Document:

Exhibit 10.1

               AGREEMENT OF LEASE made as of this day of April 13, 2000, between
500-512 SEVENTH AVENUE LIMITED PARTNERSHIP, a Delaware limited partnership, with
its office at c/o Newmark & Company Real  Estate,  Inc.,  125 Park  Avenue,  New
York, New York, 10017 (hereinafter  referred to as "Landlord") and THCG, INC., a
Utah  corporation,  with its office at 650 Madison  Avenue,  New York,  New York
10022 (hereinafter referred to as "Tenant").

                              W I T N E S S E T H :

               Landlord hereby leases and Tenant hereby hires from Landlord,  in
the building  (hereinafter  referred to as the "Building")  known as 512 Seventh
Avenue,  New York, New York 10016, the following  space: the entire  seventeenth
(17th) (as shown hatched) floor and a portion of the sixteenth  (16th) floor (as
shown  hatched)  on the  plans  annexed  hereto  as  Exhibit  A (which  space is
hereinafter referred to as "the demised premises");  for a term of approximately
ten (10) years, to commence on the date hereof  (hereinafter  referred to as the
"Commencement  Date"),  and to end on September 30, 2010 (such date on which the
term of this Lease expires is hereinafter  referred to as the "Expiration Date")
or on such date as such term shall  sooner cease and  terminate  as  hereinafter
provided.  The  Building  is located  on the land  (herein  called  the  "Land")
described on Exhibit B annexed hereto).

               The parties hereto,  for themselves,  their heirs,  distributees,
executors,  administrators,  legal  representatives,  trustees,  successors  and
assigns, hereby covenant as follows:

                                    ARTICLE 1

                                      RENT

               1.01  Tenant   shall  pay  to   Landlord  a  fixed   annual  rent
(hereinafter referred to as "fixed annual rent") at the annual rate of:

                      (a) Eight Hundred Eighty Nine Thousand Eight Hundred Forty
Dollars ($889,840.00) per annum,  commencing on the Rent Commencement Date until
the last day of the month  preceding  the month in which  occurs the fifth (5th)
anniversary of the Rent Commencement Date; and

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                      (b) Nine Hundred Thirty Four Thousand Three Hundred Thirty
Two Dollars ($934,332.00) per annum, commencing on the first day of the month in
which  occurs the fifth  (5th)  anniversary  of the Rent  Commencement  Date and
ending on the Expiration Date.

               Tenant shall pay additional fixed annual rent with respect to its
lease of the Added Space pursuant to Article 47 of this Lease

               Tenant agrees to pay the fixed annual rent in lawful money of the
United States of America, in equal monthly  installments in advance on the first
day of each  calendar  month during said term, at the office of Landlord or such
other place in the United States of America as Landlord may  designate,  without
any setoff or deduction  whatsoever,  except such deduction as may be occasioned
by the  occurrence  of any event  permitting  or  requiring a deduction  from or
abatement of rent as specifically set forth in Articles 10 and 14 hereof. Should
the  obligation  to pay fixed annual rent  commence on any day other than on the
first  day of a month,  then the  fixed  annual  rent  for such  month  shall be
prorated on a per diem basis.

               The first month's installment of fixed annual rent due under this
Lease shall be paid by Tenant upon the execution of this Lease.

               1.02 Tenant shall pay the fixed annual rent and  additional  rent
as above and as hereinafter  provided,  by good and sufficient check (subject to
collection)  drawn on a New York  City  bank  which is a member  of the New York
Clearinghouse  Association  or a  successor  thereto.  All sums other than fixed
annual rent payable by Tenant  hereunder  shall be deemed  additional  rent (for
default in the payment of which  Landlord  shall have the same remedies as for a
default in the payment of fixed annual rent),  and shall be payable  twenty (20)
days after demand, unless other payment dates are hereinafter provided.

               1.03 If  Tenant  shall  fail to pay when due any  installment  of
fixed  annual  rent or any payment of  additional  rent for a period of five (5)
days after such  installment or payment shall have become due,  Tenant shall pay
interest  thereon  at the  Interest  Rate (as such term is defined in Article 22
hereof), from the date when such installment or payment shall have become due to
the date of the payment  thereof,  and such interest shall be deemed  additional
rent.

               1.04 If any of the fixed annual rent or  additional  rent payable
under the terms and  provisions of this Lease shall be or become  uncollectible,
reduced or

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required  to be  refunded  because  of any  Legal  Requirement  (as such term is
defined in Article 22 hereof),  Tenant  shall enter into such  agreement(s)  and
take such other steps  (without  additional  expense to Tenant) as Landlord  may
request  and as may be legally  permissible  to permit  Landlord  to collect the
maximum rents which from time to time during the  continuance of such legal rent
restriction  may be  legally  permissible  (and  not in  excess  of the  amounts
reserved  therefor  under this Lease).  Upon the  termination of such legal rent
restriction,  (a) the rents shall become and thereafter be payable in accordance
with the amounts reserved herein for the periods  following such termination and
(b) Tenant shall pay to Landlord, to the maximum extent legally permissible,  an
amount equal to (i) the rents which would have been paid  pursuant to this Lease
but for such legal rent  restriction  less (ii) the rents paid by Tenant  during
the period such legal rent restriction was in effect.

