

<PAGE>

         12.      All contracts which are material to the business operations of
the Guarantor and its Subsidiaries (including the Tenant) are valid, binding and
enforceable upon the Guarantor and each such Subsidiary, as applicable, and each
of the other parties thereto in accordance with their respective terms, and
there is no default thereunder, to the Guarantor's knowledge, with respect to
parties other than the Guarantor or its Subsidiaries which could be expected to
have a Material Adverse Effect.

         13.      (a)      Except as otherwise disclosed in the September 2002
and October 2002 Phase I Environmental Assessments prepared by EMG for each
Mortgaged Property (the "Reports"), there are no circumstances at, on or under
any Mortgaged Property that constitute a material breach of or material
noncompliance with any of the Environmental Laws, and there are no past or
present Environmental Violations at, on or under any Mortgaged Property or, to
the knowledge of the Guarantor at, on or under adjacent property, that prevent
compliance with the Environmental Laws at any Mortgaged Property or that
otherwise would require that any removal, remediation or other corrective action
or cleanup be taken with respect to any Mortgaged Property.

                  (b)      No Mortgaged Property and no structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Hazardous Substances except in compliance with
Environmental Laws. Except as may otherwise be disclosed in the Reports, there
are no processes, facilities, operations, equipment or any other activities at,
on or under such property, or, to the knowledge of the Guarantor at, on or under
adjacent property, that have resulted or are currently resulting in the release
or threatened release of Hazardous Substances onto any Mortgaged Property,
except to the extent that such releases or threatened releases are not a breach
of or otherwise not a violation of the Environmental Laws.

                  (c)      There are no above ground storage tanks, underground
storage tanks or underground piping associated with such tanks, used for the
management of Hazardous Substances at, on or under any Mortgaged Property that
(i) do not have a full operational secondary containment system in place, and
(ii) are not otherwise in compliance with all Environmental Laws. Except as may
otherwise be disclosed in the Reports, there are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Hazardous Substances at, on or under any Mortgaged
Property that have not either been closed in place in accordance with
Environmental Laws or removed in compliance with all applicable Environmental
Laws and no contamination associated with the use of such tanks exists on such
property.

                  (d)      All material permits, licenses, authorizations, plans
and approvals necessary under the Environmental Laws for the conduct of business
by the Tenant on the Mortgaged Properties as presently conducted have been
obtained. All material notices, reports and other filings required by the
Environmental Laws to be submitted to a Governmental Authority which pertain to
past and current operations on the Mortgaged Properties have been submitted.

                  (e)      All present, and, based upon the Reports, to the best
of Guarantor's knowledge, all past on-site generation, storage, processing,
treatment, recycling, reclamation,

                                     H-1-3

<PAGE>

disposal or other use or management of Hazardous Substances at, on, or under any
Mortgaged Property and all off-site transportation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management of
Hazardous Substances has been done in material compliance with the Environmental
Laws.

         14.      The representations and warranties of the Guarantor set forth
in each Guarantor Document are true and correct in all material respects. The
Guarantor is in compliance with its obligations under the Guarantor Documents
and there exists no Default or Event of Default by the Guarantor under any of
the Guarantor Documents.

         15.      The aggregate amount of Project Loan Debt Service (as defined
in the Project Loan Agreements) and payable as Basic Rent due under all Leases
for each calendar month occurring while the Notes are scheduled to be
outstanding equals the Monthly Amortization for such calendar month.

         16.      Neither the Guarantor nor any of its affiliates or partners,
members, directors or officers is or has been the subject of, or a defendant in:
(a) an enforcement action or prosecution (or settlement in lieu thereof) brought
by a governmental authority relating to a violation of securities, tax,
fiduciary or criminal laws, or (ii) a civil action (or settlement in lieu
thereof) brought by investors in a common investment vehicle for violation of
duties owed to the investors. Guarantor covenants that it will notify the
Collateral Trustee within five (5) days in the event any such action or
prosecution is initiated while the Notes are outstanding.

         17.      To the Guarantor's knowledge, no trustee or employee of the
State of Wisconsin Investment Board identified on the list attached hereto as
Annex I, either directly or indirectly (a) currently holds, except as may be
specifically set forth below, a personal interest in the Guarantor or any of its
Subsidiaries (together, the "Entity") or the Entity's property or securities, or
(b) will, in connection with the Notes, receive (i) a personal interest in the
Entity or the Entity's property or securities, nor (ii) anything of substantial
economic value for his or her private benefit from the Entity or anyone acting
on its behalf. As to ownership of an interest in the Entity's publicly traded
securities, "knowledge" hereunder is based on an examination of record holders
of the Entity's securities and actual knowledge of the Guarantor.

                                     H-1-4

<PAGE>

                                                                         ANNEX I

                                    Jon D. Hammes
                                    John Petersen III
                                    Eric O. Stanchfield
                                    Andrea Steen Crawford
                                    George F. Lightbourn
                                    James R. Nelsen
                                    William R. Sauey
                                    James A. Senty
                                    Wayne McCaffery

                                    Patricia Lipton
                                    Jean Ledford
                                    Jon Traver
                                    Keith Johnson
                                    Teresa Lau

                                    Robert Severance
                                    Chuck Carpenter
                                    Dave Lewandowski
                                    Steve Spiekerman

                                    Eve Hampton
                                    Mary Micheels

                                    Monica Jaehnig
                                    Chris Prestigiacomo

                                    Jon Vanderploeg
                                    Michael Wagner
                                    George Semka
                                    Tom Olson
                                    Tom Drake
                                    Daniel Weiss

                                    John Nelson
                                    Chad Neumann
                                    Dan Kane
                                    Ian Calame
                                    Thomas D'Amore

                                    Jacqueline Doeler
                                    Doug Peck

                                     H-1-5

<PAGE>

                                                         Participation Agreement

                         REPRESENTATIONS AND WARRANTIES
                                    OF TENANT

         1.       Tenant is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation. Tenant
has the lawful power to own or lease its properties and to engage in the
business it presently conducts or proposes to conduct. Tenant is duly licensed
or qualified and in good standing in each jurisdiction in which any Property is
located.

         2.       Tenant has full power to enter into, execute, deliver and
carry out the Operating Documents to which it is a party (the "Tenant
Documents") and to perform obligations under each of the Tenant Documents and
all such actions have been duly authorized by all necessary proceedings on its
part.

         3.       Tenant has duly and validly executed and delivered each of the
Tenant Documents. Each such Tenant Document constitutes the legal, valid and
binding obligation of Tenant enforceable against Tenant in accordance with its
terms, except to the extent that enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.

         4.       Neither the execution and delivery of the Tenant Documents nor
the consummation of the transactions therein contemplated nor the compliance
with the terms and provisions thereof will (i) violate any provision of any
existing law, statute, rule or regulation applicable to Tenant or (ii) conflict
with, constitute a default under or result in any breach of (a) the terms and
conditions of the certificate of incorporation, by-laws or other organizational
documents of Tenant or (b) any agreement or instrument or order, writ, judgment,
injunction or decree to which Tenant is a party or by which Tenant or any of its
properties may be subject or bound, or (iii) result in the creation or
enforcement of any Lien, charge or encumbrance whatsoever upon any property (now
or hereafter acquired) of Tenant.

         5.       Except as disclosed in the Form 10Q for the quarter ending
July 23, 2000 (including Note 2 - Commitments and Contingencies to Financial
Statements) filed by Guarantor with the Securities and Exchange Commission,
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of Tenant threatened against Tenant or any of its Subsidiaries before
any Governmental Authority which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect. Neither Tenant nor any
of its Subsidiaries is in violation of any order, writ, injunction or any decree
of any Governmental Authority which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.

         6.       On the Closing Date, no Tenant Documents or any certificate,
statement, financial or otherwise, agreement or other documents furnished to the
Purchasers in connection therewith, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. On the Closing Date, there is no fact known to Tenant which could

                                   EXHIBIT H-2
                          (to Participation Agreement)

<PAGE>

                                                         Participation Agreement

reasonably be expected to have a Material Adverse Effect and which has not been
set forth in this Certificate or in the certificates, Historical Statements,
agreements or other documents furnished in writing to the Purchasers prior to or
on the Closing Date in connection with the transactions contemplated by the
Tenant Documents.

         7.       No consent, approval, exemption, order or authorization of, or
registration or filing with any Governmental Authority or any other Person is
required by law or any agreement in connection with the execution and delivery
by Tenant of the Tenant Documents, the consummation of the transactions therein
contemplated and the compliance with the terms and provisions thereof.

         8.       (a)      Except as otherwise disclosed in the September 2002
and October 2002 Phase I Environmental Assessments prepared by EMG for each
Mortgaged Property (the "Reports"), there are no circumstances at, on or under
any Mortgaged Property that constitute a material breach of or material
noncompliance with any of the Environmental Laws, and there are no past or
present Environmental Violations at, on or under any Mortgaged Property or, to
the knowledge of Tenant at, on or under adjacent property, that prevent
compliance with the Environmental Laws at any Mortgaged Property or that
otherwise would require that any removal, remediation or other corrective action
or cleanup be taken with respect to any Mortgaged Property.

                  (b)      No Mortgaged Property and no structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Hazardous Substances except in compliance with
Environmental Laws. Except as may otherwise be disclosed in the Reports, there
are no processes, facilities, operations, equipment or any other activities at,
on or under such property, or, to the knowledge of Tenant at, on or under
adjacent property, that have resulted or are currently resulting in the release
or threatened release of Hazardous Substances onto any Mortgaged Property,
except to the extent that such releases or threatened releases are not a breach
of or otherwise not a violation of the Environmental Laws.

                  (c)      There are no above ground storage tanks, underground
storage tanks or underground piping associated with such tanks, used for the
management of Hazardous Substances at, on or under any Mortgaged Property that
(i) do not have a full operational secondary containment system in place, and
(ii) are not otherwise in compliance with all Environmental Laws. Except as may
otherwise be disclosed in the Reports, there are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Hazardous Substances at, on or under any Mortgaged
Property that have not either been closed in place in accordance with
Environmental Laws or removed in compliance with all applicable Environmental
Laws and no contamination associated with the use of such tanks exists on such
property.

                  (d)      All material permits, licenses, authorizations, plans
and approvals necessary under the Environmental Laws for the conduct of business
by Tenant on the Mortgaged Properties as presently conducted have been obtained.
All material notices, reports and other filings required by the Environmental
Laws to be submitted to a Governmental Authority which pertain to past and
current operations on the Mortgaged Properties have been submitted.

                                     H-2-2

<PAGE>

                                                         Participation Agreement

                  (e)      All present, and, based upon the Reports, to the best
of Tenant's knowledge, all past on-site generation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management of
Hazardous Substances at, on, or under the Mortgaged Property and all off-site
transportation, storage, processing, treatment, recycling, reclamation, disposal
or other use or management of Hazardous Substances has been done in material
compliance with the Environmental Laws.

         9.       The representations and warranties of Tenant set forth in each
Tenant Document are true and correct in all material respects. Tenant is in
compliance with its obligations under the Tenant Documents and there exists no
Default or Event of Default by Tenant under any of the Tenant Documents.

         10.      Upon the execution and delivery of each Lease, (i) Tenant will
have unconditionally accepted the Mortgaged Property subject to such Lease, (ii)
no offset will exist with respect to any Basic Rent or other sums payable under
such Lease and (iii) no Basic Rent or Supplemental Rent under any Lease will
have been prepaid except as otherwise required by the Operative Agreements.

         11.      No portion of any Mortgaged Property is located in an area
identified as a special flood hazard area by the Federal Emergency Management
Agency or other applicable agency, or if any such Mortgaged Property is located
in an area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, then flood insurance has been
obtained for such Mortgaged Property in accordance with Article XV of each Lease
and in accordance with the National Flood Insurance Act of 1968, as amended.

         12.      Tenant has obtained insurance coverage for each Mortgaged
Property which meets the requirements of Article XV of each Lease and all of
such coverage is in full force and effect.

         13.      To the actual knowledge of Tenant, each Mortgaged Property (i)
complies in all material respects with all applicable laws, rules and
regulations of all governmental authorities (including, without limitation, all
zoning and land use laws and Environmental Laws); or (ii) does not comply with
certain state and local land use, zoning and related legal requirements (other
than Environmental Laws) which have been identified in writing to the Purchasers
and which the Purchasers have deemed immaterial.

         14.      To the actual knowledge of Tenant, all consents, licenses and
building permits required by all applicable laws, rules and regulations of all
governmental authorities, occupancy and operation of each Mortgaged Property (i)
have been obtained and are in full force and effect; or (ii) have not been
obtained (such consents, licenses and building permits having been identified in
writing to the Purchasers and which the Purchasers have deemed immaterial).

                                     H-2-3

<PAGE>

                                                         Participation Agreement

               REPRESENTATIONS AND WARRANTIES OF OWNER BENEFICIARY

         Capitalized terms used herein shall have the respective meanings as set
forth in the Participation Agreement.

         The Owner Beneficiary hereby represents and warrants that:

         1.       The Owner Beneficiary is a corporation duly organized, validly
existing and in good standing under the laws of Delaware.

         2.       The Owner Beneficiary has full power, authority and legal
right to execute, deliver, and perform each of the Operative Agreements to which
it is a party (the "Owner Beneficiary Documents") and has taken all necessary
corporate action to authorize the execution, delivery, and performance by it of
each of the Owner Beneficiary Documents.

         3.       The execution, delivery and performance by the Owner
Beneficiary of each of the Owner Beneficiary Documents will not contravene any
law, rule or regulation or any judgment or order applicable to or binding on the
Owner Beneficiary and will not contravene or result in any breach of, or
constitute a default under, the Owner Beneficiary's certificate of incorporation
or by-laws or the provision of any indenture, mortgage, contract or other
agreement to which it is a party or by which it or any of its properties is
bound.

         4.       The execution, delivery and performance by the Owner
Beneficiary of each of the Owner Beneficiary Documents will not require the
authorization, consent, or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action in respect of, any
governmental authority.

         5.       Each of the Owner Beneficiary Documents have been duly
executed and delivered by the Owner Beneficiary and constitutes the legal,
valid, and binding agreements of the Owner Beneficiary, enforceable in
accordance with their respective terms, subject to bankruptcy, insolvency,
fraudulent conveyance and similar laws affecting creditors' rights generally,
and general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).

         6.       The Owner Beneficiary is not and will not, as a result of the
performance of its duties under the Indenture, be required to be registered as
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

                                    EXHIBIT I
                          (to Participation Agreement)<PAGE>

                                                                   EXHIBIT 10.49

                          AGREEMENT AND PLAN OF MERGER

                                   DATED AS OF

                                NOVEMBER 16, 2003

                                      AMONG

                                  SYLVAN INC.,

                        SNYDER ASSOCIATED COMPANIES, INC.

                                       AND

                                 SAC HOLDING CO.

