Document:

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                              EMPLOYMENT AGREEMENT

                  EMPLOYMENT AGREEMENT dated September 12, 2000, by and among
Spyonit.com, Inc., a corporation organized under the laws of Delaware (the
"COMPANY") and a wholly owned subsidiary of 724 Solutions Inc., an Ontario,
Canada corporation ("PARENT" and, together with the Company and its
affiliates, the "COMPANIES"), Parent and Richard W. Costolo (the "EMPLOYEE").

                                   WITNESSETH:

                  WHEREAS, the Company desires to continue to employ the
Employee, and Employee desires to accept such employment, on the terms and
subject to the conditions hereinafter set forth; and

                  WHEREAS, this Agreement will be contingent upon the close
of the transaction contemplated by the Agreement and Plan of Merger and
Reorganization, dated the date hereof (the "MERGER AGREEMENT"), by and among
Parent, Serpent Acquisition Corp., a Delaware corporation, and the Company,
pursuant to which Serpent Acquisition Corp. will merge with and into the
Company the "MERGER").

                  WHEREAS, the Employee has been employed by the Company and
his or her continuing services are necessary to maintain the value of the
Company; and

                  WHEREAS, the Employee, a stockholder of the Company, has
agreed to exchange his or her shares of common stock of the Company for cash
and shares of common stock of Parent pursuant to the Merger Agreement.

                  NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto agree as follows:

                  1. EMPLOYMENT; TERM. The Company hereby employs the
Employee, and the Employee hereby accepts employment with the Company, in
accordance with the terms and subject to the conditions set forth herein. The
term of the Employee's employment hereunder shall commence the date the
Merger becomes effective, which shall be the Employee's first date of
employment with the Company (the "START DATE"), and shall continue until
terminated in accordance with the provisions of Section 6.

                  2. DUTIES. During the Term, the Employee shall serve in the
position set out in Section 1 of Schedule A and/or, subject to Section 6.3
hereof, in such other positions to which the Company from time to time may
place him or her, and shall devote his or her full business time and best
efforts to the business and affairs of the Company in a good faith effort to
increase the net profits of the Company and increase the value of the Company
to its stockholders; PROVIDED, HOWEVER, that any failure of the Company to
increase its net profits or increase its value to its stockholders shall not
by itself constitute a breach of the duties of the Employee. The Employee
shall not during the term of this Agreement be engaged in any other business
activity, whether or not such business activity is pursued for gain, profit
or other pecuniary advantage, unless written approval is first secured from
the board of directors of the Company.

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                  3. COMPENSATION; STOCK OPTIONS.

                  3.1 SALARY; BONUS; AND TRAVEL EXPENSES. The Company shall
pay the Employee a base salary (the "BASE SALARY") set out in Section 2 of
Schedule A in accordance with the Company's standard payroll practices and
subject to all legally required or customer withholdings. The Base Salary
shall be reviewed annually in accordance with the standard practice of the
Company. In addition, the Employee shall be eligible to receive a bonus up to
the amount listed in Section 2 of Schedule A pursuant to a bonus plan from
time to time in effect for similar employees of the Company. The Company
agrees to reimburse the Employee for all reasonable and necessary travel,
business entertainment and other business expenses incurred by the Employee
in connection with the performance of his or her duties under this Agreement.
Such reimbursements shall be made by the Company upon submission by the
Employee of all required documentation in accordance with the Company's
standard procedures.

                  3.2 STOCK OPTIONS. Subject to the approval of Parent's
Board of Directors, Parent shall grant to the Employee, on or about the Start
Date, an option to purchase the number of shares of Parent's Common Stock set
out in Section 3 of Schedule A. The option will be on the terms and subject
to the conditions of Parent's applicable stock option plan, and the
applicable stock option agreement which the Employee must agree to and
execute as a condition of the stock option agreement.

                  3.3 RETENTION BONUS. In addition to any bonus payable
pursuant to Section 3.1, the Employee shall be entitled to receive from the
Company a retention bonus ("RETENTION BONUS") set out in Section 4 of
Schedule A on the first, second and third anniversaries of the date hereof,
subject in each case to all legally required or customary withholdings, and
provided, that in each case the Employee shall continue to be employed by the
Company or any of its subsidiaries or affiliates on such date, except as
provided in Section 6.2 or 6.3 hereof. The obligation of the Company to pay
the Retention Bonus is hereby guaranteed by Parent.

                  4. BENEFITS. Parent shall maintain life/disability
insurance for the benefit of the Employee in the amount of the Retention
Bonus to be paid to the Employee pursuant to Section 3.3 hereof.
Additionally, the Employee shall be entitled to participate in any plans
maintained from time to time by Parent for the benefit of Parent's employees,
including, but not limited to, those pertaining to group life, accident,
dental prescription, sickness and medical, and long term disability
insurance, provided that premiums for such coverages are reasonable, as
determined by Parent in its sole discretion. The Employee will be required to
pay for the premiums for Parent's mandatory long term disability (LTD) plan.
The premium will be automatically deducted from the Employee's pay cheque.

                  5. VACATIONS; WORKING FACILITIES. (a) The Employee shall be
entitled to three (3) weeks of vacation in each calendar year. Such vacations
shall be taken at such time as the Company may from time to time reasonably
approve, having regard to the operations of the Company. Vacation time shall
be cumulative, in accordance with the Company's standard policies.

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                 (b) The Employee shall be furnished with office space,
furnishings,  secretarial assistance and such other facilities and services
as the Company shall decide are reasonably necessary for the performance of
the Employee's duties.

                  6. TERMINATION. Notwithstanding the provisions of Section 1
of this Agreement, the Employee's employment hereunder may terminate under
the following circumstances:

                  6.1 TERMINATION BY THE COMPANY FOR "CAUSE". The Company may
terminate the Employee's employment hereinunder for Cause at any time, upon
written notice to the Employee setting forth in reasonable detail the nature
of such Cause. For purposes of this Agreement, "CAUSE" shall mean: (i) the
willful and continued failure of the Employee to perform the Employee's
duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand for
performance is delivered to the Employee by the Company which specifically
identifies the manner in which the Company believes that the Employee has not
performed the Employee's duties and such failure is not cured within fifteen
(15) calendar days alter receipt of such written demand; (ii) material acts
of misconduct, including without limitation, unauthorized use or disclosure
of Company confidential information, fraud, embezzlement or harassment; (iii)
material breach of any provision of this Agreement; or (iv) conviction of any
felony or of any other crime involving business matters. Upon the termination
for Cause of Employee's employment, the Company shall have no further
obligation or liability to the Employee other than for salary earned under
this Agreement prior to the date of termination, and any accrued but unused
vacation.