               1.05 (a)  Notwithstanding  any language to the contrary contained
herein,  the fixed  annual rent  payable  hereunder  shall be abated  during the
period commencing on the Commencement Date and ending on September 30, 2000 (the
date  following  the  expiration of such  abatement  period is herein called the
"Rent Commencement Date").

                      (b) If Landlord shall not have substantially completed the
portions of  Landlord's  Work in the demised  premises set forth in clauses (a),
(b), (c) and (e) of Section 2.01 herein by June 15, 2000 (the  "Landlord's  Work
Completion Date") and such failure directly results in a delay in the completion
of Tenant's Work (as hereinafter defined), then the Rent Commencement Date shall
be extended one (1) day for each day thereafter  that  Landlord's Work is not so
substantially   completed   (except  for  minor  or  insubstantial   details  of
construction, mechanical adjustment, decoration, or other punch-list items which
remain to be performed).  Notwithstanding any language to the contrary contained
in this Lease,  the Landlord's Work Completion Date shall be extended by one day
for each day that Landlord is prevented from  performing or completing such work
by  reason of a Tenant  Delay.  A  "Tenant  Delay"  shall  mean:  (a)  delays in
submitting  the final plan (as defined in Section  50.02 herein) with respect to
Tenant's  Work,  or  in  approving  any  drawings  or   specifications,   giving
authorizations  or  supplying  information;  or (b)  additional  time  needed by
Landlord, as a result of Tenant requesting Landlord to make a change or addition
to Landlord's Work or change in the final plan.

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                                    ARTICLE 2

                       PREPARATION OF THE DEMISED PREMISES

               2.01  Tenant has  examined  the  demised  premises  and agrees to
accept the same in their  condition and state of repair  existing as of the date
hereof  subject to (i) latent  defects in the  structure of the  Building,  (ii)
Landlord's performance of its work obligations under this Section 2.01 and (iii)
normal  wear  and tear  and to the  removal  therefrom  of the  property  of the
existing  tenant or occupant  thereof,  if any, and  understands and agrees that
Landlord  shall not be  required to perform any work,  supply any  materials  or
incur any expense to prepare the demised premises for Tenant's occupancy, except
that Landlord, at Landlord's sole cost and expense, shall:

                      (a) provide to Tenant a  reasonable  number of  connection
points to the Building's  fire safety system (not to exceed eight (8) connection
points) to which it shall connect its subsystem  (consisting of smoke  detectors
and other life  safety and  security  devices)  in the  demised  premises to the
Building's Class E System, as required to comply with applicable laws including,
without  limitation,  New York City Local Law;  provided  however  Tenant  shall
solely be responsible for the cost of making such connections;

                      (b)  demolish  the  demised  premises in  accordance  with
Tenants's  demolition plan prior to the  commencement of performance of Tenant's
Work (as that term is hereinafter  defined) provided that Landlord approves such
demolition plan, which approval shall not be unreasonably withheld;

                      (c) remove asbestos in the demised  premises in accordance
with applicable  legal  requirements  to facilitate  Tenant's Work in and to the
demised  premises,  except for any vinyl  asbestos  tile  ("VAT")which  shall be
Tenant's obligation to remove or encapsulate at Tenant's expense;

                      (d) remove all  existing  exterior  windows in the demised
premises;  and supply and  install new  Building  Standard  (as defined  herein)
exterior windows throughout the demised premises; and

                      (e)  deliver  all  existing  radiators  and  the  existing
sprinkler loop within the demised premises in proper working order.

               2.02 Landlord shall use all reasonable  efforts to complete items
(a), (b), (c) and (e) of Landlord's  Work prior to June 15, 2000 and item (d) by
August 1, 2000.

               2.03 If the  Commencement  Date is other than the  specific  date

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hereinabove set forth then Tenant shall at Landlord's request, execute a written
agreement  confirming  the  Commencement  Date.  Any  failure of the  parties to
execute such written agreement shall not affect the validity of the Commencement
Date as fixed and determined by Landlord as aforesaid.

                                    ARTICLE 3

                               ADJUSTMENTS OF RENT

               3.01  For  the  purposes  of  this   Article  3,  the   following
definitions shall apply:

                      (a) The term  "Base  Tax" shall mean the Taxes for the Tax
Year  commencing  July 1,  2000,  and  ending on June 30,  2001 by (ii) the real
property tax rate for such Tax Year.