                                        56
<PAGE>

                                TABLE OF CONTENTS
                                 ---------------

<TABLE>
<CAPTION>
                                                                                             PAGE
                                                                                             ----

<S>            <C>                                                                        <C>
                                             ARTICLE 1
                                            DEFINITIONS

Section 1.01.  Definitions.....................................................................60

                                             ARTICLE 2
                                            THE MERGER

Section 2.01.  The Merger......................................................................65
Section 2.02.  Closing; Effective Time.........................................................65
Section 2.03.  Effects of the Merger...........................................................66
Section 2.04.  Conversion of Shares............................................................66
Section 2.05.  Surrender and Payment...........................................................66
Section 2.06.  Stock Options...................................................................68
Section 2.07.  Adjustments.....................................................................69
Section 2.08.  Withholding Rights..............................................................69
Section 2.09.  Lost Certificates...............................................................69

                                             ARTICLE 3
                                     THE SURVIVING CORPORATION

Section 3.01.  Articles of Incorporation.......................................................70
Section 3.02.  Bylaws..........................................................................70
Section 3.03.  Directors and Officers..........................................................70

                                             ARTICLE 4
                           REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 4.01.  Corporate Existence and Power...................................................70
Section 4.02.  Corporate Authorization.........................................................71
Section 4.03.  Governmental Authorization......................................................71
Section 4.04.  Non-contravention...............................................................72
Section 4.05.  Capitalization..................................................................72
Section 4.06.  Subsidiaries....................................................................73
Section 4.07.  SEC Filings.....................................................................74
Section 4.08.  Financial Statements............................................................74
Section 4.09.  Disclosure Documents............................................................75
Section 4.10.  Absence of Certain Changes......................................................75
Section 4.11.  No Undisclosed Material Liabilities.............................................77
Section 4.12.  Compliance with Laws and Court Orders...........................................77
Section 4.13.  Litigation......................................................................77
Section 4.14.  Finders' Fees...................................................................78
</TABLE>

                                       57
<PAGE>

<TABLE>
<S>            <C>                                                                        <C>
Section 4.15.  Opinions of Financial Advisors..................................................78
Section 4.16.  Taxes...........................................................................78
Section 4.17.  Labor and Employment Matters....................................................80
Section 4.18.  Employee Benefit Plans..........................................................81
Section 4.19.  Environmental Matters...........................................................83
Section 4.20.  State Takeover Statutes; No Rights Agreement....................................84
Section 4.21.  Insurance.......................................................................84
Section 4.22.  Intellectual Property...........................................................84
Section 4.23.  Contracts and Commitments.......................................................85
Section 4.24.  Real Property...................................................................87
Section 4.25.  Minority Investments............................................................88
Section 4.26.  Disclaimer of Other Representations and Warranties..............................88

                                             ARTICLE 5
                             REPRESENTATIONS AND WARRANTIES OF PARENT

Section 5.01.  Corporate Existence and Power...................................................88
Section 5.02.  Corporate Authorization.........................................................89
Section 5.03.  Governmental Authorization......................................................89
Section 5.04.  Non-contravention...............................................................89
Section 5.05.  Disclosure Documents............................................................90
Section 5.06.  Finders' Fees...................................................................90
Section 5.07.  Financing.......................................................................90
Section 5.08.  Agreements With Shareholders....................................................91

                                             ARTICLE 6
                                     COVENANTS OF THE COMPANY

Section 6.01.  Conduct of the Company..........................................................91
Section 6.02.  Stockholder Meeting; Proxy Material.............................................94
Section 6.03.  No Solicitation; Other Offers...................................................95
Section 6.04.  Tax Matters.....................................................................97
Section 6.05.  Access to Information...........................................................97
Section 6.06.  Notices of Certain Events.......................................................98
Section 6.07.  Disclosure Schedule.............................................................98

                                             ARTICLE 7
                                        COVENANTS OF PARENT

Section 7.01.  Notices of Certain Events.......................................................99
Section 7.02.  Obligations of Merger Subsidiary...............................................100
Section 7.03.  Voting of Shares...............................................................100
Section 7.04.  Director and Officer Liability.................................................100
Section 7.05.  Agreements With Shareholders...................................................102
</TABLE>

                                       58
<PAGE>

<TABLE>
<S>            <C>                                                                        <C>
                                             ARTICLE 8
                                COVENANTS OF PARENT AND THE COMPANY

Section 8.01.  Reasonable Efforts.............................................................103
Section 8.02.  Certain Filings................................................................104
Section 8.03.  Public Announcements...........................................................104
Section 8.04.  Further Assurances.............................................................104
Section 8.05.  Confidentiality................................................................104
Section 8.06.  Takeover Statute...............................................................105

                                             ARTICLE 9
                                     CONDITIONS TO THE MERGER

Section 9.01.  Conditions to Obligations of Each Party........................................106
Section 9.02.  Conditions to the Obligations of Parent and Merger Subsidiary..................106
Section 9.03.  Conditions to the Obligations of the Company...................................107

                                            ARTICLE 10
                                            TERMINATION

Section 10.01.  Termination...................................................................108
Section 10.02.  Effect of Termination.........................................................110

                                            ARTICLE 11
                                           MISCELLANEOUS

Section 11.01.  Notices.......................................................................111
Section 11.02.  Survival of Representations and Warranties and Covenants......................112
Section 11.03.  Amendments or Supplements and Waivers.........................................112
Section 11.04.  Expenses......................................................................112
Section 11.05.  Binding Effect; Benefit; Assignment...........................................114
Section 11.06.  Governing Law.................................................................114
Section 11.07.  Jurisdiction..................................................................114
Section 11.08.  WAIVER OF JURY TRIAL..........................................................114
Section 11.09.  Counterparts; Effectiveness...................................................115
Section 11.10.  Entire Agreement..............................................................115
Section 11.11.  Captions......................................................................115
Section 11.12.  Severability..................................................................115
Section 11.13.  Enforcement of Agreement......................................................115
Section 11.14.  Interpretation................................................................116
</TABLE>

                                       59
<PAGE>

                          AGREEMENT AND PLAN OF MERGER

        This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is dated as of
November 16, 2003, among Sylvan Inc., a Nevada corporation (the "COMPANY"),
Snyder Associated Companies, Inc., a Pennsylvania Corporation ("PARENT"), and
SAC Holding Co., a Pennsylvania corporation and a wholly-owned subsidiary of
Parent ("MERGER SUBSIDIARY"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in Section 1.01
below.

                              W I T N E S S E T H:

        WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have each determined that it is advisable and in the best
interests of their respective stockholders for Parent to acquire the Company by
means of a merger of Merger Subsidiary with and into the Company upon the terms
and subject to the conditions set forth herein; and

        WHEREAS, substantially concurrently herewith and as a condition and
inducement to the willingness of Parent and Merger Subsidiary to enter into this
Agreement, Parent and certain stockholders of the Company have entered into the
Voting Agreement.

        NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

        Section 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:

        "ACQUISITION PROPOSAL" means, other than the transactions contemplated
by this Agreement, any offer or proposal by a Third Party relating to, or any
Third Party indication of interest in, (A) any acquisition or purchase, direct
or indirect, of 20% or more of the consolidated assets of the Company and its
Subsidiaries, taken as a whole, or over 20% of the voting securities of the
Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of the Company,
(B) any tender offer (including a self-tender offer) or exchange offer that, if
consummated, would result in such Third Party's beneficially owning 20% or more
of any class of equity or voting securities of the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 20% of the consolidated assets of the Company or (C) a merger,
consolidation, share exchange, business

                                       60
<PAGE>

combination, sale of substantially all the assets, reorganization,
recapitalization, liquidation, dissolution or other similar transaction
involving the Company or any of its Subsidiaries whose assets, individually or
in the aggregate, constitute more than 20% of the consolidated assets of the
Company.

        "AFFILIATE" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person, where "CONTROL" means the possession, directly or indirectly, of the
power to direct the management and policies of a Person whether through the
ownership of voting securities or otherwise.

        "BALANCE SHEET" means the consolidated balance sheet of the Company and
its Subsidiaries as of December 29, 2002 and the footnotes thereto set forth in
the Company 10-K.

        "BALANCE SHEET DATE" means December 29, 2002.

        "BUSINESS DAY" means a day, other than Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.

        "CODE" means the Internal Revenue Code of 1986.

        "COMMON STOCK" means the common stock, $0.001 par value per share, of
the Company.

        "COMPANY 10-K" means the Company's annual report on Form 10-K filed with
the SEC for the fiscal year ended December 29, 2002, as amended.

        "CURRENT SEC DOCUMENTS" means, collectively, (i) the Company 10-K, (ii)
its quarterly reports on Form 10-Q for its fiscal quarters ended March 30, 2003
and June 30, 2003, and (iii) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 29, 2002.

        "ERISA" means the Employee Retirement Income Security Act of 1974.

        "ERISA AFFILIATE" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.

        "GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state, local or foreign governmental or regulatory
authority, agency, body or instrumentality.

        "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.

                                       61
<PAGE>

        "INDEBTEDNESS" of any Person means, without duplication: (i)
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which such Person is liable, contingently or
otherwise, as obligor or otherwise, and any commitment by which such Person
assures a creditor against loss, including contingent reimbursement obligations
with respect to letters of credit (other than trade payables and other current
liabilities incurred in the ordinary course of business consistent with past
practices); (ii) indebtedness guaranteed in any manner by such Person, including
a guarantee in the form of an agreement to repurchase or reimburse; (iii)
obligations under capitalized leases in respect of which such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such Person assures a creditor against loss; and (iv)
indebtedness due to stockholders or other holders of equity in such Person.

        "INTELLECTUAL PROPERTY" shall mean all of the following in any
jurisdiction throughout the world: (i) patents, patent applications and patent
disclosures; (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos and slogans (and all translations, adaptations, derivations and
combinations of the foregoing) and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations and applications for any of the
foregoing; (v) trade secrets, confidential information, know how and inventions;
(vi) computer software (including but not limited to source code, executable
code, data, databases and documentation); and (vi) all other intellectual
property.

        "KNOWLEDGE OF THE COMPANY", "THE COMPANY'S KNOWLEDGE" or any other
similar knowledge qualification in this Agreement means to the actual knowledge
of the officers of the Company identified on Schedule 1.01(a).

        "LIEN" means, with respect to any property or asset, any mortgage, lien
(statutory or otherwise), pledge, charge, security interest, encumbrance or
other similar claim of any kind in respect of such property or asset.

        "MATERIAL ADVERSE EFFECT" means any change, event, occurrence, effect or
fact that, individually or in the aggregate with all other changes, events,
occurrences, effects and/or facts, has or is reasonably likely to have a
material adverse effect on (A) the condition (financial or otherwise), business,
assets, operations or results of operations of the Company and its Subsidiaries,
taken as whole, except any such effect resulting from or arising in connection
with (i) this Agreement or the Merger or the transactions contemplated hereby or
any announcement thereof, (ii) changes or conditions affecting any industry in
which the Company or its Subsidiaries operate generally which changes or
conditions do not affect the Company or its Subsidiaries disproportionately
relative to other entities operating in such industries, (iii) changes in
economic, regulatory or political conditions generally or (iv) the announcement,
commencement or

                                       62
<PAGE>

continuation of any war or armed hostilities or the occurrence of any act or
acts of terrorism; or (B) the Company's ability to consummate the transactions
contemplated by this Agreement or to perform its obligations under this
Agreement.

        "NRS" means Chapters 78 and 92A of the Nevada Revised Statutes.

        "1933 ACT" means the Securities Act of 1933.

        "1934 ACT" means the Securities Exchange Act of 1934.

        "PABCL" means the Pennsylvania Business Corporation Law, 15 Pa. Cons.
Stat. Section 1101 et seq.

        "PARENT MATERIAL ADVERSE EFFECT" means a material adverse effect on
either Parent's or Merger Subsidiary's ability to consummate the transactions
contemplated by this Agreement or to perform its obligations under this
Agreement.

        "PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

        "SEC" means the Securities and Exchange Commission.

        "STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement
executed substantially concurrently herewith among Parent, Merger Subsidiary and
Steel Partners II, L.P.

        "SUBSIDIARY" means, with respect to any Person, any corporation a
majority of the total voting power of shares of stock of which is entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or any partnership, limited liability
company, association or other business entity a majority of the partnership or
other similar ownership interest of which is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof.

        "THIRD PARTY" means any Person as defined in this Agreement or in
Section 13(d) of the 1934 Act, other than Parent and its Affiliates and their
respective advisors and agents (acting in such capacity).

        "VOTING AGREEMENT" means that certain Voting Agreement executed
substantially concurrently herewith among Parent, Wynnefield Partners Small

                                       63
<PAGE>

Cap Value, L.P., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield Small
Cap Value Offshore Fund, Ltd. and Nelson Obus.

        Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.

        (b) Each of the following terms is defined in the Section set forth
opposite such term:

<TABLE>
<CAPTION>
        TERM                                                                   SECTION
        -------------------------------------------------------------------  -----------
<S>                                                                          <C>
        "Agreement"                                                           Preamble
        "Articles of Merger"                                                    2.02
        "Certificates"                                                          2.05
        "Closing"                                                               2.02
        "COBRA"                                                                 4.18
        "Combination Statute"                                                   4.20
        "Common Stockholder Approval"                                           6.02
        "Common Stockholder Meeting"                                            6.02
        "Company"                                                             Preamble
        "Company Disclosure Schedule"                                           6.07
        "Company Intellectual Property"                                         4.23
        "Company Policy"                                                       7.04(b)
        "Company Proxy Statement"                                               4.09
        "Company Securities"                                                    4.05
        "Company Stock Option"                                                  2.06
        "Company Subsidiary Securities"                                         4.06
        "Controlling Interest Statute"                                          4.20
        "Effective Time"                                                        2.02
        "EGTRRA"                                                                4.18
        "Employee Plans"                                                        4.18
        "End Date"                                                              10.01
        "Environmental Laws"                                                    4.19
        "Exchange Agent"                                                        2.05
        "Financial Statements"                                                  5.07
        "Foreign Plan"                                                          4.18
        "GAAP"                                                                  4.08
        "GUST"                                                                  4.18
        "Indemnified Person"                                                    7.04
        "Leased Premises"                                                       4.26
        "Merger"                                                                2.01
        "Merger Consideration"                                                  2.04
        "Merger Subsidiary"                                                   Preamble
        "Minority Investment"                                                   4.06
        "Multiemployer Plan"                                                    4.18
</TABLE>

                                       64
<PAGE>

<TABLE>
<CAPTION>
        TERM                                                                   SECTION
        -------------------------------------------------------------------  -----------
<S>                                                                          <C>
        "Owned Real Property"                                                  4.24(d)
        "Parent"                                                              Preamble
        "Payment Event"                                                         11.04
        "Permits"                                                               4.12
        "Preferred Stock"                                                       4.05
        "Real Property Leases"                                                  4.26
        "SEC Documents"                                                         4.07
        "Special Committee"                                                     4.02
        "Superior Proposal"                                                     6.03
        "Superior Proposal Agreement"                                           10.01
        "Surviving Corporation"                                                 2.01
        "Takeover Statutes"                                                     4.20
        "Tax Asset"                                                             4.16
        "Tax Return"                                                            4.16
        "Tax"                                                                   4.16
        "Taxes"                                                                 4.16
        "Taxing Authority"                                                      4.16
        "Title IV Plan"                                                         4.18
        "United States Bank"                                                    2.05
        "WARN Act"                                                              4.17
        </TABLE>

                                    ARTICLE 2
                                   THE MERGER

        Section 2.01. The Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the NRS and the
PaBCL, at the Effective Time, Merger Subsidiary shall be merged (the "MERGER")
with and into the Company, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "SURVIVING
CORPORATION"). The address of the Company is 333 Main Street, P.O. Box 249,
Saxonburg, Pennsylvania 16056-0249, and its jurisdiction of incorporation is
Nevada. The address of Merger Subsidiary is c/o Cohen & Grigsby, P.C., 11
Stanwix Street, 15th Floor, Pittsburgh, Pennsylvania 15222, and its jurisdiction
of incorporation is Pennsylvania.

        (b) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under the NRS and the PaBCL.

        Section 2.02. Closing; Effective Time. Subject to the provisions of
Article 9, the closing of the Merger (the "CLOSING") shall take place in New
York at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York

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<PAGE>

10017, as soon as practicable, but in no event later than 10:00 a.m. New York
City time on the second business day after the date on which each of the
conditions set forth in Article 9 has been satisfied or waived by the party or
parties entitled to the benefit of such conditions (other than conditions that
by their terms can be satisfied only at the Closing, but subject to the
satisfaction of such conditions), or at such other place, at such other time or
on such other date as Merger Subsidiary and the Company may mutually agree. At
the Closing, Merger Subsidiary and the Company shall cause articles of merger
(the "ARTICLES OF MERGER") to be executed and filed with the Secretary of State
of the State of Nevada in the form required by, and executed in accordance with,
the applicable provisions of the NRS and with the Secretary of State of the
Commonwealth of Pennsylvania in the form required by, and executed in accordance
with, the applicable provisions of the PaBCL. The Merger shall become effective
as of the date of the filing of, and at the time (if any) indicated in, the
Articles of Merger or upon such other date and time as the parties shall agree
should be and are specified in the Articles of Merger (the "EFFECTIVE TIME").

        Section 2.03. Effects of the Merger. The Merger shall have the effects
set forth in Section 92A.250 of the NRS and Section 1929 of PaBCL.