                  6.2 TERMINATION BY THE COMPANY WITHOUT CAUSE. The
Employee's employment hereunder may be terminated without Cause by the
Company upon written notice to the Employee, PROVIDED, HOWEVER, that if the
Company terminates the Employee's employment without Cause, the Company shall
continue to pay the Employee the Retention Bonus in accordance with Section 4
of Schedule A.

                  6.3 TERMINATION BY THE EMPLOYEE. The Employee may terminate
his or her employment hereunder upon two week's written notice to the Company
for Good Reason or otherwise; PROVIDED, HOWEVER, that in the event the
Employee gives written notice to the Company of his or her termination of
employment within one (1) month of a relocation of the Employee's worksite to
a location 50 miles or more from the city of Chicago, Illinois, the Employee
shall be entitled to continue to receive his or her Base Salary for a period
of 6 months from the effective date of such termination and continue to
receive the Retention Amounts in accordance with Section 4 of Schedule A, and
PROVIDED FURTHER, HOWEVER, that if the Employee terminates his or her
employment for Good Reason, the Company shall continue to pay the Employee
the Retention Bonus in accordance with Section 4 of Schedule A. For purposes
of this Agreement, "GOOD REASON" shall mean (i) any willful and continued
failure by the Company to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith, and such failure is not cured within fifteen (15)
days after receipt of notice thereof given by the Employee; (ii) any
purported termination by the Company of the Employee's employment otherwise
than as expressly permitted by this Agreement or (iii) the assignment of the
Employee to a position, or the assignment of duties to the Employee involving
a substantial amount of the Employee's time, which are materially

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inconsistent with the education and experience of the Employee and the
general area of business in which tae Employee currently is assigned,
excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Employee. The rights granted to Employee pursuant
to this Section 6.3 with respect to any relocation of the Employee's worksite
shall only apply for a period of 36 months from the Start Date.

                  6.4 DISABILITY. If, as a result of sickness or other
disability, the Employee shall be unable to perform the Employee's duties as
herein provided for a period of ninety (90) consecutive days or ninety (90)
nonconsecutive days during any twelve (12) month period during the term of
this Agreement, then the Company may at its option and subject to any
applicable legal requirements relating to disabilities, terminate the
Employee's employment. In the event of such termination, the Company shall
only be required to pay to the Employee the compensation set forth in Section
3 hereof accrued up to the date of termination. In no event shall the Company
be obligated to pay the Employee any Incentive Compensation occurring or
accruing after the date of the Employee's termination.

                  6.5 DEATH. If the Employee dies during the term hereof, the
Company shall only be required to pay to the Employee the compensation set
forth in Section 3 hereof accrued up to the date of death. In no event shall
the Company be obligated to pay the Employee any Incentive Compensation
occurring or accruing after the date of the Employee's death.

                  7.  CONFIDENTIAL INFORMATION; NONDISCLOSURE; OTHER
OBLIGATIONS.

                      7.1 CONFIDENTIAL INFORMATION. The Employee acknowledges
that during the course of his or her employment, he or she will have access
to information about the Companies, and that his or her employment with the
Company will bring him or her into close contact with many confidential
affairs of the Companies and the Companies' customers, including, without
limitation, the following (collectively, "CONFIDENTIAL INFORMATION"): (i) any
idea, proposal, plan, information, procedure, technique, formula, technology
or method of operation, any written or oral information of a proprietary
nature, and any intellectual property owned or licensed by the Companies or
relating to the Companies or any of their principals' or affiliates'
business, projects, operations, finances, activities or affairs, whether of a
technical nature or not (including trade secrets, know-how, processes, and
other technical or business information), or any proposed change thereto,
(ii) any other information disclosed to the Employee by the Companies and
designated by the Companies as confidential, and (iii) any other information
that the Employee knows or should know that the Companies wish to keep
confidential. By way of illustration, but not limitation, Confidential
Information includes, without limitation, information regarding (i) all of
the computer software and technologies, systems, structures, architectures,
processes, formulae, compositions, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods, and information
and databases developed, acquired, owned, produced or practiced at any time
by the Companies or any affiliate thereof, software programs and
documentation licensed by third parties to the Companies, and any other
similar information or material, (ii) the business or financial condition of
the Companies or directly or indirectly related to the Company's companies or
investments or its internal administrative, billing and accounting systems;
(iii) customer lists,

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telemarketing lists, vendor lists, personnel information and policies and
procedures; (iv) the Companies' products and services; (v) business or
financial information directly or indirectly related to the Companies'
companies and investments and (vi) other processes and procedures employed by
the Companies. Such Confidential Information does not include information
that is readily available to the public.

                      7.2 NONDISCLOSURE. In recognition of the foregoing,
during and after the termination of his or her employment and until such time
as the Confidential Information is generally published or is available to the
general public other than through the Employee's unauthorized disclosure,
regardless of the reason for any termination of employment, the Employee
shall not, without the prior written consent of the Company, disclose or use
or make available for anyone to use (except in the course of his or her
employment in furtherance of the business of the Company) any Confidential
Information, and the Employee shall during the continuance of his or her
employment by the Company use his or her best efforts to prevent the
unauthorized publication or misuse of any Confidential Information; provided,
however, that Confidential Information shall not include any information (i)
currently in the public domain (other than as a result of a breach of this
Agreement), or (ii) independently developed by the Employee, outside of the
scope of his or her employment, without violating any of the provisions of
this Section 7 or the Agreement.