                      (b) The  term  "Tenant's  Proportionate  Share"  shall  be
deemed to mean 4.35% percent.

                      (c) The term "Taxes" shall mean (i) all real estate taxes,
assessments,  sewer  rents and water  charges,  governmental  levies,  municipal
taxes,  county  taxes or any other  governmental  charge,  general  or  special,
ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature
whatsoever,  which are or may be assessed levied or imposed upon all or any part
of the Land,  the Building and the  sidewalks,  plazas or streets in front of or
adjacent  thereto,  including any tax, excise or fee measured by or payable with
respect  to any  rent,  and  levied  against  Landlord  and/or  the Land  and/or
Building,  under the laws of the United  States,  the State of New York,  or any
political  subdivision  thereof,  or by the  City of New  York or any  political
subdivision thereof and any charge imposed by any business improvement district,
and (ii) any expenses  incurred by Landlord in  contesting  any of the foregoing
set forth in clause (i) of this  sentence or the assessed  valuations  of all or
any part of the Land and Building,  etc. or collecting any refund, not to exceed
the savings incurred. If, due to a future change in the method of taxation or in
the taxing  authority,  a new or  additional  real estate  tax, or a  franchise,
income,  transit,  profit  or  other  tax or  governmental  imposition,  however
designated,  shall be levied against Landlord,  and/or the Land and/or Building,
in addition to, or in  substitution  in whole or in part for any tax which would
constitute "Taxes", or in lieu of additional Taxes, such tax or imposition shall
be deemed for the purposes hereof to be included within the term "Taxes". Except
as set forth in the immediately preceding sentence, Taxes shall not include

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sales, transfer, income, franchise,  estate or inheritance taxes or late fees or
interest  charges  imposed upon Landlord in connection with late payment thereof
by Landlord.

                      (d) The term "Tax Year"  shall mean each  period of twelve
(12) months,  commencing on the first day of July of each such period,  in which
occurs any part of the term of this Lease or such other period of twelve  months
occurring  during the term of this Lease as hereafter may be duly adopted as the
fiscal year for real estate tax purposes of the City of New York.

                      (e) The term "Operating Year" shall mean the calendar year
2000 and each succeeding calendar year thereafter during the term of this Lease.

                      (f) The term  "Wage  Rate" with  respect to any  Operating
Year shall mean the regular average hourly wage rate (excluding fringe benefits)
required  to be paid to  Porters  in Class A Office  Buildings  pursuant  to any
agreement between the Realty Advisory Board on Labor Relations,  Incorporated or
any successor thereto (hereinafter referred to as "R.A.B.") and Local 32B/32J of
the Building Service  Employees  International  Union AFL-CIO,  or any successor
thereto (hereinafter referred to as "Local 32B") in effect during such Operating
Year,  provided that if any such agreement shall require Porters to be regularly
employed on days or during hours when overtime or other premium pay rates are in
effect,  then the term "regular average hourly wage rate" shall mean the regular
average  hourly  wage rate for the hours in a calendar  week which  Porters  are
required  to be  regularly  employed  (whether  or not  actually  at work in the
Building),  e.g., if, for example,  as of January 1, 2000, an agreement  between
R.A.B.  and Local 32B would  require  the regular  employment  of Porters for 40
hours during a calendar week at a regular  average  hourly wage of $4.00 for the
first 30 hours and at an overtime hourly average wage of $5.00 for the remaining
10 hours, then the regular average hourly wage rate under this subsection, as of
January  1,  2000,  would be the sum  arrived at by  dividing  the total  weekly
average  wages of $170.00 by the total  number of required  hours of  employment
which is 40 and resulting in a regular  average  hourly wage rate of $4.25.  The
computation  of the regular  average hourly wage rate shall be on the same basis
whether  based on an hourly or other pay scale but  predicated  on the number of
hours in such respective work weeks, whether paid by Landlord or any independent
contractor.  If  there  is no such  agreement  in  effect  as of the date of any
Escalation  Statement  on  which  such  regular  average  hourly  wage  rate  is
determinable, the computations shall be made on the basis of the regular average
hourly wage rate being paid by Landlord or by the contractor  performing  porter
or cleaning  services for Landlord as of the date of such  Escalation  Statement
and appropriate  retroactive  adjustments shall be

<PAGE>

made when the  regular  average  hourly  wage  rate  paid as of such  Escalation
Statement  is  finally  determined.  If length of  service  shall be a factor in
determining  any  element of wages it shall be  conclusively  presumed  that all
employees have at least three years of service.  The Wage Rate is intended to be
an index in the nature of a cost of living index, and is not intended to reflect
the actual costs of wages or expenses for the Building.