        Section 2.04. Conversion of Shares. At the Effective Time by virtue of
the Merger and without any action on the part of the holder of any shares of
Common Stock or any shares of capital stock of Merger Subsidiary:

        (a) each share of Common Stock held as treasury stock or owned by Parent
or any Subsidiary of Parent, including Merger Subsidiary, immediately prior to
the Effective Time shall be canceled, and no payment shall be made with respect
thereto;

        (b) each share of common stock, no par value, of Merger Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock, no par value, of the
Surviving Corporation with the same rights, powers and privileges as the shares
so converted; and

        (c) each share of Common Stock issued and outstanding immediately prior
to the Effective Time shall, except as otherwise provided in Section 2.04(a), be
converted into the right to receive in cash from Parent an amount equal to
$12.25 (the "MERGER CONSIDERATION").

        Section 2.05. Surrender and Payment. (a) Prior to the Effective Time,
Parent shall appoint an agent reasonably acceptable to the Company (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing shares
of Common Stock (the "CERTIFICATES") for the Merger Consideration, and Parent
and Exchange Agent shall enter into an exchange agreement which shall,

                                       66
<PAGE>

in form and substance, be reasonably acceptable to the Company. Prior to the
Effective Time, Parent shall deposit or cause to be deposited with the Exchange
Agent in a separate fund established for the benefit of the holders of shares of
Common Stock, cash sufficient to pay the aggregate Merger Consideration required
to be paid for all of the Certificates at the Effective Time. Any cash deposited
with the Exchange Agent shall not be used for any purpose other than as set
forth in this Article 2 and shall be invested by the Exchange Agent as directed
by Parent or the Surviving Corporation in: (A) direct obligations of, or
obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America with a remaining term at the time of
acquisition thereof not in excess of 90 days, (B) money market accounts or
certificates of deposit maturing within 90 days of the acquisition thereof and
issued by a bank or trust company organized under the laws of the United States
of America or a State thereof having a combined capital surplus in excess of
$500,000,000 (a "UNITED STATES BANK"), (C) commercial paper issued by a domestic
corporation and given a rating of no lower than A1 by Standard & Poor's
Corporation and P1 by Moody's Investors Service, Inc. with a remaining term at
the time of acquisition thereof not in excess of 90 days or (D) demand deposits
with any United States Bank. The earnings and interest thereon shall be paid to
Parent or as Parent directs. As soon as reasonably practicable (but not more
than five Business Days) after the Effective Time, Parent shall send, or shall
cause the Exchange Agent to send, to each holder of record of shares of Common
Stock at the Effective Time, a letter of transmittal and instructions for use in
effecting the surrender of a Certificate in exchange for payment of the
applicable Merger Consideration (which shall (i) be in a form reasonably
acceptable to each of Parent and the Company and (ii) specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) for use in such exchange.

        (b) Each holder of shares of Common Stock that have been converted into
the right to receive the Merger Consideration shall be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal and such other documents as may reasonably be
required by the Exchange Agent, the applicable Merger Consideration in respect
of the Common Stock represented by a Certificate. Such payment of the Merger
Consideration, without any interest thereon, shall be sent to such holder of
shares of Common Stock promptly after receipt of such Certificate and letter of
transmittal and other documents by the Exchange Agent. Until so surrendered or
transferred, as the case may be, each such Certificate shall represent after the
Effective Time for all purposes only the right to receive such Merger
Consideration.

        (c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the surrendered Certificate is registered,
it shall be a condition to such payment that (i) either such Certificate shall
be

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<PAGE>

properly endorsed or shall otherwise be in proper form for transfer and (ii) the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.

        (d) After the Effective Time, there shall be no further registration of
transfers of shares of Common Stock. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and exchanged
for the Merger Consideration provided for, and in accordance with the procedures
set forth, in this Article 2.

        (e) Any portion of the Merger Consideration deposited with the Exchange
Agent pursuant to Section 2.05(a) that remains unclaimed by the holders of
shares of Common Stock six months after the Effective Time shall be returned to
Parent, upon demand, and any such holder who has not exchanged shares of Common
Stock for the Merger Consideration in accordance with this Section 2.05 prior to
that time shall thereafter look only to Parent or the Surviving Corporation for
payment of the Merger Consideration without any interest thereon.
Notwithstanding the foregoing, none of Parent, Merger Subsidiary, the Company or
the Exchange Agent shall be liable to any holder of shares of Common Stock for
any Merger Consideration paid to a public official pursuant to any applicable
abandoned property, escheat or similar laws. Any Merger Consideration remaining
unclaimed by holders of shares of Common Stock five years after the Effective
Time (or such earlier date, immediately prior to such time when any Merger
Consideration would otherwise escheat to or become property of any Governmental
Authority) shall become, to the extent permitted by applicable law, the property
of the Surviving Corporation free and clear of any claims or interest of any
Person previously entitled thereto.

        Section 2.06. Stock Options. (a) At or immediately prior to the
Effective Time, by virtue of the Merger and without any further action on the
part of the Company or the holder of each outstanding unexpired and unexercised
option to purchase shares of Common Stock (a "COMPANY STOCK OPTION"), each
Company Stock Option granted under any employee stock option or compensation
plan or arrangement of the Company, whether or not exercisable or vested, shall
be canceled, and, in exchange for such cancelled Company Stock Option, Parent
shall pay or shall cause the Surviving Corporation to pay each holder at or
promptly after the Effective Time for each such option so surrendered an amount,
if any, in cash determined by multiplying (i) the excess (if any) of the Merger
Consideration over the applicable exercise price of such Company Stock Option by
(ii) the number of shares of Common Stock such holder could have purchased
(assuming full vesting of all options) had such holder exercised such Company
Stock Option in full immediately prior to the Effective Time. The foregoing
provisions of this Section 2.06 shall not apply to Company Stock Options held by

                                       68
<PAGE>

any member of the Company's management who has agreed in writing with Parent or
Merger Subsidiary not to so surrender his or her Company Stock Option for such
payment.

        (b) Prior to the Effective Time, the Company shall use its reasonable
efforts (without the expenditure of any material funds) to obtain any consents
from holders of options to purchase shares of Common Stock granted under the
Company's stock option or compensation plans or arrangements that the Company
deems reasonably necessary to accomplish the transactions contemplated by
Section 2.06(a).

        Section 2.07. Adjustments. If, during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
Common Stock shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon (including any dividend or distribution of
securities convertible into Common Stock) with a record date during such period,
the Merger Consideration and any other amounts payable pursuant to this
Agreement shall be appropriately adjusted. References to the Merger
Consideration elsewhere in this Agreement shall be deemed to refer to the Merger
Consideration as it may have been adjusted pursuant to this Section 2.07.

        Section 2.08. Withholding Rights. Each of the Exchange Agent, the
Surviving Corporation and Parent shall be entitled to deduct and withhold from
the consideration otherwise payable to any Person pursuant to this Article 2
such amounts as it is required to deduct and withhold with respect to the making
of such payment under any provision of federal, state, local or foreign tax law.
Any amounts so withheld shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Common Stock in respect of which
such deduction and withholding was made.

        Section 2.09. Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the shares of
Common Stock represented by such Certificate, as contemplated by this Article 2.

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<PAGE>

                                    ARTICLE 3
                            THE SURVIVING CORPORATION

        Section 3.01. Articles of Incorporation. The articles of incorporation
of Merger Subsidiary, as in effect immediately prior to the Effective Time, as
attached hereto as Exhibit B, shall be the articles of incorporation of the
Surviving Corporation, with such amendments as are required to comply with the
laws of the state of Nevada, until thereafter amended in accordance with its
terms and applicable law, except that the name of the Surviving Corporation in
such articles of incorporation shall be changed to Sylvan Inc.

        Section 3.02. Bylaws. The bylaws of Merger Subsidiary, as in effect
immediately prior to the Effective Time, as attached hereto as Exhibit C, shall
be the bylaws of the Surviving Corporation, with such amendments as are required
to comply with the laws of the state of Nevada, until thereafter amended in
accordance with its terms, the articles of incorporation of the Surviving
Corporation and applicable law.

        Section 3.03. Directors and Officers. From and after the Effective Time,
until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed in accordance with the bylaws of the
Surviving Corporation and applicable law, (i) the directors of Merger Subsidiary
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation and (ii) the officers of Merger Subsidiary immediately prior to the
Effective Time shall be the officers of the Surviving Corporation.

                                    ARTICLE 4
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        The Company represents and warrants to Parent that:

        Section 4.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power and authority
to own and use its properties and assets and to carry on its business as now
being conducted. The Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or license necessary, except for those jurisdictions
where the failure to be so qualified does not have a Material Adverse Effect.
The Company has made publicly available true and complete copies of the articles
of incorporation and bylaws of the Company as currently in effect. The Company
is not in violation of, or default under, any material provision of its articles
of incorporation or bylaws.

                                       70
<PAGE>

        Section 4.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the required approval of the Company's stockholders in
connection with the consummation of the Merger, have been duly authorized by all
necessary corporate action on the part of the Company. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock is the only
vote of the holders of any of the Company's capital stock necessary to approve
the Merger, this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and, assuming due
and valid authorization, execution and delivery of this Agreement by Parent and
Merger Subsidiary, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that such
enforceability (i) may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.

        (b) Prior to the execution and delivery of this Agreement, at a meeting
duly called and held, the special committee of independent directors of the
Board of Directors of the Company (the "SPECIAL COMMITTEE") has (i) unanimously
approved and adopted the Merger and this Agreement and the transactions
contemplated hereby and (ii) unanimously resolved to recommend that the full
Board of Directors of the Company approve and adopt the Merger and this
Agreement and the transactions contemplated hereby and recommend approval and
adoption of the Merger and this Agreement and the transactions contemplated
hereby by the Company's stockholders.

        (c) Prior to the execution and delivery of this Agreement, at a meeting
duly called and held, the Company's Board of Directors has (i) approved and
adopted the Merger and this Agreement and the transactions contemplated hereby,
(ii) resolved to recommend approval and adoption of the Merger and this
Agreement by the Company's stockholders and (iii) directed that this Agreement
be submitted to the Company's stockholders for their approval.

        Section 4.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no consent, permit,
authorization or action by or in respect of, or filing with, any Governmental
Authority, other than (i) the filing of Articles of Merger with respect to the
Merger with the Nevada Secretary of State and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1934 Act and (iv) any actions

                                       71
<PAGE>

or filings the failure of which to take or make do not have a Material Adverse
Effect.

        Section 4.04. Non-contravention. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in any violation
or breach of any provision of the articles of incorporation or bylaws (or
equivalent governing documents) of the Company or any of its Subsidiaries, (ii)
assuming compliance with the matters referred to in Section 4.03 and the receipt
of Company Stockholder Approval, result in a violation or breach of any
provision of any applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree, (iii) require any consent by any Person under,
constitute a default under, or cause or permit the termination, cancellation,
acceleration or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit or other similar authorization relating to the assets or
business of the Company or its Subsidiaries or (iv) result in the creation or
imposition of any Lien on any asset of the Company or any of its Subsidiaries,
except for such violations or breaches referred to in clause (ii) and for such
failures to obtain any such consent, defaults, terminations, cancellations,
accelerations, losses or Liens referred to in clauses (iii) and (iv) that do not
have a Material Adverse Effect.

        Section 4.05. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 10,000,000 shares of Common Stock and (ii) 1,000,000
shares of preferred stock, par value $0.01 per share (the "PREFERRED STOCK"). As
of October 31, 2003, (i) 5,155,131 shares of Common Stock were issued and
outstanding, (ii) no shares of Preferred Stock were issued or outstanding, (iii)
1,597,274 shares of Common Stock were issued and held by the Company in its
treasury and (iv) 1,365,081 shares of Common Stock were subject to outstanding
Company Stock Options (of which options to purchase an aggregate of 705,129
shares of Common Stock were exercisable) and (v) 134,919 additional shares of
Common Stock are reserved for issuance under the Employee Plans. All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and not subject to preemptive
rights. No Subsidiary of the Company owns any shares of capital stock of the
Company.

        (b) Except as set forth in Section 4.05(a) or in Section 4.05(b) of the
Company Disclosure Schedule and for changes since October 31, 2003 resulting
from the exercise of Company Stock Options outstanding on such date, there are
no authorized, issued or outstanding (i) shares of capital stock or voting
securities of the Company, (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company or
(iii) options, warrants, calls, preemptive rights, subscriptions or other rights
to acquire from the

                                       72
<PAGE>

Company, or other obligation of the Company to issue, any shares of capital
stock, voting securities or securities convertible into or exchangeable for
shares of capital stock or voting securities of the Company (the items in
clauses (i), (ii), and (iii) being referred to collectively as the "COMPANY
SECURITIES"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the Company
Securities. With respect to any Company Securities of the type set forth in
clauses (ii) and (iii) above, Section 4.05(b) of the Company Disclosure Schedule
sets forth the following information: the holder, the number of shares covered,
the exercise or conversion price, any vesting restrictions (and the amount
vested) and the expiration date. Except as set forth in Section 4.05(b) of the
Company Disclosure Schedule, there are no agreements with respect to the voting
or transfer of capital stock of the Company or any of its Subsidiaries to which
the Company or any of its Subsidiaries is a party.

        Section 4.06. Subsidiaries. (a) Each Subsidiary of the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own and use its properties and assets and to carry on its
business as now being conducted except, in each case, where the failure to be so
incorporated, existing or in good standing does not have a Material Adverse
Effect. Each such Subsidiary is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or license necessary, except for those jurisdictions
where failure to be so qualified does not have a Material Adverse Effect. All
Subsidiaries of the Company and their respective jurisdictions of incorporation
are identified on Section 4.06(a) of the Company Disclosure Schedule. Section
4.06(a) of the Company Disclosure Schedule also correctly sets forth the name of
each Subsidiary of the Company, the jurisdiction of its incorporation, the
Persons owning the outstanding capital stock of such Subsidiary and the amounts
of such capital stock so owned. No Subsidiary of the Company is in violation of
or default under any of the provisions of its articles of incorporation, bylaws
or similar organizational documents, except for such violations or defaults as
do not have a Material Adverse Effect.

        (b) Except as set forth on Section 4.06(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of, or other voting
securities or ownership interests in, each Subsidiary of the Company, are duly
authorized, validly issued, fully paid and non assessable and are owned by the
Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such shares of capital stock or other voting
securities or ownership interests) other than restrictions imposed by federal
and state securities laws. There are no outstanding (i) securities of the
Company or any of its

                                       73
<PAGE>

Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of the Company
or (ii) options, warrants, calls, preemptive rights, subscriptions or other
rights to acquire from the Company or any of its Subsidiaries, or other
obligation of the Company or any of its Subsidiaries to issue, any shares of
capital stock or other voting securities or ownership interests in, or any
securities convertible into or exchangeable for any shares of capital stock or
other voting securities or ownership interests in, any Subsidiary of the Company
(the items in clauses (i) and (ii) being referred to collectively as the
"COMPANY SUBSIDIARY SECURITIES"). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company Subsidiary Securities.

        (c) Section 4.06(c) of the Company Disclosure Schedule sets forth the
name and jurisdiction of each Person that is not a Subsidiary of the Company but
in which the Company directly or indirectly holds any equity or other ownership
interest in excess of fifteen percent of outstanding equity interests in such
Person (each, a "MINORITY INVESTMENT"). There are no outstanding obligations of
the Company or any of its Subsidiaries to provide funds to make any investment
(in the form of a loan, capital contribution or otherwise) in any Minority
Investment.

        Section 4.07. SEC Filings. (a) The Company has filed with the SEC true
and complete copies of all forms, reports, schedules, statements and other
documents required to be filed by it since December 31, 2000 under the 1934 Act
or the 1933 Act (the documents referred to in this Section 4.07(a),
collectively, the "SEC DOCUMENTS").

        (b) As of its filing date, each SEC Document complied as to form in all
material respects with the applicable requirements of the 1933 Act and the 1934
Act, as the case may be.

        (c) As of its filing date (or, if amended or superceded by a filing
prior to the date of this Agreement, on the date of such filing), each SEC
Document did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.

        Section 4.08. Financial Statements. (a) The audited consolidated
financial statements and unaudited consolidated interim financial statements of
the Company and its Subsidiaries included in the SEC Documents (i) complied as
to form, in all material respects, with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto and (ii)
fairly present, in all material respects, in conformity with United States
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as

                                       74
<PAGE>

may be indicated in the notes thereto), the consolidated financial position of
the Company and its Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year end adjustments in the case of any unaudited interim financial
statements).