                      7.3 NONCOMPETITION. The Employee acknowledges and
recognizes the highly competitive nature of the Company's business, that
access to the Company's confidential records and proprietary information as
well as his or her skills, know-how and business knowledge render him or her
special and unique within the Company's industry, and that he or she will
have the opportunity to develop substantial relationships with existing and
prospective customers of the Company during the course of and as a result of
his or her employment. In light of the foregoing, during the course of
employment and for a period of two (2) years after the date of termination of
employment for any reason (PROVIDED, HOWEVER, that in the event of any
termination after the third anniversary of the Start Date, such period shall
be for one (1) year), the Employee agrees that the Employee shall not (1) own
or have any interest, directly or indirectly, in, or act as a manager,
officer, director, employee, consultant, agent or representative of, or
assist in any way or in any capacity, any person, firm, association,
partnership, corporation, limited liability company or other entity which (a)
sells or provides products or services either for wireless software
infrastructure or in competition with the business of the Company as
conducted on the Start Date or as proposed to be conducted on the Start Date,
or (b) solicits business from any persons who were customers of the Companies
during the two year period prior to such termination; or (ii) directly or
indirectly entice, induce or in any manner influence any person who is, or
shall be, in the service of the Companies to leave such service for the
purpose of engaging in a business, or being employed by or associated with
any person, firm, association, partnership, corporation, limited liability
company or other entity, which is in competition with the Companies.

                      7.4 REASONABLENESS OF PROVISIONS. The Employee
recognizes and acknowledges that the restrictions and limitations set forth
in this Section 7 are legitimate and fair in light of the consideration he or
she is receiving in connection with the Merger and his or her access to
Confidential Information, his or her unique skills, know-how and knowledge,
his or her substantial contacts with customers of the Company and the
Company's need to develop and

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market its services and products. The Employee further acknowledges that the
customers of the Companies are located throughout the United States and that
a business competitive with the Companies may be carried on anywhere within
the United States as a result of the unique use of telephonic, technologic
and other advanced communications techniques. Therefore, the Employee
acknowledges that the geographical application of the provisions and
restrictions contained in this Section 7 are reasonable under the
circumstances. The Employee further acknowledges that: (i) in the event his
or her employment with the Company terminates for any reason, he or she will
be able to earn a livelihood without violating the foregoing restrictions and
(ii) this ability to earn a livelihood without violating such restrictions is
a material condition to his or her employment with the Company.

                      7.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.
The Employee's employment with the Company is contingent upon the Employee's
execution of Parent's Proprietary Information, Inventions and
Non-Solicitation Agreement, a copy of which is attached hereto as Schedule B.
In addition, to the extent that the Employee has any rights to any
intellectual property that relates to the business of the Company and that:
(i) was developed while the Employee provided services to the Company; or
(ii) was incorporated into the products or other intellectual property of the
Company, the Employee hereby agrees to irrevocably assign to the Company all
worldwide rights, title and interest to such intellectual property.

                      7.6 NO OTHER OBLIGATIONS. The Employee represents that
he or she is not precluded or limited in his or her ability to undertake or
perform the duties described herein by any contract, agreement or restrictive
covenant. The Employee covenants that he or she shall not intentionally and
knowingly employ the trade secrets or proprietary information of any other
person in connection with this employment by the Company.

                      7.7 CONFIDENTIALITY. The Employee agrees to keep
confidential the terms of this Agreement. This provision does not prohibit
the Employee from providing this information to his or her attorneys or
accountants for purposes of obtaining legal or tax advice or as otherwise
required by law or discussing the Agreement with other senior Employees of
the Company.

                      7.8 ENFORCEMENT. The Employee expressly acknowledges
that any breach or threatened breach of any of the terms and/or conditions
set forth in this Section 7 will result in substantial, continuing and
irreparable injury to the Company. Therefore, the Employee hereby agrees
that, in addition to any other remedy that may be available to the Company,
the Company shall be entitled to injunctive relief, specific performance or
ocher equitable relief in the event of any breach or threatened breach of the
terms of this Section 7. The exclusive venue for the resolution of any
disputes arising out of this Section 7 shall be in federal or state courts
located in the State of Illinois, and the parties consent to the jurisdiction
of such courts.

                      8.  REPURCHASE RIGHT.

                      8.1 GRANT. The Company is hereby granted the right (the
"REPURCHASE RIGHT"), exercisable at any time during the ninety (90)-day
period following the date the Employee's employment is terminated (i) by the
Employee (other than a termination by the Employee for Good Reason) or (ii)
by the Company for Cause, to repurchase, at a purchase

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price of $.01 per share ("PURCHASE PRICE"), all or any portion of the Shares
(as hereinafter defined). As used herein, the terms "SHARES" shall mean
36,721 shares of Parent's Common Stock received by the Employee as Third
Additional Consideration (as defined in the Merger Agreement) pursuant to the
Merger Agreement.

                      8.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase
Right shall be exercisable by written notice delivered to the Employee prior
to the expiration of the ninety (90)-day exercise period. The notice shall
indicate the number of Shares to be repurchased and the date on which the
repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Shares to be
repurchased shall be delivered to the Company prior to the close of business
on the date specified for the repurchase. Concurrently with the receipt of
such stock certificates, the Company shall pay to the Employee, in cash, an
amount equal to the aggregate Purchase Price.

                      8.3 TERMINATION OF HE REPURCHASE RIGHT. The Repurchase
Right shall terminate with respect to any Shares for which it is not timely
exercised under Paragraph 8.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable on the third anniversary on the date
hereof; PROVIDED, that the Repurchase Right has not become exercisable prior
to that date.

                      8.4 RECAPITALIZATION. Any new, substituted or
additional securities or other property which is by reason of any
recapitalization distributed with respect to the Shares shall be immediately
subject to the Repurchase Right, but only to the extent the Shares are at the
time covered by such right. Appropriate adjustments to reflect such
distribution shall be made to the number and/or class of Shares subject to
this Agreement and to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such recapitalization
upon the Company's capital structure; PROVIDED, HOWEVER that the aggregate
purchase price shall remain the same.

                      9. NOTICES. Any notice, consent, request or other
communication made or given in accordance with this Agreement shall be in
writing and shall be deemed to have been duly given when actually received
or, if mailed, three (3) days after mailing by registered or certified mail,
return receipt requested, to those listed below at their following respective
addresses or at such other address as each may specify by notice to the
others, provided that any notice of change of address shall be deemed to have
been duly given only when actually received.