                      (g) The term "Porters" shall mean that  classification  of
employee  engaged in the general  maintenance  and  operation  of Class A Office
Buildings most nearly comparable to the classification now applicable to porters
in the current agreements between R.A.B. and Local 32B/32J (which classification
is presently termed "others" in said agreement).

                      (h) The term "Class A Office  Buildings" shall mean office
buildings  in the same class or  category  as the  Building  under any  building
operating  agreement  between  R.A.B.  and  Local  32B/32J,  regardless  of  the
designation given to such office buildings in any such agreement.

                      (i) The term "Base Wage Rate"  shall mean the Wage Rate in
effect on January 1, 2000.

                      (j) The term "Escalation Statement" shall mean a statement
setting forth the amount payable by Tenant for a specified Tax Year or Operating
Year (as the case may be) pursuant to this Article 3.

                      (k) The term "Wage Rate Multiple" shall mean 22,246.

               3.02 If the Wage Rate for any  Operating  Year  shall be  greater
than the Base Wage Rate,  then Tenant  shall in the case of such an increase pay
to Landlord as additional rent for the demised  premises for such Operating Year
an amount  equal to the product  obtained  by  multiplying  one  hundred  (100%)
percent of the difference  between the Wage Rate for such Operating Year and the
Base Wage Rate, by the Wage Rate Multiple.

               3.03 A. Tenant shall pay as  additional  rent for each Tax Year a
sum  (hereinafter  referred  to as  "Tenant's  Tax  Payment")  equal to Tenant's
Proportionate  Share of the  amount by which the Taxes for such Tax Year  exceed
the Base Tax. Tenant's Tax Payment for each Tax Year shall be due and payable in
two (2) equal installments, in advance, (i.e., on the first day of each June and
December  during each Tax Year) based upon the  Escalation  Statement  furnished
prior to the  commencement of such Tax Year, until such time as a new Escalation

<PAGE>

Statement  for a subsequent  Tax Year shall become  effective.  If an Escalation
Statement is furnished to Tenant after the commencement of a Tax Year in respect
of which such  Escalation  Statement is rendered,  Tenant shall,  within fifteen
(15) days  thereafter,  pay to  Landlord  an amount  equal to the  amount of any
underpayment  of Tenant's  Tax Payment with respect to such Tax Year and, in the
event of an  overpayment,  Landlord  shall permit Tenant to credit the amount of
Tenant's  overpayment  against  subsequent  payments  of fixed  annual  rent and
additional  rent due from Tenant to Landlord under this Lease.  If the amount of
the overpayment  exceeds the amount of rent payments scheduled to come due under
this Lease, Landlord shall pay to Tenant the amount of such excess within ninety
(90) days after the  Escalation  Statement  is  rendered.  If there shall be any
increase  in Taxes for any Tax  Year,  whether  during  or after  such Tax Year,
Landlord  shall furnish a revised  Escalation  Statement for such Tax Year,  and
Tenant's  Tax Payment  for such Tax Year shall be adjusted  and paid in the same
manner as provided in the preceding sentence.  If during the term of this Lease,
Taxes are required to be paid (either to the appropriate  taxing  authorities or
as  tax  escrow  payments  to a  superior  mortgagee)  in  full  or in  monthly,
quarterly,  or other installments,  on any other date or dates than as presently
required,   then  at  Landlord's   option,   Tenant's  Tax  Payments   shall  be
correspondingly  accelerated  or revised so that said  Tenant's Tax Payments are
due at least  thirty (30) days prior to the date  payments are due to the taxing
authorities or the superior mortgagee. The benefit of any discount for any early
payment or  prepayment  of Taxes shall accrue  solely to the benefit of Landlord
and such discount shall not be subtracted from Taxes.

                      B. If the real  estate tax fiscal  year of The City of New
York shall be changed  during the term of this Lease,  any Taxes for such fiscal
year,  a part of which is included  within a  particular  Tax Year and a part of
which is not so  included,  shall be  apportioned  on the basis of the number of
days in such fiscal year included in the  particular Tax Year for the purpose of
making the computations under this Section 3.03.

                      C. If Landlord shall receive a refund of Taxes for any Tax
Year,  Landlord  shall permit Tenant to credit  against  subsequent  payments of
fixed  annual rent and  additional  rent due from Tenant to Landlord  under this
Lease Tenant's  Proportionate Share of the refund but not to exceed Tenant's Tax
Payment paid for such Tax Year.  If the amount of the credit due to Tenant under
this provision  exceeds the amount of rent payments  scheduled to come due under
this Lease, Landlord shall pay to Tenant the amount of such excess within ninety
(90) days after the date on which Landlord receives the refund.