        (b) Attached to Section 4.08(b) of the Company Disclosure Schedule are
the unaudited consolidated balance sheet of the Company and its Subsidiaries as
of September 28, 2003, and the related statements of income and cash flows (or
the equivalent) for the nine-month period then ended. Such financial statements
fairly present, in all material respects, in conformity with GAAP (except as may
be indicated in the notes thereto), the consolidated financial position of the
Company and its Subsidiaries as of the date thereof and their consolidated
results of operations and cash flows for the period then ended (subject to
normal year-end adjustments).

        (c) Section 4.08(c) of the Company Disclosure Schedule sets forth the
principal amounts of any material Indebtedness of the Company and its
Subsidiaries as of September 28, 2003.

        Section 4.09. Disclosure Documents. The proxy or information statement
of the Company to be filed with the SEC in connection with the Merger (the
"COMPANY PROXY STATEMENT") and any amendments or supplements thereto will, when
filed, comply as to form in all material respects with the applicable
requirements of the 1934 Act. At the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company,
and at the time such stockholders vote on approval and adoption of this
Agreement, the Company Proxy Statement, as supplemented or amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties contained in
this Section 4.09 will not apply to statements or omissions included in the
Company Proxy Statement based upon information furnished in writing to the
Company by Parent or its representatives specifically for use therein.

        Section 4.10. Absence of Certain Changes. Since the Balance Sheet Date,
except as disclosed in Current SEC Documents and except as set forth in Section
4.10 of the Company Disclosure Schedule or as may be affected after the date
hereof by actions permitted to be taken pursuant to Section 6.01, the business
of the Company and its Subsidiaries has been conducted in the ordinary course
consistent with past practices, and since the Balance Sheet Date, except as
disclosed in Current SEC Documents or as set forth in Section 4.10 of the
Company Disclosure Schedule, there has not been:

        (a) any Material Adverse Effect;

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<PAGE>

        (b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;

        (c) any amendment of any material term of any outstanding security of
the Company or any of its Subsidiaries;

        (d) any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any Indebtedness other than in the ordinary course of business
and in amounts and on terms consistent with past practices;

        (e) any making of any material loan, advance or capital contributions to
or investment in any Person other than loans, advances or capital contributions
to or investments made in the ordinary course of business consistent with past
practices;

        (f) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its Subsidiaries relating to its assets
or business, in either case, material to the Company and its Subsidiaries, taken
as a whole, other than transactions and commitments in the ordinary course of
business consistent with past practices and those contemplated by this
Agreement;

        (g) any change in any method of accounting or accounting principles or
practice by the Company or any of its Subsidiaries, except for any such change
required by reason of a concurrent change in GAAP or Regulation S-X under the
1934 Act;

        (h) any (i) grant of any severance or termination pay to (or amendment
to any existing arrangement with) any director, officer or key employee of the
Company or any of its Subsidiaries; (ii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements; (iii)
entering into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any director, officer or
key employee of the Company or any of its Subsidiaries; (iv) establishment,
adoption or amendment (except as required by applicable law) of any collective
bargaining, bonus, profit sharing, thrift, pension, retirement, deferred
compensation, compensation, stock option, restricted stock or other material
benefit plan or arrangement covering any director, officer or employee of the
Company or any of its Subsidiaries; or (v) increase in compensation, bonus or
other benefits payable to any director, officer or key employee of the Company
or any of its Subsidiaries other than increases in the ordinary course of
business consistent with past practice.

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        Section 4.11. No Undisclosed Material Liabilities. Except as set forth
in Section 4.11 of the Company Disclosure Schedule, there are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind, other than:

        (a) liabilities or obligations disclosed and provided for in the Balance
Sheet or in the notes thereto or in the Current SEC Documents;

        (b) liabilities not required under GAAP to be shown on the Balance Sheet
or in the notes thereto for reasons other than the contingent nature thereof or
the difficulty of determining the amount thereof;

        (c) liabilities or obligations under this Agreement;

        (d) liabilities or obligations incurred in connection with the
transactions contemplated by this Agreement;

        (e) liabilities or obligations incurred in the ordinary course of
business since the Balance Sheet Date and which do not have a Material Adverse
Effect;

        (f) liabilities disclosed in, related to or arising under any
agreements, instruments or other matters disclosed in this Agreement or any
Schedule hereto; and

        (g) other liabilities or obligations that do not have a Material Adverse
Effect.

        Section 4.12. Compliance with Laws and Court Orders. The Company and
each of its Subsidiaries is, and has been, in compliance with, and to the
Knowledge of the Company is not under investigation with respect to and has not
been threatened to be charged with or given notice of any violation of, any
applicable law, statute, ordinance, rule, regulation, judgment, injunction,
order or decree of any Governmental Authority, except for failures to comply or
violations that do not have a Material Adverse Effect. The Company and its
Subsidiaries have in effect all Federal, state, local and foreign governmental
approvals, authorizations, licenses, and permits, including all authorizations
under Environmental Laws ("PERMITS"), necessary for them to own, lease or
operate their properties and assets and to carry on their businesses as now
being conducted, and there has occurred no default under, or violation of, any
such Permit, except for the lack of Permits and for defaults under, or
violations of, Permits which lack, default or violation does not have a Material
Adverse Effect.

        Section 4.13. Litigation. Except as disclosed in the Current SEC
Documents, and for any action, suit, investigation or proceeding relating to,
arising out of or resulting from the transactions contemplated by this
Agreement, the announcement of this Agreement or the announcement of such
transactions, (a) there is no action, suit, claim, litigation, investigation,
arbitration or

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proceeding pending against, or, to the Knowledge of the Company, threatened
against, the Company, its Subsidiaries or any of its properties, assets or
businesses, or to the Knowledge of the Company, any of the Company's or any
Subsidiary's current or former directors or officers or any other Person whom
the Company or any Subsidiary has agreed to indemnify before any court or any
arbitrator, or before or by any Governmental Authority that has a Material
Adverse Effect and (b) there are no outstanding orders, judgments, injunctions,
awards or decrees of, or enforceable by, any Governmental Authority against the
Company, its Subsidiaries, any of its properties, assets or businesses, or to
the Knowledge of the Company, any of the Company's or its Subsidiaries' current
or former directors or officers or any other Person whom the Company or any
Subsidiary has agreed to indemnify that have a Material Adverse Effect.

        Section 4.14. Finders' Fees. Except for Lane, Berry & Co. International,
LLC and Morgan Joseph & Co., Inc., a true and correct copy of whose engagement
agreements have been provided to Parent, there is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of the Company or any of its Subsidiaries who might be entitled to any
fee or commission from the Company or any of its Affiliates in connection with
the transactions contemplated by this Agreement.

        Section 4.15. Opinions of Financial Advisors. The Special Committee has
received the opinions of Lane, Berry & Co. International, LLC and Morgan Joseph
& Co., Inc., financial advisors to the Special Committee, to the effect that, as
of the date of this Agreement, the Merger Consideration is fair to the holders
of the Common Stock from a financial point of view, copies of the written
opinions of which will be delivered to Parent after receipt thereof by the
Company.

        Section 4.16. Taxes. Except as set forth in Section 4.16 of the Company
Disclosure Schedule and except for failures, violations, inaccuracies, omissions
or proceedings which do not have a Material Adverse Effect:

        (a) all Tax Returns required by applicable law to be filed with any
Taxing Authority by, or on behalf of, the Company or any of its Subsidiaries
have been filed when due in accordance with all applicable laws, and all such
Tax Returns were, at the time of filing, true and complete in all material
respects;

        (b) there are no Liens for Taxes (other than Taxes not yet due and
payable) upon any of the assets of the Company or any of its Subsidiaries;

        (c) the Company and each of its Subsidiaries has paid (or has had paid
on its behalf) or has withheld and remitted to the appropriate Taxing Authority
all Taxes shown as due and payable on its Tax Return, or, where payment is not
yet due, has established (or has had established on its behalf) in accordance
with GAAP an adequate accrual for all Taxes through the end of the last period
for

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<PAGE>

which the Company and its Subsidiaries ordinarily record items on their
respective books;

        (d) there is no claim, audit, action, suit, proceeding or investigation
now pending or, to the Company's Knowledge, threatened in writing against or
with respect to the Company or its Subsidiaries in respect of any Tax;

        (e) during the two-year period ending on the date of this Agreement,
neither the Company nor any of its Subsidiaries was a distributing corporation
or a controlled corporation in a transaction intended to be governed by Section
355 of the Code;

        (f) neither the Company nor any of its Subsidiaries is a party to any
understanding or arrangement described in Section 6111(d) of the Code, or
participated in a "reportable transaction" as defined in Treasury Regulations
Section 1.6011-4(b), in each case after the applicable Effective Time;

        (g) neither the Company nor any of its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency; and

        (h) neither the Company nor any of its Subsidiaries has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).

        (i) Section 4.16 of the Company Disclosure Schedule contains a list, as
of the date of this Agreement, of all jurisdictions (whether foreign or
domestic) in which the Company or any of its Subsidiaries currently files Tax
Returns.

        (j) "TAX" means (i) any tax, governmental fee or other like assessment
or charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any Person), together with any interest, penalty, addition
to tax or additional amount imposed by any governmental authority (a "TAXING
AUTHORITY") responsible for the imposition of any such tax (domestic or
foreign), and any liability for any of the foregoing as transferee, (ii) in the
case of the Company or any of its Subsidiaries, liability for the payment of any
amount of the type described in clause (i) as a result of being or having been
before the Effective Time a member of an affiliated, consolidated, combined or
unitary group, or a party to any agreement or arrangement, as a result of which
liability of the Company or any of its Subsidiaries to a Taxing Authority is
determined or taken into account with reference to the activities of any other
Person, and (iii) liability of the Company or any of its Subsidiaries for the
payment of any amount as a result of being party to any Tax Sharing Agreement or
with respect to the payment of any amount imposed on any Person of the type
described in clauses (i) or (ii) as a result of any existing express or implied
agreement or arrangement (including, but not limited to, an indemnification
agreement or arrangement).

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"TAX RETURN" means any report, return, document, declaration or other
information or filing required to be supplied to any Taxing Authority with
respect to Taxes, including information returns, any documents with respect to
or accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information. "TAX ASSET" means any net operating
loss, net capital loss, investment tax credit, foreign tax credit, charitable
deduction or any other credit or tax attribute that could be carried forward or
back to reduce Taxes (including without limitation deductions and credits
related to alternative minimum Taxes).

        Section 4.17. Labor and Employment Matters. (a) Except as set forth in
Section 4.17(a) of the Company Disclosure Schedule, with respect to the Company
and its Subsidiaries: (i) there is no collective bargaining agreement or
relationship with any labor organization; (ii) no labor organization or group of
employees has filed any representation petition or made any written demand for
recognition; (iii) to the Company's Knowledge, no union organizing or
decertification efforts are underway or threatened; (iv) no labor strike, work
stoppage, slowdown, or other material labor dispute has occurred, and none is
underway or, to the Company's Knowledge, threatened; (v) there is no workman's
compensation liability, experience or matter that has a Material Adverse Effect;
(vi) there is no employment related charge, complaint, grievance, investigation,
inquiry or obligation of any kind, pending or, to the Company's Knowledge,
threatened in any forum, relating to an alleged violation or breach by the
Company or its Subsidiaries (or its officers or directors) of any law,
regulation or contract which has a Material Adverse Effect; and (vii) to the
Company's Knowledge, no employee or agent of the Company or its Subsidiaries has
committed any act or omission giving rise to any liability for any violation or
breach identified in subsection (vi) above which, in each case, has a Material
Adverse Effect.

        (b) Except as set forth in Section 4.17(b) of the Company Disclosure
Schedule, (i) there are no employment contracts or severance agreements with any
senior manager or officer of the Company or its Subsidiaries and (ii) there are
no material written personnel policies, rules or procedures applicable to
employees of the Company or its Subsidiaries.

        (c) With respect to the transactions contemplated hereby, any notice
required under any law or collective bargaining agreement has been given, and
all bargaining, obligations with any employee representative has been, or prior
to the Closing will be, satisfied. Within the past three years, the Company has
not implemented any plant closing or layoff of employees that creates liability
under the Worker Adjustment and Retraining Notification Act of 1988, as amended,
or any similar foreign, state or local law, regulation or ordinance
(collectively, the

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"WARN ACT"), and no such action will be implemented without advance notification
to Parent.

        Section 4.18 Employee Benefit Plans. (a) Section 4.18 of the Company
Disclosure Schedule contains a list identifying each (i) "employee benefit
plan," as defined in Section 3(3) of ERISA, (ii) material employment, severance
or similar contract, plan, arrangement or policy, or (iii) other material plan
or arrangement providing for compensation, bonuses or incentive compensation,
profit sharing, stock option or stock related rights, deferred compensation,
vacation benefits, insurance (including any self insured arrangements), health
or medical benefits, employee assistance program, disability or sick leave
benefits, workers' compensation, supplemental unemployment benefits, severance
benefits and post employment or retirement benefits (including compensation,
pension, health, medical or life insurance benefits) which is maintained,
administered or contributed to by the Company or any ERISA Affiliate of the
Company and covers any employee or former employee of the Company or any of its
Subsidiaries, or with respect to which the Company or any of its Subsidiaries
has any material liability (collectively, "EMPLOYEE PLANS").

        (b) Except as set forth on Section 4.18(b) of the Company Disclosure
Schedule, as of December 31, 2002, the fair market value of the assets of each
Employee Plan subject to Title IV of ERISA (other than a "MULTIEMPLOYER PLAN",
as defined below) (a "TITLE IV PLAN") exceeded the present value of the pension
benefit obligations accrued under such Title IV Plan calculated pursuant to FASB
No. 87. No "accumulated funding deficiency", as defined in Section 412 of the
Code, has been incurred with respect to any Employee Plan subject to such
Section 412, whether or not waived. No "reportable event", within the meaning of
Section 4043 of ERISA, other than a reportable event that does not have a
Material Adverse Effect and no event described in Section 4062 or 4063 of ERISA,
has occurred in connection with any Employee Plan. Neither the Company nor any
ERISA Affiliate of the Company has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA or incurred, or reasonably expects to incur
prior to the Closing Date, (i) any liability under Title IV of ERISA arising in
connection with the termination of, or a complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA or (ii) any
liability under Section 4971 of the Code that in either case could become a
liability of the Company or any Subsidiary of the Company or Parent or any of
its ERISA Affiliates after the Closing Date.

        (c) All contributions (including employer contributions and employee
salary reduction contributions) that are due have been made within the time
periods prescribed by ERISA and the Code to each Employee Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been made to each Employee Plan or accrued in accordance with

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<PAGE>

past practice and custom. All premiums or other payments for all periods ending
on or before the Closing Date with respect to each Employee Plan have been paid
or accrued in accordance with past practice and custom.

        (d) Except as set forth in Section 4.18(d) of the Company Disclosure
Schedule, none of the Company, any Subsidiary or any ERISA Affiliate of the
Company or any Subsidiary has ever contributed to any multiemployer plan, as
defined in Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"). None of the Company,
any Subsidiary or any ERISA Affiliate has incurred any liability on account of a
partial withdrawal or complete withdrawal (within the meaning of Section 4205
and 4203 of ERISA, respectively) from any Multiemployer Plan that has a Material
Adverse Effect, no such liability has been asserted, and to the Knowledge of the
Company, there are no events or circumstances which could result in any such
partial or complete withdrawal. None of the Company, its Subsidiaries or any
ERISA Affiliate is bound by any contract or agreement or has any obligation or
liability under Section 4204 of ERISA.

        (e) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter, or has pending
or has time remaining in which to file, an application for such determination
from the Internal Revenue Service, and to the Knowledge of the Company, there is
no event or condition which would be reasonably likely to result in the
revocation or non issuance of any such favorable determination letter. All such
Employee Plans have been or will be timely amended for the requirements of the
tax legislation commonly known as "GUST" and "EGTRRA" and have been or will be
submitted to the Internal Revenue Service for a favorable determination letter
on the GUST requirements within the applicable remedial amendment period. To the
Knowledge of the Company, each Employee Plan that is not a Multiemployer Plan,
has been funded, administered and maintained in material compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Employee Plan and according to the terms of any
applicable collective bargaining agreement.