                        To the Company:
                        Spyonit.com, Inc.
                        c/o 724 Solutions Inc.
                        4101 Yonge Street, Suite 702
                        Toronto, Ontario, Canada  M2P 1N6
                        Attention:  Vice President, Legal and Business Affairs
                        Telephone:  (415) 615-0724
                        Facsimile:  (415) 615-0195

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                      10. ASSIGNABILITY; BINDING EFFECT. This Agreement is a
personal contract calling for the provision of unique services by the
Employee, and neither the Employee's nor the Company's rights and obligations
hereunder may be sold, transferred, assigned, pledged or hypothecated,
PROVIDED, HOWEVER, that the Company and Parent may sell, transfer, assign,
pledge or hypothecate its rights and obligations hereunder to any affiliate
of the Company or Parent or in connection with any sale of all or
substantially all of the assets of the Company or Parent or any merger,
consolidation, exchange offer or business combination involving the Company
or Parent, PROVIDED that the Company and Parent shall remain liable for its
respective obligations hereunder to the extent the party to whom this
Agreement is assigned does not perform such obligations. In the event of any
attempted assignment or transfer of rights hereunder by the Employee contrary
to the provisions hereof (other than as may be required by law), the Company
and Parent will have no further liability for payments hereunder. The rights
and obligations of the Company and Parent hereunder will be binding upon and
run in favor of the successors and assigns of the Company and Parent.

                      11. WITHHOLDING. The Employee agrees to remit to the
Company sufficient funds to cover all applicable federal, state and local
income and employment taxes required to be withheld by the Company as a
result of the receipt by the Employee of any non-cash compensation.

                      12. COMPLETE UNDERSTANDING; AMENDMENT; WAIVER. Except
as specifically provided for herein, this Agreement constitutes the complete
understanding between the patties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof, and
no statement, representation, warranty or covenant has been made by either
party with respect thereto except as expressly set forth herein. This
Agreement shall not be altered, modified, amended or terminated except by a
written instrument signed by each of the parties hereto. Any waiver of any
term or provision hereof, or of the application of any such term or provision
to any circumstances, shall be in writing signed by the party charged with
giving such waiver. Waiver by either party hereto of any breach hereunder by
the other party shall not operate as a waiver of any other breach, however
similar to the breach waived. No delay on the part of the Company or the
Employee in the exercise of any of its or his or her respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise
by the Company or the Employee of any such right or remedy shall preclude
other or further exercise thereof.

                      13. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT; RELEASE
OF CLAIMS; RECEIPT OF WAGES AND OTHER COMPENSATION. The Company and the
Employee agree that the Employment Agreement previously entered into between
the Company and the Employee is hereby terminated and of no further force or
effect. The Employee hereby expressly waives, releases, acquits and forever
discharges the Company and its divisions, subsidiaries, affiliates, parents,
related entities, partners, officers, directors, shareholders, investors,
executives, managers, employees, agents, attorneys, representatives,
successors and assigns, from any and all claims, demands, and causes of
action which the Employee has or claims to have, whether known or unknown, of
whatever nature, which exist or may exist on Employee's behalf from the
beginning of time up to and including the date of this Agreement. The
Employee acknowledges

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and agrees that, prior to the Employee's execution of this Agreement, the
Employee has received payment for all wages, salary, bonuses, accrued
vacation, and all other compensation owed to the Employee by the Company. As
used in this paragraph, "claims," "demands," and "causes of action" include,
but are not limited to, claims based on contract, whether express or implied,
fraud, stock fraud, defamation, wrongful termination, estoppel, equity, tort,
retaliation, intellectual property, personal injury, spoliation of evidence,
emotional distress, public policy, wage and hour law, statute or common law,
claims for severance pay, claims related to stock options and/or fringe
benefits, claims for attorneys' fees, vacation pay, debts, accounts,
compensatory damages, punitive or exemplary damages, liquidated damages, and
any and all claims arising under any federal, state, or local statute, law,
or ordinance prohibiting discrimination on account of race, color, sex, age,
religion, sexual orientation, disability or national origin, including but
not limited to, the Age Discrimination in Employment Act, Title VII of the
Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, the
Family and Medical Leave Act or the Employee Retirement Income Security Act.

14. SEVERABILITY. If any provision of this Agreement or the application of any
such provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such person
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
enforced to the fullest extent permitted by law. If any provision of this
Agreement, or any part thereof, is held to be invalid or unenforceable because
of the scope or duration of or the area covered by such provision, the parties
hereto agree that the court making such determination shall reduce the scope,
duration and/or area of such provision (and shall substitute appropriate
provisions for any such invalid or unenforceable provisions) in order to mare
such provision enforceable to the fullest extent permitted by law and/or shall
delete specific words and phrases, and such modified provision shall then be
enforceable and shall be enforced. The parties hereto recognize that if, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants contained in this Agreement, then that invalid or unenforceable
covenant contained in this Agreement shall be deemed eliminated from these
provisions to the extent necessary to permit the remaining separate covenants to
be enforced.

                      15. SURVIVABILITY. The provisions of this Agreement
which by their terms call for or reasonably contemplate performance
subsequent to termination of the Employee's employment hereunder, or of this
Agreement, shall so survive such termination.

                      16. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois without
regard to its conflict of laws provisions.

                      17. TITLES AND CAPTIONS. All paragraph titles or
captions in this Agreement are for convenience only and in no way define,
limit, extend or describe the scope or intent of any provisions hereof.

                      18. REMEDIES. In the event that any party hereto shall
default in the performance of any of such party's obligations hereunder, in
addition to any and all other rights or remedies which a non-defaulting party
hereto may have against such defaulting party, such defaulting party shall be
liable to the non-defaulting party for all court costs and attorneys' fees

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incurred by the non-defaulting party in connection with the enforcement of
such non-defaulting party's rights and remedies against such defaulting party.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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                  IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.

                    SPYONIT.COM, INC.

                    By:   /s/ [ILLEGIBLE]
                              ---------------------------

                    724 SOLUTIONS INC.

                    By:   /s/ DAVID PASIEKA
                              ---------------------------
                              Name:  David Pasieka
                              Title:  Senior Vice President - Application
                    Hosting

                    EMPLOYEE

                    /s/ RICHARD W. COSTOLO
                        ------------------
                        Richard W. Costolo

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                                   SCHEDULE A

                      COMPENSATION AND BENEFITS OF EMPLOYEE

1.       DUTIES. You shall serve in the position of Senior Vice President,
          Notification Services and/or in such other positions to which the
          Company from time to time may place you.