<PAGE>

                      D. If the Base Tax is reduced as a result of a  certiorari
proceeding or otherwise  Landlord  shall adjust the amounts  previously  paid by
Tenant  pursuant to the provisions of this Section 3.03 and Tenant shall pay the
amount of said adjustment within thirty (30) days after demand setting forth the
amount of said adjustment.

               3.04 Tenant  shall pay to Landlord  upon  demand,  as  additional
rent,  any  occupancy  tax or rent tax now in effect or  hereafter  enacted,  if
payable by Landlord in the first  instance or  hereafter  required to be paid by
Landlord.

               3.05 Any such  adjustment  payable by reason of the provisions of
Section 3.02 shall  commence as of the first day of the relevant  Operating Year
and, after Landlord shall furnish Tenant with an Escalation  Statement  relating
to such  Operating  Year,  all  monthly  installments  of rental  shall  reflect
one-twelfth  (1/12)  of  the  annual  amount  of  such  adjustment  until  a new
adjustment  becomes  effective  pursuant to the  provisions  of this  Article 3,
provided,  however,  that if said  Escalation  Statement  is furnished to Tenant
after the  commencement of such Operating Year,  there shall be promptly paid by
Tenant to Landlord,  an amount equal to the portion of such adjustment allocable
to the part of such  Operating  Year which shall have elapsed prior to the first
day of the  calendar  month next  succeeding  the  calendar  month in which said
Escalation Statement is furnished to Tenant.

               3.06 In the event that the Commencement  Date shall be other than
the first day of a Tax Year or an Operating  Year or the date of the  expiration
or other  termination  of this Lease shall be a day other than the last day of a
Tax Year or an Operating  Year,  then, in such event, in applying the provisions
of this Article 3 with  respect to any Tax Year or Operating  Year in which such
event shall have occurred,  appropriate adjustments shall be made to reflect the
occurrence of such event on a basis  consistent  with the principles  underlying
the provisions of this Article 3 taking into  consideration  the portion of such
Tax Year or  Operating  Year which  shall  have  elapsed  after the term  hereof
commences in the case of the  Commencement  Date,  and prior to the date of such
expiration  or  termination  in  the  case  of  the  Expiration  Date  or  other
termination.

               3.07   Payments   shall  be  made  pursuant  to  this  Article  3
notwithstanding  the fact that an  Escalation  Statement  is furnished to Tenant
after the expiration of the term of this Lease;  provided that if Landlord shall
fail to furnish an  Escalation  Statement  with respect to any  Escalation  Year
within three (3) years  following the end of such year,  then Landlord  shall be
deemed  to  have  irrevocably  waived  its  right  to  furnish  such  Escalation
Statement.

<PAGE>

               3.08 In no event  shall the fixed  annual rent ever be reduced by
operation  of this  Article 3 and the rights and  obligations  of  Landlord  and
Tenant under the  provisions  of this  Article 3 with respect to any  additional
rent shall survive the termination of this Lease.

               3.09  Landlord's  failure to render an Escalation  Statement with
respect to any Tax Year or Operating  Year,  respectively,  shall not  prejudice
Landlord's  right to  thereafter  render an  Escalation  Statement  with respect
thereto or with respect to any subsequent Tax Year or Operating  Year.  Tenant's
obligation to pay  escalation  for any Tax or Operating  Year during the term of
this Lease shall  survive for three (3) years  after the  expiration  or earlier
termination of this Lease.

               3.10 Each  Escalation  Statement  shall be conclusive and binding
upon Tenant  unless  within  ninety (90) days after  receipt of such  Escalation
Statement  Tenant shall notify Landlord that it disputes the correctness of such
Escalation   Statement,   specifying  the  particular  respects  in  which  such
Escalation  Statement is claimed to be  incorrect.  Any dispute  relating to any
Escalation  Statement  not resolved  within ninety (90) days after the giving of
such notice by Tenant may be submitted to  arbitration  by either party pursuant
to Article 38 hereof.  Pending the  determination of such dispute,  Tenant shall
pay additional rent in accordance  with the Escalation  Statement that Tenant is
disputing,  without  prejudice  to Tenant's  position.  If the dispute  shall be
determined in Tenant's favor,  Landlord shall forthwith pay to Tenant the amount
of Tenant's  overpayment of rents  resulting  from  compliance  with  Landlord's
Escalation Statement.

                                    ARTICLE 4

                                   ELECTRICITY

               4.01 Tenant agrees that Landlord  shall  furnish  electricity  to
Tenant on a "submetering"  basis.  Landlord shall install any submeters required
in Landlord's  reasonable judgment in the demised premises at Tenant's sole cost
and expense.  Electricity and electric service,  as used herein,  shall mean any
element  affecting  the  generation,   transmission,   and/or   distribution  or
redistribution  of  electricity,  including,  but not limited to, services which
facilitate the distribution of service.