        (f) No events have occurred with respect to any Employee Plan that could
be reasonably likely to result in payment or assessment by or against the
Company of any excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B,
4980D, 4980E or 5000 of the Code. No fiduciary (within the meaning of Section
3(21) of ERISA) has any material liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of any Employee Plan. No action, suit, proceeding,
hearing or investigation with respect to the administration or the investment of
the assets of any Employee Plan (other than routine claims for benefits) is
pending or to the Knowledge of the Company, threatened.

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        (g) Except as set forth in Section 4.18(g) of the Company Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (either alone or together with any other event) entitle any employee or
independent contractor of the Company or any of its Subsidiaries to severance
pay or accelerate the time of payment or vesting or trigger any payment of
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any Employee Plan.

        (h) Except as set forth in Section 4.18(h) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any liability in
respect of post-retirement health, medical or life insurance benefits for
retired, former or current employees of the Company or its Subsidiaries except
as required to avoid excise tax under Section 4980B of the Code ("COBRA") or as
may be required under other applicable law. The Company, each Subsidiary and
each ERISA Affiliate has complied in all material respects with COBRA and any
other similar state law.

        (i) Each employee benefit plan that is a plan maintained and
administered in a jurisdiction other than the U.S. ("FOREIGN PLAN") has been
maintained, funded and administered in accordance with the laws of such foreign
jurisdiction. There are no material unfunded liabilities with respect to any
Foreign Plan.

        Section 4.19. Environmental Matters. Except as set forth in the Current
SEC Documents:

        (a) no material written notice, order, complaint or penalty has been
received by the Company or any of its Subsidiaries arising out of any statute,
law (including common law), regulation or rule, in each case as in effect on the
date hereof, that relate to pollution or the protection of the environment or to
the affects of pollutants or environmental contaminants, noise, odor or
radiation on human health, natural resources or the environment ("ENVIRONMENTAL
LAWS"), and there are no judicial, administrative or other actions, suits or
proceedings pending or, to the Company's Knowledge, threatened which allege a
material violation by the Company or any of its Subsidiaries of any
Environmental Laws;

        (b) the Company and each of its Subsidiaries have all Permits necessary
for their operations to comply, in all material respects, with all applicable
Environmental Laws and are in compliance, in all material respects, with the
terms of such permits; and

        (c) the operations of the Company and each Subsidiary are in compliance,
in all material respects, with the terms of applicable Environmental Laws.

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<PAGE>

        Section 4.20. State Takeover Statutes; No Rights Agreement. Article XIV
of the Articles of Incorporation of the Company is effective (a) under NRS
78.434(1) to render the provisions of NRS 78.411 through 78.444, inclusive (the
"COMBINATION STATUTE") inapplicable to the Merger, this Agreement, the Voting
Agreement and the Stock Purchase Agreement and the transactions contemplated
hereby and thereby; and (b) under NRS 78.378(1) to render the provisions of NRS
78.378 through 78.3793, inclusive (the "CONTROLLING INTEREST STATUTE")
inapplicable to the Merger, this Agreement, the Voting Agreement and the Stock
Purchase Agreement and the transactions contemplated hereby and thereby. To the
Company's Knowledge after consultation with the Company's outside legal counsel,
no other state takeover statute or similar statute or regulation applies to or
purports to apply to the Merger, this Agreement, the Voting Agreement or the
Stock Purchase Agreement or the transactions contemplated hereby or thereby (any
such statute or regulation, together with the Combination Statute and the
Controlling Interest Statute, collectively, "TAKEOVER STATUTES"). The Company
does not have any stockholder or shareholder rights plan or agreement or any
similar type of anti-takeover agreement.

        Section 4.21. Insurance. Section 4.21 of the Company Disclosure Schedule
sets forth a complete and correct list of all material insurance policies in
effect as of the date hereof providing coverage in favor of the Company or its
Subsidiaries or any of their respective properties. Each such policy is in full
force and effect, no notice of termination, cancellation or reservation of
rights has been received with respect to any such policy, to the Knowledge of
the Company there is no default with respect to any provision contained in any
such policy, and there has not been any failure to give any notice or present
any claim under such policy in a timely fashion or in the manner or detail
required by any such policy, except for any such failures to be in full force
and effect, any such terminations, cancellations, reservations or defaults, or
any such failures to give notice or present claims which do not have a Material
Adverse Effect.

        Section 4.22. Intellectual Property. (a) Section 4.22(a) of the Company
Disclosure Schedule sets forth a complete and correct list of all material
Intellectual Property owned or licensed by the Company and used by the Company
or any of its Subsidiaries in the conduct of their respective businesses (the
"COMPANY INTELLECTUAL PROPERTY").

        (b) The Company or one of its Subsidiaries owns and possesses all,
right, title and interest in and to, or has a valid and enforceable license to
use pursuant to a written license agreement, (i) all Company Intellectual
Property and (ii) all Intellectual Property necessary for the operation of the
Company's and its Subsidiaries' businesses as presently conducted except, in
each case, where the failure to own or possess such license or rights does not
have a Material Adverse Effect.

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<PAGE>

        (c) The Company Intellectual Property is not subject to any Liens, and
is not subject to any restrictions or limitations regarding use or disclosure
other than pursuant to a written license agreement set forth on Section 4.22(a)
of the Company Disclosure Schedule.

        (d) To the Knowledge of the Company, neither the Company nor any of its
Subsidiaries has infringed, misappropriated or otherwise conflicted with any
Intellectual Property of any Third Party except for such infringements,
misappropriations or conflicts that do not have a Material Adverse Effect. The
Company has not received any notices regarding any of the foregoing (including,
without limitation, any demands or offers to license any Intellectual Property
from any Third Party).

        (e) To the Knowledge of the Company, no Third Party has infringed,
misappropriated or otherwise conflicted with any of the Company Intellectual
Property except for such infringements, misappropriations or conflicts that do
not have a Material Adverse Effect.

        (f) To the Knowledge of the Company, all of the Company Intellectual
Property is valid and enforceable and none of the Company Intellectual Property
has been misused, no claim by any third party contesting the validity,
enforceability, use or ownership of any of the Company Intellectual Property
Rights has been made, is currently outstanding or is threatened, except, in each
case, as does not have a Material Adverse Effect.

        Section 4.23. Contracts and Commitments. (a) Except as specifically
contemplated by this Agreement and except as set forth on Section 4.23(a) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to or bound by:

                (i) any agreement or indenture relating to the borrowing of
        money (other than intra-company borrowings), except for any such
        agreement or indenture (A) with an outstanding principal amount not
        exceeding $50,000 or (B) entered into subsequent to the date of this
        Agreement as permitted by Section 6.01;

                (ii) any agreement for the purchase by the Company or any of its
        Subsidiaries of materials, supplies, goods, services, equipment or other
        assets requiring annual payments of $100,000 or more that cannot be
        terminated on not more than 90 days' notice;

                (iii) any sales, distribution or other similar agreement for the
        sale by the Company or any of its Subsidiaries of materials, supplies,
        goods, services, equipment or other assets requiring annual payments of
        $100,000 or more that cannot be terminated on not more than 90 days'
        notice;

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<PAGE>

                (iv) any agreement relating to the licensing of material
        Intellectual Property by the Company or any of its Subsidiaries to a
        Third Party or by a Third Party to the Company or any of its
        Subsidiaries;

                (v) any lease or agreement under which it is lessee of, or holds
        or operates, any personal property owned by any other party calling for
        payments in excess of $50,000 annually;

                (vi) any lease or agreement under which it is lessor of or
        permits any Third Party to hold or operate any material property, real
        or Personal, owned or controlled by it;

                (vii) any collective bargaining, union or similar agreement;

                (viii) any settlement, conciliation or similar agreement
        pursuant to which outstanding obligations of the Company and/or its
        Subsidiaries exist amounting to, or in excess of, $25,000;

                (ix) any contract which prohibits it from freely engaging in its
        business as presently conducted and as presently proposed to be
        conducted anywhere in the world; or

                (x) any other agreement material to the Company, its
        Subsidiaries or their businesses, not entered into in the ordinary
        course of business consistent with past practices.

        (b) Except as disclosed on Section 4.23(b) of the Company Disclosure
Schedule, (i) no contract or commitment required to be disclosed on Section
4.23(a) of the Company Disclosure Schedule has, to the Knowledge of the Company,
been breached or canceled by the other party thereto and (ii) the Company and
each of its Subsidiaries have performed all material obligations required to be
performed by them in connection with the contracts or commitments required to be
disclosed on Section 4.23(a) of the Company Disclosure Schedule and are not in
material default under or in material breach of any contract or commitment
required to be disclosed on Section 4.23(a) of the Company Disclosure Schedule,
and no event has occurred which with the passage of time or the giving of notice
or both would result in a material default or material breach of a material term
or condition thereunder. Each agreement required to be disclosed on Section
4.23(a) of the Company Disclosure Schedule is legal, valid, binding, enforceable
and in full force and effect, except to the extent that such enforceability (i)
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting or relating to the enforcement of creditors'
rights generally and (ii) is subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).

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<PAGE>

        Section 4.24. Real Property. (a) Section 4.24(a) of the Company
Disclosure Schedule lists all real property owned by the Company and its
Subsidiaries (the "OWNED REAL PROPERTY"). The Company, or its Subsidiaries as
the case may be, has good, marketable and insurable title to the Owned Real
Property, free and clear of any Lien that would materially interfere with the
present use of such property.

        (b) With respect to the Owned Real Property: (i) there are no material
leases, subleases, licenses, concessions or other material agreements or
arrangements, written or oral, granting to any party or parties the right of use
or occupancy of any material portion of the parcel of such Property except in
favor of the Company and its Subsidiaries; (ii) there are no outstanding options
or rights of first refusal to purchase such Property, or any material portion
thereof or material interest therein; and (iii) there are no parties (other than
the Company and its Subsidiaries) in possession of a material portion of such
Property.

        (c) With respect to the Owned Real Property Leases: (i) to the Company's
Knowledge, none of the other parties thereto have exercised any renewal or
extension right which materially extends the term of such Owned Real Property
Leases; and (ii) to the Company's Knowledge, none of the other parties thereto
have exercised any option, right of first refusal or any other unexpired right
to purchase or otherwise acquire such Owned Real Property or any material
portion thereof or any material interest therein.

        (d) "Owned Real Property Leases" means all leases, licenses or other
agreements (written or oral) pursuant to which the Company or any of its
Subsidiaries conveys or grants to any Person a material leasehold estate in, or
right to use or occupy, any material Owned Real Property or portion thereof.

        (e) Section 4.24(e) of the Company Disclosure Schedule lists all
material real property leased by the Company and its Subsidiaries (such property
is referred to herein as the "LEASED PREMISES"). All leases under which the
Company and its Subsidiaries lease the Leased Premises (the "REAL PROPERTY
LEASES") are, in all material respects, valid, binding and enforceable against
the Company and its Subsidiaries and, to the Company's Knowledge, the other
parties thereto, in accordance in accordance with their terms; (i) no party
thereto is in breach or default under any Real Property Lease; (ii) there are no
existing defaults with respect to the Company or any of its Subsidiaries or, to
the Company's Knowledge, the other parties thereto or any condition or event
with the giving of notice or lapse of time would constitute a default by the
Company's or any of its Subsidiaries thereunder; (iii) there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the
parcel of such Leased Premises except in favor of the Company; and (iv) there
are no parties (other than the Company and its Subsidiaries) in possession of
such Leased Premises thereunder,

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<PAGE>

subject only to such exceptions, in each case, as do not have a Material Adverse
Effect.

        Section 4.25. Minority Investments. Notwithstanding anything contained
to the contrary herein, all of the representations and warranties contained in
this Article 4 relating to any Subsidiary of the Company are, to the Knowledge
of the Company, true and correct in all respects (as such representations and
warranties may be otherwise explicitly qualified in each such representation and
warranty) with respect to each Minority Investment as if each Minority
Investment was a Subsidiary (it being understood that the Company Disclosure
Schedule shall therefore include, to the Knowledge of the Company, all
disclosures in respect of each Minority Investment (as if each Minority
Investment was a Subsidiary) to make the representations and warranties
contained herein true and correct in all respects).

        Section 4.26. Disclaimer of Other Representations and Warranties. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 4, THE COMPANY
MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND THE
COMPANY HEREBY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER
BY THE COMPANY, ANY SUBSIDIARY OF THE COMPANY, OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY OTHER PERSON,
WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO PARENT, MERGER SUBSIDIARY, OR ANY
OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES,
OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION BY THE COMPANY,
ANY SUBSIDIARY OF THE COMPANY, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO ANY
OF THE FOREGOING.

                                   Article 5
                    REPRESENTATIONS AND WARRANTIES OF PARENT

         Parent represents and warrants to the Company that:

        Section 5.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own and use its properties and assets
and to carry on its business as now being conducted. Parent has heretofore made
available to the Company true and complete copies of the articles/certificate of
incorporation and bylaws of Parent and Merger Subsidiary as currently in effect.
Neither Parent nor Merger Subsidiary is in violation of, or default under, any
material provision of its respective articles/certificate of

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incorporation or bylaws. Since the date of its incorporation, Merger Subsidiary
has not engaged in any activities other than in connection with, or as
contemplated by, this Agreement.

        Section 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by Parent and Merger Subsidiary and, assuming due
and valid authorization, execution and delivery of this Agreement by the
Company, constitutes a valid and binding obligation of Parent and Merger
Subsidiary enforceable against Parent and Merger Subsidiary in accordance with
its terms, except that such enforceability (i) may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.

        Section 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no material action by or in respect of, or filing with, any
Governmental Authority other than (i) the filing of Articles of Merger with
respect to the Merger with the Nevada Secretary of State, (ii) compliance with
any applicable requirements of the HSR Act, (iii) compliance with any applicable
requirements of the 1934 Act and (iv) actions or filings, the failure of which
to take or make would not, individually or in the aggregate, be reasonably
likely to have a Parent Material Adverse Effect.

        Section 5.04. Non-contravention. The execution, delivery and performance
by Parent and Merger Subsidiary of this Agreement and the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby do not and will
not (i) result in any violation or breach of any provision of the
articles/certificate of incorporation or bylaws of Parent or Merger Subsidiary,
(ii) assuming compliance with the matters referred to in Section 5.03, result in
a violation or breach of any provision of any applicable law, statute,
ordinance, rule, regulation, judgment, injunction, order or decree, (iii)
require any consent or other action by any Person under, constitute a default
under, or cause or permit the termination, cancellation, acceleration or the
loss of any benefit to which Parent or any of its Subsidiaries is entitled under
any provision of any agreement or other instrument binding upon Parent or any of
its Subsidiaries or any governmental license, franchise, permit or other similar
authorization relating to, the assets or business of Parent and its Subsidiaries
(it being understood that the consummation

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by Parent of the transactions contemplated hereby may require the consent of
Parent's lenders under Parent's credit agreements; and Parent represents and
warrants to the Company that all such consents will be obtained prior to the
consummation of such transactions); (iv) result in the creation or imposition of
any Lien on any asset of Parent or any of its Subsidiaries, except for such
violations or breaches referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, losses or Liens referred to in clauses (iii) and (iv) that would
not, individually or in the aggregate, be reasonably likely to have a Parent
Material Adverse Effect.

        Section 5.05. Disclosure Documents. None of the information provided or
to be provided by Parent specifically for inclusion in the Company Proxy
Statement or any amendment or supplement thereto, at the time the Company Proxy
Statement or any amendment or supplement thereto is first mailed to the
Company's stockholders and at the time the Company's stockholders vote on
approval and adoption of this Agreement, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

        Section 5.06. Finders' Fees. There is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of Parent who is entitled to any fee or commission from Parent or any
of its Affiliates in connection with the transactions contemplated by this
Agreement.