2.       BASE SALARY AND BONUS. Your Base Salary shall be $170,000 per year,
          paid in accordance with the Company's standard payroll practices and
          subject to all legally required or customary withholdings. You will
          also be eligible to earn a bonus of up to 20% of your Base Salary
          pursuant to a bonus from time to time in effect for similar
          Employees of the Company.

3.       STOCK OPTIONS. Subject to you and Parent entering into Parent's
          standard U.S. Option Agreement, Parent hereby grants to you:

                  (a) The option to purchase 10,000 common shares of Parent
(or the group of companies that forms Parent), at their Market Price (as
defined in the U.S. Stock Option Plan) on the date hereof, which option vests
on and continues from the first anniversary of your employment; and

                  (b) The option to purchase an additional 10,000 common
shares of Parent, at their Market Price on the date hereof, which option
vests on and continues from the second anniversary of the date hereof; and

                  (c) The option to purchase an additional 10,000 common
shares of Parent, at their Market Price on the date hereof, which option
vests on and continues from the third anniversary of the date hereof.

Please note that the terms and conditions of the Option Agreement govern the
options granted in this agreement and from time to time. In particular, you
should note that your entitlement to unvested options will be automatically
forfeited if your employment with the Company terminates for any reason.

4. RETENTION BONUSES. The Employee shall be entitled to receive a bonus equal
to (i) $225,000 on the first anniversary of the date hereof, (ii) $450,000 on
the second anniversary of the date hereof, and (iii) $400,000 on the third
anniversary of the date hereof.<PAGE>

                          RUSS BERRIE AND COMPANY, INC.
                        CHANGE IN CONTROL SEVERANCE PLAN

                  The purpose of this Change in Control Severance Plan (the
  "Plan") is to enable Russ Berrie and Company, Inc., a New Jersey corporation
  (the "Company"), to offer a form of income protection to "Participants" (as
  defined in Section 7.5 below) in the event their employment with the Company
  terminates under certain circumstances due to a "Change in Control" (as
  defined in Section 7.2 below).

                               ARTICLE I: BENEFITS

                  1.1 ELIGIBILITY FOR BENEFITS; BENEFITS; PAYMENT; AND RIGHTS OF
PARTICIPANTS.

                  (a) If a Participant's employment with the Company is
  terminated by the Company without "Cause" (as defined in Section 7.1 below) or
  by the Participant for "Good Reason" (as defined in Section 7.4 below) (each,
  a "Qualifying Termination") during the period commencing six months prior to
  and ending two years after a Change in Control, such Participant shall be paid
  the applicable "Severance Benefit" (as defined below) and shall receive the
  additional benefits described in this Article I. The term "Severance Benefit"
  shall mean:

                         (i)     if the Qualifying Termination occurs during the
                                 six-month period preceding or the one-year
                                 period following the Change in Control, an
                                 amount equal to 150% of the Participant's
                                 "Current Total Annual Compensation" (as defined
                                 in Section 7.3 below); and

                         (ii)    if the Qualifying Termination occurs during the
                                 second year after the Change in Control, an
                                 amount equal to 75% of the Participant's
                                 Current Total Annual Compensation.

                 (b) Any Participant entitled to a Severance Benefit (in
  accordance with Section 1.1 (a) above) shall receive his Severance Benefit in
  the form of a lump-sum payment within 30 business days after his employment
  with the Company terminates or the Change in Control occurs, whichever is
  later, or at such earlier time as required by applicable law.

                  1.2 ADDITIONAL BENEFITS. A Participant entitled to receive a
Severance Benefit shall also receive the following additional benefits:

                 (a) The Company shall cause options to purchase Company stock
 ("Stock Options") held by a Participant that are not fully vested and
 exercisable on the date of the Qualifying Termination to:

                        (i)   if the Qualifying Termination occurs during the
                              six months preceding or the first year following
                              the Change in Control,

<PAGE>

                              become fully vested and exercisable as of the date
                              of such Qualifying Termination (or, if later, as
                              of the date on which the Change in Control
                              occurred); and

                        (ii)  if the Qualifying Termination occurs during the
                              second year following the Change in Control,
                              become fully vested and exercisable as of the date
                              of such Qualifying Termination as to those Stock
                              Options that would otherwise have vested within
                              one year after the Qualifying Termination.

                (b) The Company shall cause unvested restricted shares of
Company stock (the "Restricted Shares") held by a Participant on the date of the
Qualifying Termination to:

                         (i)  if the Qualifying Termination occurs during the
                              six months preceding or the first year following
                              the Change in Control, become fully vested as of
                              the date of such Qualifying Termination (or, if
                              later, as of the date on which the Change in
                              Control occurred) as to those Restricted Shares
                              for which the vesting restrictions would otherwise
                              have lapsed within one year after the Qualifying
                              Termination; and

                        (ii)  if the Qualifying Termination occurs during the
                              second year after the Change in Control, become
                              fully vested as of the date of such Qualifying
                              Termination as to those Restricted Shares for
                              which the vesting restrictions otherwise would
                              have lapsed within six months after the Qualifying
                              Termination.

                  (c) The Company shall for a period of 18 months (in the case
of a Qualifying Termination to which Section 1.1(a)(i) applies) or one year (in
the case of a Qualifying Termination to which Section 1.1(a)(ii) applies)
following the Qualifying Termination continue to provide to the Participant (i)
use of an automobile or payment of an automobile allowance in an amount
sufficient to compensate the Participant to substantially the same extent as if
the Company continued to provide the automobile and (ii) medical and other
insurance benefits, in each case to the extent and on substantially the same
basis as provided immediately prior to the Qualifying Termination (disregarding
any reduction described in clause (B) of the definition of Good Reason).

                1.3 REDUCTION OF PAYMENTS. If a Participant's receipt of any
payment and/or non-monetary benefit under this Plan (including, without
limitation, the accelerated vesting of Stock Options and/or Restricted Shares)
(collectively, the "Plan Payments") would cause him or her to become subject to
the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company shall reduce his or her Plan Payments to
the extent necessary to avoid the application of such excise tax if (i) the
required reduction does not exceed 10% of the aggregate amount of the Plan
Payments and (ii) as a result of such reduction, the net benefits to the
Participant of the Plan Payments as so reduced (after payment of applicable
income taxes) exceeds the net benefit to the Participant of the Plan Payments

                                        2

<PAGE>

without such reduction (after payment of applicable income taxes and excise
taxes). If a reduction in Plan Payments to a Participant in the amount permitted
by clause (i) is insufficient to avoid the application of such excise tax, then
the provisions of "Exhibit A," attached hereto and incorporated herein, shall
apply to that Participant.