               4.02 Tenant  covenants  and agrees to purchase  electricity  from
Landlord or Landlord's designated agent at charges, terms and rates,  including,

<PAGE>

without limitation,  fuel adjustments and taxes, equal to those specified in the
Con Edison SC#4-I rate schedule  effective on the date Landlord  first  provides
electricity  to the demised  premises on a  submetering  basis (the  "effective"
date),  or any  successor  rate  schedule  or service  classification,  plus ten
percent (10%) for transmission line loss and other  redistribution  costs. Where
more than one meter measures the service of Tenant in the Building,  the service
rendered  through each meter shall be aggregated  and billed in accordance  with
the rates herein.  Bills  therefore  shall be rendered at such times as Landlord
may elect and the amount,  as computed from a meter,  shall be deemed to be, and
be paid as, Additional  Charges.  If any tax is imposed upon Landlord's  receipt
from the sale or resale of electrical  energy  service to Tenant by any Federal,
State or Municipal  authority,  Tenant covenants and agrees that where permitted
by law, Tenant's pro-rata share of such taxes shall be passed on to and included
in the amount of, and paid by, Tenant to Landlord.

               4.03 If all or part of the submetering additional rent payable in
accordance with this Article 4 becomes  uncollectible  or reduced or refunded by
virtue of any law, order or  regulation,  the parties agrees that, at Landlord's
option, in lieu of all submetering  Additional Charges,  and in consideration of
Tenant's use of the  Building's  electrical  distribution  system and receipt of
redistributed electricity and payment by Landlord of consultant's fees and other
redistribution costs, the fixed annual rent to be paid under this Lease shall be
increased  by an  "alternative  charge"  which shall be a sum equal to $3.00 per
year per  rentable  square  foot of the  demised  premises,  changed in the same
percentage  as any  increases  in the cost to Landlord for  electricity  for the
entire  Building  subsequent  to January 1, 2000  because  of  electric  rate or
service classification or market price changes.

               4.04  Unless  due to the  negligence  or  willful  misconduct  of
Landlord or its agents or employees,  Landlord  shall not be liable for any loss
or damage or expense which Tenant may sustain or incur if either the quantity or
character of electric  service is changed or is no longer  available or suitable
for  Tenant's  requirements.   Tenant  agrees  not  to  connect  any  additional
electrical  equipment to the Building electric  distribution  system, other than
lamps and small office machines and personal  computers which consume comparable
amounts of electricity,  without Landlord's prior written consent, which consent
shall not be  unreasonably  withheld.  Any  riser or  risers to supply  Tenant's
electrical  requirements,  upon written request of Tenant,  will be installed by
Landlord,  at the sole  cost and  expense  of  Tenant,  if, in  Landlord's  sole
judgment,  the same are necessary and will not cause permanent  damage or injury
to the Building or demised  premises or cause or create a dangerous or hazardous
condition or entail excessive or unreasonable  alterations,  repairs or expenses
or  otherwise  interfere

<PAGE>

with or  disturb  other  tenants or  occupants  of the  Building  except to a de
minimis  extent.  In  addition  to the  installation  of such  riser or  risers,
Landlord  will also at the sole cost and  expense of Tenant,  install  all other
equipment proper and necessary in connection  therewith subject to the aforesaid
terms and conditions.  The parties  acknowledge  that they understand that it is
anticipated  that electric  rates,  charges,  etc.,  may be changed by virtue of
time-of-day  rates or other  methods of billing,  electricity  purchases and the
redistribution  thereof,  and that the references in the foregoing paragraphs to
changes  in  methods of or rules on billing  are  intended  to include  any such
changes.  Anything hereinabove to the contrary  notwithstanding,  in no event is
the submetering  additional rent or any "alternative charge", to be less than an
amount equal to the total of Landlord's payment to public utilities and/or other
providers  for the  electricity  consumed by Tenant (and any taxes thereon or on
redistribution  of same) plus ten percent (10%) for  transmission  line loss and
other  redistribution  costs.  The Landlord  reserves the right to terminate the
furnishing of electricity  upon thirty (30) days' written  notice to Tenant,  in
which  event the Tenant may make  application  direction  to the public  utility
and/or other  providers  for the  Tenant's  entire  separate  supply of electric
current  and  Landlord  shall  permit  its wires  and  conduits,  to the  extent
available  and  safely  capable,  to be used for such  purpose,  but only to the
extent of Tenant's then authorized load. Any meters,  risers, or other equipment
or connections  necessary to furnish  electricity  on a submetering  basis or to
enable Tenant to obtain electric current directly from such utility and/or other
providers  shall be  installed  at Tenant's  sole cost and  expense.  Only rigid
conduit or electrical metal tubing (EMT) will be allowed. The Landlord, upon the
expiration  of the  aforesaid  thirty  (30) days'  written  notice to Tenant may
discontinue  furnishing  the  electric  current but this Lease  shall  otherwise
remain in full force and effect; provided, however, if Tenant shall be using due
diligence  to obtain a direct  supply of  electricity  from the  public  utility
company,  such thirty (30) day period  shall be extended  until  Tenant shall be
receiving such direct service.