        Section 5.07. Financing. (a) Parent has previously provided to the
Company the unaudited consolidated balance sheet as of December 31, 2002 of
Parent and its Subsidiaries and the unaudited consolidated balance sheet of
Parent and its Subsidiaries as of September 30, 2003, and the related statements
of income and cash flows for the 9-month period then ended (collectively, the
"FINANCIAL STATEMENTS"); provided that the financial statements of the
consolidated entities were reviewed by Parent's independent auditors. The
Financial Statements fairly present, in all material respects, in conformity
with GAAP, the consolidated financial position of the Parent and its
Subsidiaries as of the date thereof and their consolidated results of operations
and cash flows for the period then ended. Since December 31, 2002 the business
of Parent and its Subsidiaries has been conducted in the ordinary course
consistent with past practices and there has not been any event, occurrence,
development or state of circumstances or facts which, individually or in the
aggregate, would be reasonably likely to have a Parent Material Adverse Effect.

        (b) Immediately after giving effect to the transactions contemplated by
this Agreement, (i) none of Parent or any of its Subsidiaries will have incurred
debts beyond its ability to pay such debts as they mature or become due, (ii)
the then present fair salable value of the assets of Parent and each of its
Subsidiaries

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will exceed the amount that will be required to pay its respective probable
liabilities (including the probable amount of all contingent liabilities) and
their respective debts as they become absolute and matured, (iii) the assets of
each of the Parent and each of its Subsidiaries, in each case at a fair
valuation, will exceed its respective debts (including the probable amount of
all contingent liabilities) and (iv) none of Parent or any of its Subsidiaries
will have unreasonably small capital to carry on its business as presently
conducted or as proposed to be conducted. No transfer of property is being made
and no obligation is being incurred in connection with the transactions
contemplated by this Agreement with the intent to hinder, delay or defraud
either present or future creditors of Parent or its Subsidiaries or the Company
or its Subsidiaries.

        (c) Parent (i) at the Closing will have sufficient funds available to
pay the aggregate Merger consideration and any expenses incurred by the Parent
or Merger Subsidiary in connection with the transactions contemplated by this
Agreement; (ii) has, and at the Closing will have, the resources and
capabilities (financial or otherwise) to perform its obligations hereunder; and
(iii) has not incurred any obligation, commitment, restriction or liability of
any kind, absolute or contingent, present or future, which would impair or
adversely affect such resources and capabilities.

        Section 5.08. Agreements With Shareholders. Except for the Voting
Agreement and the Stock Purchase Agreement, true and correct copies of such
agreements having been provided to the Company, there are no agreements,
arrangements or other understandings, written or oral, between Parent, Merger
Subsidiary or any of their Affiliates on the one hand, and any holder of Common
Stock, on the other hand, with respect to the voting or transfer of such Common
Stock, except that there are nonbinding understandings as to the matters set
forth in the exceptions clause of Section 7.05.

                                   ARTICLE 6
                            COVENANTS OF THE COMPANY

         The Company agrees that:

        Section 6.01. Conduct of the Company. Except as set forth in Section
6.01 of the Company Disclosure Schedule or in connection with the transactions
contemplated by this Agreement, from the date hereof until the Effective Time,
the Company shall, and shall cause its Subsidiaries to, conduct its businesses
in the ordinary course consistent with past practice and shall use commercially
reasonable efforts to preserve intact their current business organizations and
relationships with Third Parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, other than as set forth in Section 6.01 of the Company Disclosure
Schedule, from the

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date hereof until the Effective Time, the Company shall not, and shall cause its
Subsidiaries not to, without Parent's prior written consent:

        (a) amend, adopt or propose any change to its articles of incorporation
or bylaws or other comparable charter or organizational documents;

        (b) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property), in respect of, any of its
capital stock (other than to the Company or a wholly owned Subsidiary of the
Company), (ii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (other than the issuance of shares
of Common Stock upon the exercise of options to purchase shares of Common Stock
outstanding on the date of this Agreement and in accordance with their present
terms) or (iii) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;

        (c) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other securities or any securities convertible into, or any
rights, warrants, options, calls, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, preemptive rights, subscriptions or other
rights, enter into any commitments, agreements, arrangements or undertakings of
any kind to acquire, any securities of the Company (other than (i) the issuance
of shares of Common Stock upon the exercise of Company Stock Options outstanding
on the date of this Agreement and in accordance with their present terms or (ii)
the granting of options to acquire Common Stock pursuant to any existing
contractual obligations shown on Section 4.05(b) of the Company Disclosure
Schedule);

        (d) acquire or agree to acquire (i) by merging or consolidating with (or
adopting a plan of recapitalization, restructuring or other reorganization), or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof or (ii) any assets, except
purchases of assets in the ordinary course of business and except for capital
expenditures (which are covered in Section 6.01(g) below);

        (e) sell, lease, license, mortgage or otherwise encumber or otherwise
dispose of any of its material properties or assets, except (i) pursuant to
existing contracts or commitments and (ii) for sales in the ordinary course of
business consistent with past practices;

        (f) (i) incur any Indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or its Subsidiaries,

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guarantee any debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another Person
or enter into any arrangement having the economic effect of any of the
foregoing, except for borrowings incurred in the ordinary course of business
consistent with past practices or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, other than extensions of
credit to customers and advances to employees, in each case in the ordinary
course of business consistent with past practices;

        (g) make or agree to make any new capital expenditure or expenditures,
except for those (i) the items set forth on Section 6.01(g) of the Company
Disclosure Schedule or in the Company's fiscal 2003 operating budget (a copy of
which has been provided to Parent) or (ii) not otherwise described in clause (i)
which, in the aggregate, do not exceed $250,000;

        (h) except as set forth on Section 6.01(h) of the Company Disclosure
Schedule, discharge, settle, assign or satisfy any claims, whether or not
pending before a Governmental Authority, in excess of $100,000 in the aggregate,
or waive any material benefits of, or agree to modify in any respect materially
adverse to the Company, any confidentiality agreements to which the Company or
any of its Subsidiaries is a party, other than any such agreement entered into
pursuant to Section 6.03(b)(ii) in connection with an Acquisition Proposal;

        (i) except in the ordinary course of business consistent with past
practices, modify, amend or terminate any material contract or agreement to
which the Company or any of its Subsidiaries is a party or waive, release or
assign any material rights or claims thereunder, in any such case in a manner
reasonably likely to have an adverse effect in excess of $25,000 to the Company
or any of its Subsidiaries;

        (j) other than with respect to contracts terminable upon no more than 90
days' notice without penalty, enter into any new contract or agreement, or
modify, amend, terminate or renew any existing contract or agreement to which
the Company or any of its Subsidiaries is a party, other than (i) as otherwise
provided in this Section 6.01, (ii) in the ordinary course of business or (iii)
if the dollar value of such new contract or agreement, or existing contract or
agreement as so amended, modified, terminated or renewed, is or would be less
than $50,000;

        (k) fail to maintain all material insurance policies as currently in
effect or allow any of such policies to lapse;

        (l) except as required to comply with applicable law or as expressly
contemplated by this Agreement, (i) adopt, enter into, terminate or amend any
collective bargaining agreement or Employee Plan for the benefit or welfare of
any current or former employee, officer or director, (ii) increase in any manner

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the compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee (except for increases of cash compensation or bonuses to
such persons, other than executive officers, reasonably consistent with past
practices), (iii) pay any benefit not provided for under any Employee Plan or
any other benefit plan or arrangement of the Company, (iv) increase in any
manner the severance or termination pay of or obligation to any employee, (v)
enter into any employment, consulting, severance, termination or indemnification
agreement, arrangement or understanding with any current or former officer or
director or (vi) except as permitted in clause (ii), grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Employee Plan (including the grant of stock options, stock appreciation rights,
stock based or stock related awards, performance units or restricted stock or
the removal of existing restrictions in any Employee Plans or agreements or
awards made thereunder);

        (m) form any direct or indirect subsidiaries of the Company;

        (n) except as required by GAAP, make any change in accounting methods,
principles or practices;

        (o) knowingly or willfully take any action that would cause any
representation and warranty of the Company hereunder to no longer be true and
correct; or

        (p) authorize any of, or agree or commit to do any of, the foregoing
actions.

        Section 6.02. Stockholder Meeting; Proxy Material. The Company shall
cause a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be
duly called and held as soon as reasonably practicable following the clearance
of the Company Proxy Statement by the SEC for the purpose of voting on the
approval and adoption of this Agreement and the Merger. The Board of Directors
of the Company shall recommend approval and adoption of this Agreement and the
Merger by the Company's stockholders and include such recommendation in the
Company Proxy Statement; provided that the Board of Directors of the Company may
elect not to make, may withdraw or may modify in a manner adverse to Parent such
recommendation (including, without limitation, by approving, recommending or
endorsing a Superior Proposal) if the Board of Directors of the Company
determines in good faith after considering advice from outside counsel, that
such action is required to comply with its fiduciary duties under law. Unless
the Board of Directors of the Company has withdrawn or modified its
recommendation in compliance with this Agreement, the Company shall use its
reasonable efforts to solicit from its stockholders proxies in favor of the
approval and adoption of this Agreement and the Merger. In connection with such
meeting, the Company shall (i) promptly prepare and file with the SEC, use

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<PAGE>

its reasonable efforts to have cleared by the SEC and thereafter mail to its
stockholders as promptly as practicable the Company Proxy Statement and all
other proxy materials for such meeting, (ii) subject to (A) the proviso to the
second sentence of this Section 6.02 and (B) Section 6.03(b), use its reasonable
efforts to obtain the necessary approvals by its stockholders of this Agreement
and the Merger (the "COMPANY STOCKHOLDER APPROVAL") and (iii) otherwise comply
with all legal requirements applicable to such meeting, including establishing a
record date (which date shall be as soon as practicable following the date of
the SEC's clearance of the Company Proxy Statement). No amendment to the Company
Proxy Statement shall be made by the Company without consultation with Parent.

        Section 6.03. No Solicitation; Other Offers. (a) From and after the
execution of this Agreement by all of the parties hereto until the earlier of
the Effective Time and the termination of this Agreement pursuant to Article 10,
neither the Company nor any of its Subsidiaries shall, and the Company and its
Subsidiaries shall instruct its or their officers, directors, employees,
investment bankers, attorneys, accountants, consultants or other agents or
advisors not to, directly or indirectly, (i) solicit, initiate, encourage or
knowingly take any action designed to facilitate, or that could reasonably be
expected to lead to, the submission of any Acquisition Proposal, (ii) engage in
any discussions or negotiations with, or furnish any non-public information
relating to the Company or any of its Subsidiaries to, any Third Party that to
the Knowledge of the Company is seeking to make, or has made, an Acquisition
Proposal, (iii) agree to, approve or recommend any Acquisition Proposal or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal (subject to the provisions of Section 6.03(b) below), or (iv) (A) amend
or grant any waiver or release under any standstill or similar agreement with
respect to any class of equity securities of the Company or any of its
Subsidiaries or (B) enter into any agreement with respect to an Acquisition
Proposal (other than a confidentiality agreement pursuant to Section
6.03(b)(ii)).

        (b) Notwithstanding the foregoing, the Special Committee or the Board of
Directors of the Company, directly or indirectly through advisors, agents or
other intermediaries, may, in response to an unsolicited, bona fide Acquisition
Proposal, from a Third Party which the Special Committee or the Board of
Directors of the Company determines in good faith has sufficient financial
resources available to it to consummate such a transaction, that the Special
Committee of the Company's Board of Directors determines in good faith is
reasonably likely to result in a Superior Proposal (provided such Acquisition
Proposal is not received in violation of Section 6.03(a)), if the Special
Committee or the Company's Board of Directors determines in good faith (after
consultation with its financial and legal advisors) that such action is
necessary for the Special Committee or the Company's Board of Directors to
comply with its fiduciary duties under applicable law, (i) engage in
negotiations or discussions with the

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Third Party making such Acquisition Proposal, (ii) furnish to such Third Party
non public information relating to, and afford access to the business,
properties, assets, books and records of, the Company or any of its Subsidiaries
pursuant to an executed confidentiality agreement containing terms and
conditions at least as restrictive in the aggregate as contained in that certain
confidentiality agreement dated as of April 30, 2003 between Snyder Associated
Companies, Inc. and the Company, (iii) amend or grant any waiver referred to in
Section 6.03(a)(iv)(A) and/or (iv) enter into a Superior Proposal Agreement in
accordance with Section 10.01(d)(ii). Nothing contained herein shall prevent the
Board of Directors of the Company from (i) taking any action that any court of
competent jurisdiction orders the Company to take, (ii) making with respect to
an Acquisition Proposal a "stop look and listen" communication of the nature
contemplated in, and otherwise in compliance with, Rule 14d-9(f) under the 1934
Act as a result of receiving an Acquisition Proposal or (iii) with regard to an
Acquisition Proposal, complying with Rules 14e-2(a) or 14d-9 under the 1934 Act
or making such disclosure to the Company's stockholders as, in the good faith
judgment of the Special Committee or the Company's Board of Directors (after
consultation with its legal advisors), is necessary for the Company's Board of
Directors to comply with its fiduciary duties under applicable law.

        (c) The Board of Directors of the Company shall not take any of the
actions referred to in clauses (i) through (iv) of the first sentence of Section
6.03(b) or in the proviso to the second sentence of Section 6.02 unless the
Company delivers to Parent no later than 24 hours prior to the taking of such
action a written notice advising Parent that it will take such action. In
addition, the Company shall notify Parent promptly (but in no event later than
48 hours) after receipt by the Company (or any of its advisors) of any
Acquisition Proposal or of any request for information relating to the Company
or any of its Subsidiaries or for access to the business, properties, assets,
books or records of the Company or any of its Subsidiaries (other than such
components of such businesses, properties or assets that are generally
accessible to the public) by any Third Party that to the Knowledge of the
Company may be considering making, or has made, an Acquisition Proposal. The
Company shall provide such notice orally and in writing and shall identify the
Third Party making, and the material terms and conditions of, any such
Acquisition Proposal, indication or request. The Company shall keep Parent
informed in all material respects, on a prompt basis, of the status and material
details of any such Acquisition Proposal, indication or request. The Company
shall, and shall cause its Subsidiaries and the advisors, employees and other
agents of the Company and any of its Subsidiaries to, cease immediately and
cause to be terminated any and all existing activities, discussions or
negotiations, if any, with any Third Party conducted prior to the execution of
this Agreement by all parties hereto with respect to any Acquisition Proposal
and request the return or destruction of all information provided to Third
Parties pursuant to a confidentiality agreement.

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        "SUPERIOR PROPOSAL" means any bona fide, unsolicited written Acquisition
Proposal to acquire, directly or indirectly, at least a majority of the
outstanding shares of Common Stock or 50% or more of the consolidated assets of
the Company and its Subsidiaries and otherwise on terms that the Special
Committee or the Board of Directors of the Company determines in good faith by a
majority vote (after consultation with a reputable financial advisor), are more
favorable and provide greater value to the Company's stockholders than the
Merger and for which financing, to the extent required, is then fully committed
or reasonably determined to be available by the Special Committee or the Board
of Directors of the Company.

        Section 6.04. Tax Matters. (a) Except as otherwise required by
applicable law or with the consent of Parent (which consent shall not be
unreasonably withheld or delayed), neither the Company nor any of its
Subsidiaries shall make or change any Tax election, change any annual Tax
accounting period, adopt or change any method of tax accounting, file any
amended Tax Returns or claims for Tax refunds, enter into any closing agreement
with a Taxing Authority or settle or compromise any Tax claim, audit or
assessment if any such action or omission, considered in the aggregate, would
have the effect of materially increasing the Tax liability or reducing any
material Tax Asset of the Company or any of its Subsidiaries.

        (b) All transfer, documentary, sales, use, stamp, registration, value
added and similar Taxes and fees (including any penalties and interest) imposed
upon the Company or any of its Subsidiaries in connection with the Merger
(including any real property transfer tax and any similar Tax) shall be paid by
the Company when due, and the Company shall, at its own expense, file all
necessary Tax returns and other documentation with respect to all such Taxes and
fees, and, if required by applicable law, the Company shall join in the
execution of any such Tax returns and other documentation.

        Section 6.05. Access to Information. From the date of this Agreement
until the Effective Time, subject to applicable law, upon reasonable notice and
during normal business hours, the Company shall (i) give to Parent, its
officers, employees, counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, employees,
contracts, books and records of the Company and its Subsidiaries, (ii) furnish
to Parent, its officers, employees, counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and (iii) instruct its
employees, counsel, financial advisors, auditors and other authorized
representatives to cooperate with Parent in its investigation. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company and its
Subsidiaries. No information or knowledge obtained in any investigation pursuant
to this Section shall affect or be deemed to modify any

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representation or warranty made by any party hereunder or any condition to the
obligations of the parties hereto.