                1.4 RIGHTS OF PARTICIPANTS. Nothing contained herein shall be
held or construed to create any liability or obligation on the Company to retain
any Participant in its service or in a corporate officer position. All
Participants shall remain subject to discharge or discipline to the same extent
as if the Plan did not exist.

                               ARTICLE II: FUNDING

                2.1 FUNDING. The Plan shall be funded out of the general assets
of the Company as and when benefits are payable under the Plan. All Participants
shall be solely general creditors of the Company.

                     ARTICLE III: ADMINISTRATION OF THE PLAN

                3.1 PLAN ADMINISTRATOR. The general administration of the Plan
shall be placed with the Compensation Committee of the Board of Directors of the
Company (the "Board") or an administrative committee appointed by the Board (the
"Committee").

                3.2 REIMBURSEMENT OF EXPENSES OF COMMITTEE. The Company shall
pay or reimburse the members of the Committee for all reasonable expenses
incurred in connection with their duties hereunder.

                3.3 ACTION BY THE PLAN COMMITTEE. Decisions of the Committee
shall be made by a majority of its members attending a meeting at which a quorum
is present (which meeting may be held telephonically), or by written action in
accordance with applicable law. No member of the Committee may act with respect
to a matter which involves only that member.

                3.4 DELEGATION OF AUTHORITY. The Committee may delegate any and
all of its powers and responsibilities hereunder to other persons by formal
resolution filed with and accepted by the Board. Any such delegation shall not
be effective until it is accepted by the Board and the persons designated and
may be rescinded at any time by written notice from the Committee to the person
to whom the delegation is made.

                3.5 RETENTION OF PROFESSIONAL ASSISTANCE. The Committee may
employ such legal counsel, accountants and other persons as may be required in
carrying out its work in connection with the Plan, and the Company shall pay the
fees and expenses of such persons.

                3.6 ACCOUNTS AND RECORDS. The Committee shall maintain such
accounts and records regarding the fiscal and other transactions of the Plan,
and such other data as may be required to carry out its functions under the Plan
and to comply with all applicable laws.

                                        3

<PAGE>

                3.7 COMPLIANCE WITH APPLICABLE LAW. The Company shall be deemed
the administrator of the Plan for the purposes of any applicable law and shall
be responsible for the preparation and filing of any required returns, reports,
statements or other filings with appropriate governmental agencies. The Company
shall also be responsible for the preparation and delivery of information to
persons entitled to such information under any applicable law.

                3.8 REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Plan involving termination of a Participant's employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof and the Participant prevails on the merits
in such contest or dispute, the Company shall, promptly after the date a court
issues a final order from which no appeal can be taken, or with respect to which
the time period to appeal has expired, reimburse such Participant for all
reasonable legal fees and expenses, if any, paid by the Participant in
connection with such contest or dispute (together with interest in an amount
equal to the J.P. Morgan Chase Bank prime rate from time to time in effect, such
interest to begin to accrue on the dates Participant actually paid such fees and
expenses through the date of payment thereof).

                              ARTICLE IV: AMENDMENT

                4.1 AMENDMENT. The Company reserves the right to amend, in whole
or in part, any or all of the provisions of this Plan by action of the Board at
any time; PROVIDED, THAT, no such amendment may reduce the benefits and payments
due to any Participant hereunder in the event of a Qualifying Termination.

                              ARTICLE V: SUCCESSORS

                5.1 SUCCESSORS. The Company shall require any successor or
assignee, whether direct or indirect, by purchase or otherwise (and whether or
not by operation of law), to all or substantially all the business or assets of
the Company, expressly and unconditionally to assume and agree to perform the
Company's obligations under this Plan, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place, PROVIDED, THAT, no such assumption and agreement
shall be required from a successor or assignee that becomes obligated for the
Company's obligations hereunder through a merger, consolidation or otherwise by
operation of law. In such event, the term "Company," as used in this Plan, shall
mean the Company, as applicable, as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by the
terms and provisions of this Plan. Any payment or benefit to which a Participant
has become entitled under this Plan which remains unpaid at the time of such
Participant's death shall be paid to the estate of such Participant when it
becomes due.

                                        4

<PAGE>

                            ARTICLE VI: MISCELLANEOUS

               6.1 NO DUTY TO MITIGATE/SET-OFF. No Participant entitled to
receive a Severance Benefit shall be required to seek other employment or to
attempt in any way to reduce any amounts payable to him pursuant to this Plan.
The Severance Benefit payable hereunder shall not be reduced by any compensation
earned by the Participant as a result of employment by another employer or
otherwise. Subject to Section 6.5, the Company's obligations to pay the
Severance Benefits and to perform its obligations hereunder shall not be
affected by any circumstances including without limitation, any set off,
counterclaim, recoupment, defense or other right which the Company may have
against the Participant.

               6.2 HEADINGS. The headings of the Plan are inserted for
convenience of reference only and shall have no effect upon the meaning of the
provisions hereof.

               6.3 USE OF WORDS. Whenever used in this instrument, a
masculine pronoun shall be deemed to include the masculine and feminine gender,
and a singular word shall be deemed to include the singular or plural, in all
cases where the context so requires.

               6.4 CONTROLLING LAW. The construction and administration of
the Plan shall be governed by the laws of the State of New York (without
reference to rules relating to conflicts of law).

               6.5 WITHHOLDING. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
reasonably believes it may have to withhold federal, state or local income or
other taxes incurred by reason of payments pursuant to this Plan.

               6.6 SEVERABILITY. Should any provision of the Plan be deemed or
held to be unlawful or invalid for any reason, such fact shall not adversely
affect the other provisions of the Plan unless such determination shall render
impossible or impracticable the functioning of the Plan, and in such case, an
appropriate provision or provisions shall be adopted so that the Plan may
continue to function properly.

               6.7 RIGHTS UNDER OTHER PLANS, POLICIES, PRACTICES AND
AGREEMENTS.

               (a) Other than as expressly provided herein, the Plan does not
supersede any other plans, policies, and/or practices of the Company.