               4.05  Landlord  shall  provide six (6) watts per rentable  square
foot connected load (exclusive of the air cooled packaged air conditioning units
serving the demised  premises) to a disconnect switch in the demised premises in
a location to be  designated  by Landlord on each floor  comprising  the demised
premises.  Tenant's use of electric energy in the demised  premises shall not at
any time exceed the capacity of any of the  electrical  conductors and equipment
in or  otherwise  serving  the  demised  premises.  In order to insure that such
capacity  is  not  exceeded  and to  avert  possible  adverse  effect  upon  the
Building's  distribution  of  electricity  via the Building's  electric  system,
Tenant shall not,  without  Landlord's  prior  consent in each  instance  (which
consent shall not be  unreasonably  withheld or delayed),  connect any fixtures,
appliances  or  equipment  (other than normal

<PAGE>

business  machines  and personal  computers,  which do not  materially  increase
Tenant's  electrical  consumption) to the Building's electric system or make any
alterations or additions to the electric system of the demised premises existing
on the Commencement  Date.  Landlord shall make electrical energy available at a
level  sufficient to  accommodate a connected load of six (6) watts per rentable
square foot of the demised premises;  provided,  however, such electrical energy
shall be terminated at a disconnect  switch within an electrical  closet located
within the demised premises and designated by Landlord. Landlord shall also make
electrical  energy available at a level sufficient to accommodate the air cooled
packaged air conditioning  units serving the demised premises to be installed by
Tenant in accordance with Article 50 below.

               4.06 At Landlord's option, Tenant shall purchase from Landlord or
Landlord's  agent all lighting  tubes,  lamps,  bulbs and  ballasts  used in the
demised  premises  and  Tenant  shall  pay  Landlord's  reasonable  charges  for
providing and installing same, on demand, as additional rent.

               4.07 In no event shall the fixed  annual rent under this Lease be
reduced  below the  amount set forth in  Section  1.01  hereof by virtue of this
Article 4.

                                    ARTICLE 5

                                       USE

               5.01  The  demised  premises  shall  be  used  solely  as and for
administrative  and executive  offices by Tenant and other  permitted  occupants
thereof (as hereinafter provided), and for no other purposes.

               5.02  Tenant  shall  not use or  permit  the  use of the  demised
premises  or any  part  thereof  in  any  way  which  would  violate  any of the
covenants, agreements, terms, provisions and conditions of this Lease or for any
unlawful  purposes or in any unlawful  manner or in violation of the Certificate
of  Occupancy  for the demised  premises or the  Building,  and Tenant shall not
suffer or permit  the  demised  premises  or any part  thereof to be used in any
manner or  anything to be done  therein or  anything to be brought  into or kept
therein which, in the reasonable  judgment of Landlord,  shall in any way impair
or tend to impair the  character,  reputation or appearance of the Building as a
high quality  office  building,  impair or  interfere  with or tend to impair or
interfere with any of the Building  services or the

<PAGE>

proper and economic  heating,  cleaning,  air conditioning or other servicing of
the Building or the demised  premises,  or impair or  interfere  with or tend to
impair or  interfere  with the use of any of the other areas of the Building by,
or occasion discomfort,  inconvenience or annoyance to, any of the other tenants
or occupants of the Building.  Tenant shall not install any  electrical or other
equipment of any kind which,  in the judgment of Landlord,  might cause any such
impairment, interference, discomfort, inconvenience or annoyance.

                                    ARTICLE 6

                          ALTERATIONS AND INSTALLATIONS

               6.01 Tenant shall make no alterations,  installations,  additions
or improvements in or to the demised premises  without  Landlord's prior written
consent and then only by  contractors  or mechanics  first approved by Landlord.
All such work, alterations,  installations,  additions and improvements shall be
done at Tenant's  sole  expense and at such times and in such manner as Landlord
may from time to time reasonably designate. Upon completion of such work, Tenant
shall  obtain  and  deliver  to  Landlord  written,   unconditional  waivers  of
mechanic's or other liens on the real property in which the demised premises are
located,  signed  by  all  architects,  engineers,  contractors,  mechanics  and
designers to become  involved in such work. In connection  with any  alterations
costing in excess of $100,000  (excluding  Tenant's  Work and  Tenant's  initial
build-out of the Added Space, as hereinafter defined,  provided Tenant shall use
bondable  contractors and  subcontractors  in connection with the performance of
same),  Tenant shall also provide at Landlord's  request such financial security
as Landlord  shall require to guarantee  completion of work  performed by Tenant
pursuant to this Article 6 and payment of all contractors and suppliers utilized
in connection therewith.