        Section 6.06. Notices of Certain Events. The Company shall promptly
notify Parent in writing of:

        (a) any Material Adverse Effect;

        (b) any change which makes it likely that any representation and
warranty set forth in this Agreement regarding the Company or any of its
Subsidiaries is not or will not be true at the Closing;

        (c) the occurrence or non occurrence of any event the occurrence or non
occurrence of which would be likely to cause any condition to the obligations of
Parent to effect the transactions contemplated by this Agreement not to be
satisfied;

        (d) the material failure of the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of Parent to effect the transactions contemplated by this Agreement
not to be satisfied;

        (e) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;

        (f) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement; and

        (g) any actions, suits, claims, investigations or proceedings commenced
or, to the Company's Knowledge, threatened against, relating to or involving or
otherwise affecting the Company or any of its Subsidiaries, as the case may be,
that, if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 4.12, 4.13, 4.16, 4.17, 4.18 or 4.19, as the
case may be, or that relate to the consummation of the transactions contemplated
by this Agreement;

provided, however, that the delivery of any notice pursuant to this Section 6.06
shall not cure any breach of any representation or warranty or otherwise limit
or affect the rights and remedies available to Parent.

        Section 6.07. Disclosure Schedule. On the date of this Agreement, the
Company has delivered to Parent a schedule (the "COMPANY DISCLOSURE SCHEDULE").
The Company Disclosure Schedule constitutes an integral part of

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this Agreement. A matter set forth in one item of the Company Disclosure
Schedule need not be set forth in any other item of the Company Disclosure
Schedule so long as its relevance to the other sections or subsections of the
Company Disclosure Schedule or section of the Agreement is reasonably apparent
on the face of the information disclosed in the Company Disclosure Schedule. The
fact that any item of information is disclosed in the Company Disclosure
Schedule shall not be construed to mean that such information is required to be
disclosed by this Agreement. Such information and the dollar thresholds set
forth herein shall not be used as a basis for interpreting the terms "material"
or "Material Adverse Effect" or other similar terms in this Agreement.

                                   ARTICLE 7
                               COVENANTS OF PARENT

        Parent agrees that:

        Section 7.01. Notices of Certain Events. Parent shall promptly notify
the Company in writing of:

        (a) any Parent Material Adverse Effect;

        (b) any change which makes it likely that any representation and
warranty set forth in this Agreement regarding the Parent or Merger Subsidiary
is not or will not be true at the Closing;

        (c) the occurrence or non occurrence of any event the occurrence or non
occurrence of which would be likely to cause any condition to the obligations of
the Company to effect the transactions contemplated by this Agreement not to be
satisfied;

        (d) the material failure of Parent or Merger Subsidiary to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Agreement which would be likely to result in any
condition to the obligations of the Company to effect the transactions
contemplated by this Agreement not to be satisfied;

        (e) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;

        (f) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement; and

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        (g) any actions, suits, claims, investigations or proceedings commenced
or, to Parent's knowledge, threatened against, relating to or involving or
otherwise affecting Parent or Merger Subsidiary that relate to the consummation
of the transactions contemplated by this Agreement;

provided, however, that the delivery of any notice pursuant to this Section 7.01
shall not cure any breach of any representation or warranty or otherwise limit
or affect the rights and remedies available to Company.

        Section 7.02. Obligations of Merger Subsidiary. Parent shall take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.

        Section 7.03. Voting of Shares. Parent shall vote all shares of Common
Stock beneficially owned by it or any of its Subsidiaries in favor of adoption
of this Agreement at the Common Stockholder Meeting.

        Section 7.04. Director and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:

        (a) From and after the Effective Time, the Surviving Corporation shall,
and Parent shall cause the Surviving Corporation to, indemnify and hold harmless
any Person who is now, or has been at any time prior to the date of this
Agreement or who becomes such prior to the Effective Time, an officer or
director of the Company or any of its Subsidiaries (each, an "INDEMNIFIED
PERSON") to the fullest extent permitted by applicable law and under the
Company's articles of incorporation and bylaws in effect on the date hereof,
from and against, and defend any Indemnified Person from and reimburse any
Indemnified Person for, any and all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees), fines, liabilities and judgments and
amounts that are paid in settlement arising out of or in connection with any
claim, action, suit, proceeding or investigation (A) to the extent based on, or
arising out of, the fact that such Person is or was a director or officer of the
Company or any of its Subsidiaries pertaining to any action or omission existing
or occurring at or prior to the Effective Time and whether asserted or claimed
prior to, at or after the Effective Time or (B) to the extent based on, or
arising out of, or pertaining to, this Agreement or the transactions
contemplated hereby. The Surviving Corporation will, and Parent will cause the
Surviving Corporation to, promptly advance all documented, reasonable out of
pocket expenses (including reasonable attorneys' fees) of each Indemnified
Person in connection with any such claim, action, suit, investigation or
proceeding with respect to which such Indemnified Person is seeking
indemnification hereunder as such reasonable out of pocket expenses are incurred
(subject to having received an undertaking from such

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Indemnified Person to reimburse such expenses if it is subsequently determined
that the Indemnified Person is not entitled to indemnification under applicable
law).

        Upon receipt by an Indemnified Person of actual notice of a claim,
action or proceeding against such Indemnified Person in respect of which
indemnity may be sought pursuant to this Section 7.04(a), such Indemnified
Person shall promptly notify the Surviving Corporation with respect thereto. In
addition, an Indemnified Person shall promptly notify the Surviving Corporation
after any action is commenced (by way of service with a summons or other legal
process giving information as to the nature and basis of the claim) against such
Indemnified Person. In any event, failure so to notify the Surviving Corporation
shall not relieve the Surviving Corporation or Parent from any liability which
the Surviving Corporation or Parent may have on account of this indemnity or
otherwise, except to the extent the Surviving Corporation or Parent shall have
been materially prejudiced by such failure. The Surviving Corporation may, at
its election, and, if requested by an Indemnified Person, shall, assume the
defense of and control any litigation or proceeding in respect of which
indemnity may be sought hereunder, including the employment of counsel
reasonably satisfactory to the Indemnified Person and the payment of the fees
and expenses of such counsel, in which event, except as provided below, the
Surviving Corporation shall not be liable for the fees and expenses of any other
counsel retained by an Indemnified Person in connection with such litigation or
proceeding. The Indemnified Person may assume the defense of and control any
such litigation or proceeding in the event that the Surviving Corporation is not
in good faith pursuing the defense of such matter. In any such litigation or
proceeding the defense of which the Surviving Corporation shall have so assumed
and be pursuing in good faith, any Indemnified Person shall have the right to
participate in (but not control) such litigation or proceeding and to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Surviving Corporation and such
Indemnified Person shall have mutually agreed in writing to the retention of
such counsel or (ii) the named parties to any such litigation or proceeding
(including any impleaded parties) include the Surviving Corporation and such
Indemnified Person and representation of both parties by the same counsel would,
in the good faith opinion of counsel to the Surviving Corporation, be
inappropriate due to actual or potential differing interests between the
Surviving Corporation and such Indemnified Person. In any litigation or
proceeding of which the Surviving Corporation shall have assumed the defense,
the Surviving Corporation shall not settle such matter without the prior written
consent of the Indemnified Person (which consent shall not be unreasonably
withheld or delayed) and no Indemnified Person shall be required to agree to
settle such matter unless such settlement (x) includes an unconditional release
of such Indemnified Person from all liability arising out of or in connection
with such matter, (y) does not include any admission of fault, culpability or a
failure to act by, or on behalf of, such Indemnified Person or payment of any
money by

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such Indemnified Person and (z) does not result in the imposition against such
Indemnified Person of injunctive or other equitable relief. The Surviving
Corporation shall not be liable for any settlement of any litigation or
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Surviving
Corporation agrees to indemnify the Indemnified Person from and against any loss
or liability by reason of such settlement or judgment.

        (b) For six years after the Effective Time, Parent or the Surviving
Corporation shall maintain in effect the Company's current directors' and
officers' liability policy (the "COMPANY POLICY") or provide officers' and
directors' liability insurance in respect of acts or omissions occurring prior
to the Effective Time covering each such Indemnified Person currently covered by
the Company Policy (a copy of which has been heretofore delivered to Parent) on
terms, with respect to coverage and amount, no less favorable than those of the
Company Policy in effect on the date of this Agreement; provided, however, that
in no event shall Parent or the Surviving Corporation be required to expend in
any one year an amount in excess of 300% of the annual premiums currently paid
by the Company for such insurance; and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Parent or the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.

        (c) If Parent, the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume all of the
obligations set forth in this Section 7.04.

        (d) The rights of each Indemnified Person under this Section 7.04 shall
be in addition to any rights to indemnification and exculpation of personal
liability that such Person may have under the articles of incorporation or
bylaws of the Company or the articles/certificate of incorporation or bylaws of
any of its Subsidiaries, or under any applicable laws or under any agreement of
any Indemnified Person with the Company or any of its Subsidiaries. These rights
shall survive consummation of the Merger and are intended to benefit, and shall
be enforceable by, each Indemnified Person, his or her heirs and his or her
personal representatives.

        Section 7.05. Agreements With Shareholders. From the date hereof until
the Effective Time, Parent shall not, and shall cause its Affiliates and Merger
Subsidiary not to, (i) enter into any agreement, arrangement or understanding,

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written or oral, with any holder of Common Stock with respect to the voting or
transfer of such Common Stock, other than the Voting Agreement and the Stock
Purchase Agreement or (ii) modify or amend the Voting Agreement or the Stock
Purchase Agreement, except Merger Subsidiary and its Affiliates may enter into
agreements with Dennis Zensen, members of management and Virgil Jurgensmeyer
pursuant to which Dennis Zensen, members of management and Virgil Jurgensmeyer
agree to transfer to Merger Subsidiary all or a portion of the shares owned by
such persons at a price that is equal to or higher than is being paid by all
other investors in the Surviving Corporation.

                                   ARTICLE 8
                       COVENANTS OF PARENT AND THE COMPANY

        The parties hereto agree that:

        Section 8.01. Reasonable Efforts. (a) Subject to the terms and
conditions of this Agreement, Company and Parent shall use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement, including,
without limitation, (i) preparing and filing as promptly as practicable with any
Governmental Authority or other Third Party all documentation to effect all
necessary filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents, (ii) obtaining and maintaining
all approvals, consents, registrations, permits, authorizations and other
confirmations required to be obtained from any Governmental Authority that are
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, (iii) using all reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby and using all
reasonable efforts to defend any litigation seeking to enjoin, prevent or delay
the consummation of the transactions contemplated hereby or seeking material
damages in connection with this Agreement or the transactions contemplated
hereby and (iv) executing and delivering any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purpose
of, this Agreement.

        (b) In furtherance and not in limitation of the foregoing, each of
Parent and Company shall make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within ten Business Days
after the date of this Agreement and to supply as promptly as practicable any
additional information and documentary material that may be requested pursuant
to the HSR

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Act and to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.

        (c) Prior to making any application to or filing with a Governmental
Authority or other entity in connection with this Agreement (other than the
Notification and Report Form pursuant to the HSR Act ), each party shall provide
the other party with drafts thereof and afford the other party a reasonable
opportunity to comment on such drafts.

        Section 8.02. Certain Filings. The Company and Parent shall cooperate
with one another (a) in connection with the preparation of the Company Proxy
Statement, (b) in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required in connection with the consummation
of the transactions contemplated by this Agreement and (c) in taking such
actions or making any such filings, furnishing information required in
connection therewith or with the Company Proxy Statement.

        Section 8.03. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or making any other public
statement with respect to this Agreement or the transactions contemplated hereby
and, except as may be required by applicable law, order of a court of competent
jurisdiction or any listing agreement with or rule of any national securities
exchange or association (in which case the party proposing to issue such press
release or make such public statement shall use its reasonable efforts to
consult in good faith with the other party before issuing such press release or
making any such public statement), shall not issue any such press release or
make any such other public statement without the consent of the other party
(which consent shall not be unreasonably withheld or delayed).

        Section 8.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.

        Section 8.05. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, each of Parent and the Company shall hold, and
shall use its reasonable best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the

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other party furnished to it or its Affiliates in connection with the
transactions contemplated by this Agreement, except to the extent that such
information was (i) previously known on a nonconfidential basis by such party
from a source other than the other party or its Subsidiaries or their advisors,
provided that to such party's knowledge such source was not prohibited from
disclosing such information to such party by a contractual, legal or fiduciary
obligation to the other party or its Subsidiaries or their advisors, (ii) in the
public domain through no fault of such party or (iii) later lawfully acquired by
such party on a non-confidential basis from sources other than the other party
or its Subsidiaries or their advisors, provided that to such party's knowledge,
after due inquiry, such source is not prohibited from disclosing such
information to such party by a contractual, legal or fiduciary obligation to the
other party or its Subsidiaries or their advisors; provided that each of Parent
and the Company may disclose such information to its officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement so long as such party
informs such Persons of the confidential nature of such information and directs
them to treat it confidentially. Notwithstanding any other provision of this
Agreement, each of Parent and the Company may disclose the tax treatment and tax
structure of the transactions contemplated by this Agreement (including any
materials, opinions or analyses relating to such tax treatment or tax structure,
but without disclosure of identifying information or, except to the extent
relating to such tax structure or tax treatment, any nonpublic commercial or
financial information, except as otherwise required by applicable securities
laws). Moreover, notwithstanding any other provision of this Agreement, there
shall be no limitation on Parent's or the Company's ability to consult any tax
adviser, whether or not independent from Parent, Company or their respective
Affiliates, regarding the tax treatment or tax structure of the transactions
contemplated by this Agreement. Each of Parent and the Company shall satisfy its
obligation to hold any such information in confidence if it exercises the same
care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is terminated,
each of Parent and the Company shall, and shall use its reasonable best efforts
to cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to the other party, upon request, all
documents and other materials, and all copies thereof, that it or its Affiliates
obtained, or that were obtained on their behalf, from the other party in
connection with this Agreement and that are subject to such confidence.

        Section 8.06. Takeover Statute. If any "fair price", "moratorium",
"control share acquisition" or other form of anti takeover statute or regulation
shall become applicable to the transactions contemplated hereby, each of the
Company, Parent and Merger Subsidiary and the members of their respective Boards
of Directors shall grant such approvals and take such actions as are reasonably
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and

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otherwise act to eliminate or minimize the effects of such statute or regulation
on the transactions contemplated hereby.

                                   ARTICLE 9
                            CONDITIONS TO THE MERGER

        Section 9.01. Conditions to Obligations of Each Party. The obligations
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver (to the extent permitted by applicable
law) at or prior to the Effective Time of the following conditions:

        (a) this Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with the NRS;

        (b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction shall be in
effect prohibiting, restricting, or preventing the consummation of the Merger;

        (c) any applicable waiting period (and any extension thereof) under the
HSR Act relating to the Merger shall have expired or been terminated; and

        (d) all actions by or in respect of, or filings with, any Governmental
Authority required to permit the consummation of the Merger, the failure to
obtain which have a Material Adverse Effect or would have a Parent Material
Adverse Effect, shall have been taken, made or obtained.

        Section 9.02. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction or waiver (to the extent permitted by
applicable law) at or prior to the Effective Time of the following further
conditions:

        (a) the Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time;

        (b) the representations and warranties of the Company contained in this
Agreement and in any certificate or other writing delivered by the Company
pursuant hereto shall be true and correct (determined without regard to any
materiality or material adverse effect qualification contained in any
representation or warranty) at and as of the Effective Time, as if made at and
as of such time (except to the extent a representation or warranty is made as of
a time other than the Effective Time, in which case such representation or
warranty shall be true and correct at and as of such time), with only such
exceptions as do not in the aggregate have a Material Adverse Effect;

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        (c) since June 30, 2003, there shall not have been any change,
circumstance or event which constitutes or has resulted in a Material Adverse
Effect (either individually or in the aggregate);

        (d) there shall not be pending any suit, action or proceeding by any
Governmental Authority (i) seeking to place limitations on the ownership of
shares of Common Stock (or shares of common stock of the Surviving Corporation)
by Parent or Merger Subsidiary or seeking to obtain from the Company, Parent or
Merger Subsidiary any damages that are material in relation to the Company, (ii)
seeking to prohibit or materially limit the ownership or operation by the
Company, the Subsidiaries of the Company or Parent of any material portion of
any business or of any assets of the Company, the Subsidiaries of the Company or
Parent, or to compel the Company, the Subsidiaries of the Company or Parent to
dispose of or hold separate any material portion of any business or of any
assets of the Company, the Subsidiaries of the Company or Parent, as a result of
the Merger or (iii) seeking to prohibit Parent from effectively controlling in
any material respect the business or operations of the Company and its
Subsidiaries; and

        (e) Parent shall have received a certificate signed by an executive
officer of the Company certifying as to the fulfillment of the conditions
specified in Sections 9.02(a), 9.02(b) and 9.02(c).