               (b) The Plan supersedes any other change in control severance
plans, policies and/or practices of the Company as to the Participants;
PROVIDED, THAT, the Plan shall not supersede any individual executed agreement
or arrangement between a single Participant and the Company in effect on January
1, 2003 or thereafter, which agreement specifically addresses payments or
benefits made or provided upon termination of employment or in connection with a
Change in Control (an "Additional Agreement"). If a Participant is due benefits
or payments under both an Additional Agreement and the Plan and/or where the
Plan and the Applicable Additional Agreement have inconsistent or conflicting
terms and conditions, the Participant shall

                                        5

<PAGE>

receive the greater of the benefits and payments, and the more favorable terms
and conditions to him, under the Additional Agreement and the Plan, determined
on an item-by-item basis.

                            ARTICLE VII: DEFINITIONS.

                7.1 "CAUSE" shall mean: (A) refusal or repeated failure by a
Participant to perform his or her duties as an employee of the Company; (B)
gross negligence or willful misconduct by a Participant in connection with such
Participant's employment by the Company; (C) misappropriation or fraud with
regard to the Company or its assets; or (D) conviction of, or the pleading of
guilty or NOLO CONTENDERE to, a felony or, to the extent involving the assets or
business of the Company, a misdemeanor or other criminal offense; which, in the
case of clause (A) is not fully remedied (to the extent reasonably possible to
be remedied) within 15 days after the Company gives the Participant notice
thereof.

                7.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the
following: (A) any "person" (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or group (as defined in
Rule 13d-5 under the Exchange Act), excluding any Permitted Holder or any
Permitted Group (or the members thereof) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing 35% (or such greater percentage as may then represent the
percentage of total combined voting power held by all Permitted Holders) or more
of the total combined voting power of the Company's then outstanding securities,
other than by reason of receiving a distribution from any person referred to in
clause (vi), (vii), (viii), (ix), (x) or (xi) of the definition of Permitted
Holder; (B) as a result of any proxy solicitation made otherwise than by or on
behalf of (x) the Board, (y) one or more Permitted Holders, or (z) any Permitted
Group (or the members thereof), Continuing Directors to cease to be a majority
of the Board (a "Continuing Director" is any member of the Board who (a) was a
member of the Board on January 1, 2003, (b) first became a member of the Board
as a result of or following his election or nomination for election by the Board
at a time that Continuing Directors form a majority of the Board) or (c) first
became a member of the Board as a result of or following his election or
nomination for election by the Board with the approval of a majority of
Continuing Directors in office at the time of such appointment or nomination;
(C) the merger, consolidation or other business combination of the Company (a
"Transaction"), other than a Transaction immediately following which (x) the
stockholders of the Company immediately prior to the Transaction continue to be
the beneficial owners of securities of the resulting entity representing more
than a majority of the voting power in the resulting entity, in substantially
the same proportions as their ownership of Company voting securities immediately
prior to the Transaction or (y) Permitted Holders are the beneficial owners of
securities of the resulting entity representing more than a majority of the
voting power in such equity; (D) the sale of all or substantially all of the
Company's assets, other than a sale immediately following which (x) the
stockholders of the Company immediately prior to the sale are the beneficial
owners of securities of the purchasing entity representing more than a majority
of the voting power in the purchasing entity, in substantially the same
proportions as their ownership of Company voting securities immediately prior to
the Transaction or (y) Permitted Holders are the beneficial owners of securities
of the purchasing entity representing more than a majority of the voting power
in such equity; or (E) the approval by the shareholders of a plan of liquidation
or dissolution of the Company.

                                        6

<PAGE>

               7.3 "CURRENT TOTAL ANNUAL COMPENSATION" shall be the sum of the
following amounts: (A) the greater of a Participant's highest rate of annual
salary during the calendar year in which his employment terminates or such
Participant's highest rate of annual salary during the calendar year immediately
prior to the year of such termination; (B) the greater of a Participant's annual
bonus compensation (prior to any bonus deferral election) earned in respect of
each of the two most recent calendar years immediately preceding the calendar
year in which the Participant's employment terminated; and (C) the amount of the
Company's contribution to the Participant's 401(k) account for the last full
year prior to such termination.

               7.4 "GOOD REASON" shall mean the occurrence of any of the
following events after a Change in Control without the Participant's express
written consent: (A) material diminution in the importance of a Participant's
position, status or authority as of the date immediately prior to the Change in
Control; (B) a material reduction in a Participant's aggregate compensation or
benefits; (C) a failure of any successor or assign (whether direct or indirect,
by purchase, merger, consolidation or otherwise) of the Company to assume in
writing (or by operation of law in a merger) the obligations of the Company
hereunder as required by Section 5.1; or (D) the Company's requiring the
Participant to relocate the Participant's office outside of the metropolitan
area in which it is located immediately prior to the Change in Control (for this
purpose, the Northern New Jersey suburbs shall constitute the "metropolitan
area" for Participants whose office is located in Oakland; New Jersey or
elsewhere in the Northern New Jersey suburbs). A termination for Good Reason
shall mean a termination by a Participant effected by written notice given by
the Participant to the Company within 30 days after the occurrence of the Good
Reason event, unless the Company shall, within 15 days after receiving such
notice, take such action as is necessary to fully remedy such Good Reason event
and give the Participant written notice thereof, in which case the Good Reason
event shall be deemed to have not occurred.

               7.5 "PARTICIPANT" shall mean such individuals as may from time to
time be designated as such by the Board or a duly authorized committee thereof.

               7.6 "PERMITTED GROUP" means a group, as defined in Rule 13d-5
under the Exchange Act, in which the Permitted Holders that are members of such
group have beneficial ownership of voting securities of the Company having a
majority of the voting power of all voting securities of the Company that are
beneficially owned by members of the group.

               7.7 "PERMITTED HOLDER" shall mean (i) the Company; (ii) any
subsidiary of the Company; (iii) any employee benefit plan sponsored or
maintained by the Company; (iv) Angelica Berrie; (v) any lineal descendent of
Russell Berrie; (vi) the Estate of Russell Berrie; (vii) The Russell Berrie 2001
Annuity Trust; (viii) The Russell Berrie 1999 Charitable Remainder Trust; (ix)
The Russell Berrie 2002A Trust; (x) The Russell Berrie Foundation, a New Jersey
Nonprofit Corporation; (xi) any trust created pursuant to the terms of the
instruments governing or creating any of the persons referred to in clause (vi),
(vii), (viii), (ix) and (x); and (xii) any fiduciary of any of the persons
referred to in clause (vi), (vii), (viii), (ix), (x) and (xi) acting in his or
her capacity as such.