        (f) No Takeover Statute, including any such statute contemplated by
Section 8.06 hereof shall apply to or be triggered by the Merger, this
Agreement, the Voting Agreement or the transactions contemplated hereby or
thereby.

        Section 9.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted by applicable law) at or prior
to the Effective Time of the following further conditions:

        (a) each of Parent and Merger Subsidiary shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time;

        (b) the representations and warranties of Parent and Merger Subsidiary
contained in this Agreement and in any certificate or other writing delivered by
Parent or Merger Subsidiary pursuant hereto shall be true and correct
(determined without regard to any materiality or material adverse effect
qualification contained in any representation or warranty) at and as of the
Effective Time, as if made at and as of such time (except to the extent a
representation or warranty is made as of a time other than the Effective Time,
in which case such representation or warranty shall be true and correct at and
as of such time), with

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<PAGE>

only such exceptions as would not in the aggregate reasonably be expected to
have a Parent Material Adverse Effect; and

        (c) the Company shall have received a certificate signed by an executive
officer of Parent and Merger Subsidiary certifying as to the fulfillment of the
conditions specified in Section 9.03(a) and Section 9.03(b).

                                   ARTICLE 10
                                   TERMINATION

        Section 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned, at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):

        (a) by mutual written agreement of the Company, Parent and Merger
Subsidiary;

        (b) by either the Company or Parent, if:

                (i) the Merger has not been consummated on or before May 1, 2004
        (the "END DATE"); provided, however, that the right to terminate this
        Agreement pursuant to this clause (i) shall not be available to any
        party whose willful or intentional breach of this Agreement has been the
        primary cause of, or resulted in, the failure of the Effective Time to
        occur on or before such date;

                (ii) (A) there shall be any United States law or regulation in
        effect that makes consummation of the Merger illegal or otherwise
        prohibited or (B) any judgment, injunction, order or decree of any court
        or governmental body having competent jurisdiction enjoining the
        Company, Merger Subsidiary or Parent from consummating the Merger is
        entered, and such judgment, injunction, order or decree shall have
        become final and nonappealable; or

                (iii) this Agreement shall not have been approved and adopted in
        accordance with the NRS by the Company's stockholders at the Company
        Stockholder Meeting (or any postponement or adjournment thereof) by
        reason of the failure to obtain the required vote of the Company's
        stockholders;

        (c) by Parent, if:

                (i) at any time prior to the adoption and approval of this
        Agreement by the Company's stockholders, the Board of Directors of the

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        Company or the Special Committee shall have failed to make or withdrawn,
        or modified in a manner adverse to Parent, its approval or
        recommendation (including, without limitation, by approving,
        recommending or endorsing an Acquisition Proposal) of this Agreement or
        the Merger; or failed to reconfirm its recommendation within five
        Business Days after a written request to do so (it being understood that
        only two such requests may be made) or the Board of Directors of the
        Company or the Special Committee shall have resolved to take any of the
        foregoing actions;

                (ii) the Company Stockholder Meeting is not held within 30
        Business Days following the clearance of the Company Proxy Statement by
        the SEC or if the Company Stockholder Meeting is canceled, adjourned or
        delayed except as expressly contemplated by this Agreement or agreed to
        by Parent in writing; provided, however, that Parent shall not have the
        right to terminate this Agreement pursuant to this clause (ii) if such
        failure to hold, cancellation, adjournment or delay of the Company
        Stockholder Meeting results, directly or indirectly, from an injunction,
        judgment, order or other obligation imposed by a Governmental Authority;

                (iii) a breach of any representation or warranty or failure to
        perform any covenant or agreement on the part of the Company set forth
        in this Agreement shall have occurred that would cause the conditions
        set forth in Section 9.02(a) and Section 9.02(b) not to be satisfied,
        and such condition is incapable of being satisfied by the End Date; or

                (iv) (A) the Special Committee or the Board of Directors of the
        Company authorizes the Company, subject to complying with the terms of
        this Agreement, to enter into a binding written agreement concerning a
        transaction that constitutes a Superior Proposal (a "SUPERIOR PROPOSAL
        AGREEMENT"), and the Company notifies Parent, in writing and at least
        three Business Days prior to such termination, of its intention to enter
        into such a Superior Proposal Agreement (which notice shall include a
        description of all material terms and conditions thereof); and (B)
        Parent does not make, within two Business Days of receipt of the
        Company's written notification of its intention to enter into such a
        Superior Proposal Agreement, an offer to enter into an amendment to this
        Agreement such that the Special Committee or the Board of Directors of
        the Company determines, in good faith after consultation with its
        financial advisors, that this Agreement as so amended is at least as
        favorable, from a financial point of view, to the stockholders of the
        Company as the Superior Proposal. The Company agrees to notify Parent
        promptly if its intention to enter into a Superior Proposal Agreement
        referred to in its notification shall change at any time after giving
        such notification.

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<PAGE>

                (d) by the Company, if:

                (i) a breach of any representation or warranty or failure to
        perform any covenant or agreement on the part of Parent or Merger
        Subsidiary set forth in this Agreement shall have occurred that would
        cause the condition set forth in Section 9.03(a) and Section 9.03(b) not
        to be satisfied, and such condition is incapable of being satisfied by
        the End Date; or

                (ii) (A) the Board of Directors of the Company authorizes the
        Company, subject to complying with the terms of this Agreement, to enter
        into a Superior Proposal Agreement and the Company notifies Parent, in
        writing and at least three Business Days prior to such termination of
        its intention to enter into such a Superior Proposal Agreement (which
        notice shall include a description of all material terms and conditions
        thereof); (B) Parent does not make, within two Business Days of receipt
        of the Company's written notification of its intention to enter into
        such a Superior Proposal Agreement, an offer to enter into an amendment
        to this Agreement such that the Special Committee or the Board of
        Directors of the Company determines, in good faith after consultation
        with its financial advisors, that this Agreement as so amended is at
        least as favorable, from a financial point of view, to the stockholders
        of the Company as the Superior Proposal; and (C) the Company
        substantially simultaneously with such termination pursuant to this
        clause 10.01(d)(ii) pays to Parent in immediately available funds the
        amounts required to be paid pursuant to Section 11.04(b). The Company
        agrees to notify Parent promptly if its intention to enter into a
        Superior Proposal Agreement referred to in its notification shall change
        at any time after giving such notification.

The party desiring to terminate this Agreement pursuant to this Section 10.01
(other than pursuant to Section 10.01(a)) shall give notice of such termination
to the other party.

        Section 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
without liability of any party (or any stockholder, director, officer, employee,
agent, consultant or representative of such party) to the other party hereto;
provided that nothing contained in this Section 10.02 shall relieve any party
from any liability for any willful or intentional breach of this Agreement, such
party shall be fully liable for any and all liabilities and damages incurred or
suffered by the other party as a result of such breach. Notwithstanding the
foregoing, the provisions of this Section 10.02 and Sections 8.05, 11.04, 11.06,
11.07 and 11.08 shall survive any termination hereof pursuant to Section 10.01.

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                                   ARTICLE 11
                                  MISCELLANEOUS

Section 11.01. Notices. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,

         if to Parent or Merger Subsidiary, to:

                  Snyder Associated Companies, Inc.
                  P.O. Box 1022
                  Kittanning, PA 16201
                  Attention:     Mark A. Snyder
                  Facsimile No.: (724) 545-2989

         with a copy to:

                  Cohen & Grigsby, P.C.
                  11 Stanwix Street, 15th Floor
                  Pittsburgh, PA 15222
                  Attention:     Charles C. Cohen
                  Facsimile No.: (412) 209-0672

         if to the Company, to:

                  Sylvan Inc.
                  330 Main Street, P.O. Box 249
                  Saxonburg, PA
                  Attention:     Dennis Zensen
                  Facsimile No.: (724) 352-7550

         with a copy to:

                  Davis Polk & Wardwell
                  450 Lexington Avenue
                  New York, New York 10017
                  Attention:     Leonard Kreynin
                  Facsimile No.: (212) 450-3800

or to such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All notices, requests,
demands, claims, and other communications hereunder will be in writing. Any
notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (i) upon confirmation of receipt if sent by facsimile or personal
delivery, (ii) one business day following the date sent when sent by

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overnight delivery and (iii) five business days following the date mailed when
mailed by registered or certified mail return receipt requested and postage
prepaid.

        Section 11.02. Survival of Representations and Warranties and Covenants.
(a) The representations, warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement.

        (b) Notwithstanding anything to the contrary contained in Section
11.02(a) above, the covenants and agreements of the parties to be performed
after the Effective Time contained in this Agreement shall survive the Effective
Time in accordance with their respective terms.

        Section 11.03. Amendments or Supplements and Waivers. (a) Subject to
applicable law, at any time prior to the Effective Time, this Agreement may be
amended or supplemented in any and all respects, whether before or after the
Company Stockholder Approval, by written agreement of the parties hereto, by
action taken by their respective Boards of Directors, with respect to any of the
terms contained in this Agreement; provided, however, that following the Company
Stockholder Approval there shall be made no amendment that by law requires
further approval of the stockholders of the Company without the further approval
by such stockholders. Subject to applicable law, any provision of this Agreement
may be waived prior to the Effective Time if, but only if, such waiver is in
writing and is signed by each party against whom the waiver is to be effective.

        (b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

        Section 11.04. Expenses. (a) Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such cost
or expense.

        (b) If a Payment Event (as hereinafter defined) occurs, the Company
shall pay Parent (by wire transfer of immediately available funds) a fee equal
to $2,000,000 plus all documented, out of pocket expenses reasonably incurred by
Parent, Merger Subsidiary and their Affiliates in connection with this Agreement
and the Merger in an amount not to exceed $500,000 (the "EXPENSE
REIMBURSEMENT"), (i) if pursuant to (x) or (z) below within two Business Days of
the occurrence of such Payment Event or (ii), if pursuant to (y) below,
substantially simultaneously with the occurrence of such Payment Event.

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<PAGE>

        "PAYMENT EVENT" means (x) the termination of this Agreement pursuant to
Section 10.01(c)(i) or Section 10.01(c)(ii), (y) the termination of this
Agreement pursuant to Section 10.01(c)(iv) or Section 10.01(d)(ii) or (z) the
consummation of any of the transactions described in clauses (A) through (D) of
this definition within 12 months of the termination of this Agreement pursuant
to Section 10.01(b)(iii) if prior to the Company Stockholder Meeting, there
shall have been made a bona fide Acquisition Proposal pursuant to which
stockholders of the Company would receive cash, securities or other
consideration having an aggregate value, when taken together with the value of
any securities of the Company or its Subsidiaries otherwise held by such
stockholders after such event, in excess of $12.25 per share of Common Stock and
which bona fide Acquisition Proposal shall have been publicly announced and
outstanding at the time of the Company Stockholder Meeting: (A) the Company
merges with or into, or is acquired, directly or indirectly, by merger or
otherwise by, a Third Party; (B) a Third Party, directly or indirectly, acquires
more than 50% of the total assets of the Company and its Subsidiaries, taken as
a whole; (C) a Third Party, directly or indirectly, acquires more than 50% of
the outstanding shares of Common Stock; or (D) the Company adopts or implements
a plan of liquidation, recapitalization or share repurchase relating to more
than 50% of the outstanding shares of Common Stock or an extraordinary dividend
relating to more than 50% of such outstanding shares or 50% of the assets of the
Company and its Subsidiaries, taken as a whole, provided that no Payment Event
shall be considered to have occurred as described in this clause (z) unless in
connection with the transaction described in clauses (A), (B), (C) or (D) the
stockholders of the Company shall have received, within 12 months of such
termination of this Agreement, cash, securities or other consideration having an
aggregate value, when taken together with the value of any securities of the
Company or its Subsidiaries otherwise held by such stockholders after such
event, in excess of $12.25 per share of Common Stock.

        (c) In the event that this Agreement is terminated pursuant to Section
10.01(b)(iii), Parent shall be entitled to receive the Expense Reimbursement (by
wire transfer of immediately available funds) from the Company within two
Business Days after such termination.

        (d) Parent and Merger Subsidiary agree that the payments set forth in
Sections 11.04(b) and 11.04(c) to the extent that such payment is payable and is
actually paid, shall be the sole and exclusive remedy of Parent and Merger
Subsidiary upon a termination of this Agreement pursuant to Sections
10.01(b)(iii), 10.01(c)(i), 10.01(c)(ii), 10.01(c)(iv) or 10.01(d)(ii) and such
remedy shall be limited to the sum stipulated in Sections 11.04(b) and 11.04(c),
regardless of the circumstances giving rise to such termination. The Company
acknowledges that the agreements contained in Sections 11.04(b) and 11.04(c) are
an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement.

                                       113
<PAGE>

Accordingly, if the Company fails promptly to pay the amounts due pursuant to
Sections 11.04(b) and 11.04(c), as the case may be, the Company shall pay to
Parent interest on the amounts set forth in Sections 11.04(b) and 11.04(c), as
the case may be, at the prime rate of Bank One, N.A. in effect on the date such
payment was required to be made.

        Section 11.05. Binding Effect; Benefit; Assignment. (a) The provisions
of this Agreement shall be binding upon and, except as provided in Section 7.04,
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Except as provided in Section 7.04, no provision of this Agreement
is intended to confer any rights, benefits, remedies, obligations or liabilities
hereunder upon any Person other than the parties hereto and their respective
successors and assigns.

        (b) No party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto, except that Parent or Merger Subsidiary may transfer or assign, in
whole or from time to time in part, to one or more of their Affiliates, the
right to enter into the transactions contemplated by this Agreement, but any
such transfer or assignment shall not relieve Parent or Merger Subsidiary of its
obligations hereunder.

        Section 11.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of law rules of such state, except to the extent the NRS or
PaBCL is applicable thereto.

        Section 11.07. Jurisdiction. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal court located in the State
of New York or any New York state court, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. Process in
any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such party
as provided in Section 11.01 shall be deemed effective service of process on
such party.

        Section 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO

                                       114
<PAGE>

TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

        Section 11.09. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be deemed to be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by all of the other parties hereto.

        Section 11.10. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of this Agreement
and supersedes all prior agreements and understandings, both oral and written,
among the parties with respect to the subject matter of this Agreement.

        Section 11.11. Captions. The captions and table of contents herein are
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof.

        Section 11.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.

        Section 11.13. Enforcement of Agreement. The parties hereto agree that
money damages or other remedies at law would not be sufficient or adequate
remedy for any breach or violation of, or a default under, this Agreement by
them and that in addition to all other remedies available to them, each of them
shall be entitled to the fullest extent permitted by law to an injunction
restraining such breach, violation or default or threatened breach, violation or
default and to any other equitable relief, including, without limitation,
specific performance, without bond or other security being required.

                                       115
<PAGE>

        Section 11.14. Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".

                                     * * * *

                                       116
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

                                 SYLVAN INC.

                                 By:    /s/ Donald A. Smith
                                        -----------------------------------
                                     Name:    Donald A. Smith
                                     Title:   Chief Financial Officer

                                 SNYDER ASSOCIATED
                                 COMPANIES, INC.

                                 By:    /s/ Elmer A. Snyder
                                        -----------------------------------
                                     Name:    Elmer A. Snyder
                                     Title:   President

                                 SAC HOLDING CO.

                                 By:    /s/ Elmer A. Snyder
                                        -----------------------------------
                                     Name:    Elmer A. Snyder
                                     Title:   President

                                       117

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