                                        7

<PAGE>

                  7.8 "YEAR" shall mean the period from any day in a calendar
year to the same day in the immediately succeeding calendar year.

                                        8

<PAGE>

                                    Exhibit A

                   GROSS-UP. This Exhibit A shall apply to a Participant only as
   provided by the last sentence of Section 1.3 of the Plan; "Affected
   Participant" shall mean any Participant to which this Exhibit A so applies.

                  (a) For purposes of this Exhibit A, the following terms shall
have the following meanings:

                   "Payment" shall mean any payment or distribution (or
                   acceleration of benefits) by the Company to or for the
                   benefit of the Affected Participant (whether paid or payable
                   or distributed or distributable (or accelerated) pursuant to
                   the terms of this Plan or otherwise, but determined without
                   regard to any additional payments required under this Exhibit
                   A). In addition, "Payment" shall also include the amount of
                   income deemed to be received by the Affected Participant as a
                   result of the acceleration of the exercisability of any of
                   the Affected Participant's options to purchase stock of the
                   Company, the acceleration of the lapse of restrictions on
                   restricted stock of the Company held by the Affected
                   Participant or the acceleration of payment from any deferral
                   plan.

                   "Excise Tax" shall mean the excise tax imposed by Section
                   4999 of the Code, or any interest or penalties incurred by
                   the Affected Participant with respect to such excise tax.

                   "Income Tax" shall mean all taxes other than the Excise Tax
                   (including any interest or penalties imposed with respect to
                   such taxes) including, without limitation, any income and
                   employment taxes imposed by any United States federal
                   (including (i) FICA and Medicare taxes, and (ii) the tax
                   resulting from the loss of any federal deductions or
                   exemptions which would have been available to the Affected
                   Participant but for receipt of the Payment), state or local
                   government.

                   (b) In the event it shall be determined in accordance with
   this Exhibit A that a Payment is subject to an Excise Tax, then the Affected
   Participant shall be entitled to receive an additional payment (a "Gross-Up
   Payment") in an amount such that after payment by the Affected Participant of
   Income Tax and Excise Tax imposed upon the Gross-Up Payment, the Affected
   Participant retains an amount of the Gross-Up Payment equal to the Excise Tax
   imposed upon the Payment.

                   (c) All determinations required to be made under this Exhibit
   A, including whether and when a Gross-Up Payment is required and the amount
   of such Gross-Up Payment and the assumptions to be utilized in arriving at
   such determination, shall be made by the public accounting firm that is
   retained by the Company as of the date immediately prior to a Change in
   Control or, if such accounting firm fails to agree to perform the functions
   contemplated by this Exhibit A, an accounting firm of national reputation
   designated by the Company (in either case, the "Accounting Firm"), which
   shall provide detailed supporting calculations both to the

<PAGE>

Company and to the Affected Participant within 20 business days of the receipt
of notice from the Affected Participant that there has been a Plan Payment, or
such earlier time as is requested by the Company (collectively, the
"Determination"). All fees and expenses of the Accounting Firm with respect to
the matters contemplated by this Exhibit A shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Exhibit A, shall be paid by the
Company to the Affected Participant within ten days of the Determination. If the
Accounting Firm determines that no Excise Tax is payable, the Affected
Participant may request the Accounting Firm to furnish the Affected Participant
with a written opinion that there is a reasonable basis for that determination.
The Determination by the Accounting Firm shall be binding upon the Company and
the Affected Participant, except as provided in paragraph (d) below. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the Determination, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to paragraph (d) below and the Affected
Participant is thereafter required to make payment of any Excise Tax or Income
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Affected Participant.

               (d) The Affected Participant shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment or the Underpayment. Such
notification shall be given as soon as practicable but no later than five
business days after the Affected Participant is informed in writing of such
claim and shall include copies of all communications received from the Internal
Revenue Service and apprize the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Affected Participant shall not
pay such claim prior to the expiration of the 30-day period following the date
on which such notice is given to the Company. If the Company notifies the
Affected Participant in writing prior to the expiration of such period that it
desires to contest such claim, the Affected Participant shall not pay such claim
unless directed to do so by the Company and:

                       (i) give the Company any information reasonably requested
               by the Company relating to such claim and provide the Company
               with copies of all communications received from the Internal
               Revenue Service or other taxing authority with respect to such
               claim, or served on it in any related litigation, upon receipt,

                       (ii) take such action in connection with contesting such
               claim as the Company shall from time to time direct, including,
               without limitation, accepting legal representation with respect
               to such claim by an attorney reasonably selected by the Company,

                       (iii) cooperate with the Company in good faith in order
               effectively to contest such claim, and

                                       10

<PAGE>

                      (iv) permit the Company to control any proceeding relating
              to such claim;

PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Affected Participant
harmless, on an after-tax basis, for any Excise Tax or Income Tax imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this paragraph (d), the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect to such claim and
may, at its sole option, either direct the Affected Participant to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Affected Participant shall prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; PROVIDED FURTHER, that if
the Company directs the Affected Participant to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Affected
Participant on an interest-free basis and shall indemnify and hold the Affected
Participant harmless, on an after-tax basis, from any Excise Tax or Income Tax
imposed with respect to such advance or with respect to any imputed income with
respect to such advance. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder or an Underpayment and the Affected Participant shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority, PROVIDED that such action by the
Affected Participant does not affect the Company's ability to settle or contest
issues with respect to which a Gross-Up Payment would be payable or an
Underpayment.

                (e) If, after the receipt by the Affected Participant of an
amount advanced by the Company pursuant to paragraph (d) above, the Affected
Participant receives any refund with respect to such claim, the Affected
Participant shall promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after payment of taxes
applicable thereto). If, after the receipt by the Affected Participant of an
amount advanced by the Company pursuant to paragraph (d) above, the proceedings
contemplated by paragraph (d) above, result in a final determination not subject
to further review or appeal to the effect that the Affected Participant is not
be entitled to any refund with respect to such claims then such advance shall be
forgiven and shall not be required to be repaid.

                                       11

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