               Any installations,  materials and work which may be undertaken by
or for the account of Tenant to prepare, equip, decorate and furnish the demised
premises  for  Tenant's  occupancy  and any future work in the demised  premises
shall be  effected  solely in  accordance  with plans and  specifications  first
approved in writing by Landlord.  Tenant shall reimburse  Landlord promptly upon
demand for any reasonable  out-of-pocket costs and expenses actually incurred by
Landlord  in  connection  with  Landlord's  review  of such  Tenant's  plans and
specifications.  Landlord will not unreasonably withhold or delay its consent to
requests for nonstructural alterations, additions and improvements provided they
will not affect the  outside of the  Building  or any area  outside  the demised
premises  (other than  mechanical  systems) or adversely  affect its  structure,
electrical, HVAC, plumbing

<PAGE>

or mechanical systems.

               Any such approved alterations and improvements shall be performed
in accordance with the foregoing and the following provisions of this Article 6:

                      (i)    All work shall be done in a good and workmanlike
                             manner.

                      (ii)   In the event Tenant shall employ any  contractor to
                             do in the demised  premises  any work  permitted by
                             this Lease,  such contractor and any  subcontractor
                             shall  agree to employ  only such labor as will not
                             result in  jurisdictional  disputes  or  strikes or
                             result in causing  disharmony  with  other  workers
                             employed at the Building.

                      (iii)  All  such   alterations   shall  be   effected   in
                             compliance  with all applicable  laws,  ordinances,
                             rules and regulations of governmental bodies having
                             or asserting  jurisdiction in the demised  premises
                             and  in  accordance  with   Landlord's   Rules  and
                             Regulations with respect to alterations,  a copy of
                             which is  annexed  hereto  as  Exhibit D and made a
                             part hereof.

                      (iv)   Tenant  shall  keep the  Building  and the  demised
                             premises  free and  clear of all liens for any work
                             or  material  claimed  to have  been  furnished  to
                             Tenant  or to  the  demised  premises  on  Tenant's
                             behalf,  and all  work to be  performed  by  Tenant
                             shall   be  done  in  a  manner   which   will  not
                             unreasonably   interfere   with  or  disturb  other
                             tenants or occupants of the Building.

                      (v)    During  the  progress  of the  work  to be  done by
                             Tenant, said work shall be subject to inspection by
                             representatives  of Landlord who shall be permitted
                             access to the demised  premises and the opportunity
                             to  inspect,  at all  reasonable  times,  but  this
                             provision  shall not in any way  whatsoever  create
                             any  obligation  on  Landlord  to  conduct  such an
                             inspection.  In  conducting  any  such  inspection,
                             Landlord shall use  reasonable  efforts to minimize
                             any   interference   with  Tenant's   construction,
                             without any  obligation,  however,  to conduct such

<PAGE>

                             inspections during non-business hours.

                      (vi)   With respect to  alteration  or  improvement  work,
                             other  than  Tenant's  Work  and  Tenant's  initial
                             build-out of the Added Space, costing more than Ten
                             Thousand Dollars ($10,000), Tenant agrees to pay to
                             Landlord's  managing  agent,  as  additional  rent,
                             promptly upon being billed therefor, a sum equal to
                             ten  percent  (10%)  of the  cost of  such  work or
                             alteration  and with  respect to Tenant's  Work and
                             Tenant's  initial  build-out of the Added Space,  a
                             sum  equal  to  three  percent  (3%)  of  the  cost
                             thereof,   for  Landlord's  indirect  costs,  field
                             supervision  and  coordination  in connection  with
                             such work.

                      (vii)  Prior to  commencement  of any work,  Tenant  shall
                             furnish to  Landlord  certificates  evidencing  the
                             existence of:

                             (1)    workmen's  compensation  insurance  covering
                                    all persons employed for such work; and

                             (2)    reasonable  comprehensive  general liability
                                    and   property   damage   insurance   naming
                                    Landlord,   its   designees  and  Tenant  as
                                    insureds,  with  coverage  of at least Three
                                    Million Dollars ($3,000,000) single limit.

                      (viii) Before  commencing  any work  costing  in excess of
                             $100,000  (excluding  Tenant's  Work  and  Tenant's
                             initial  build-out  of the  Added  Space,  provided
                             Tenant   shall   use   bondable   contractors   and
                             subcontractors  in  connection  with  same)  Tenant
                             shall  furnish to  Landlord  such bonds for payment
                             and   completion   or  such  other   security   for
                             completion thereof and payment therefor as Landlord
                             shall  reasonably  require  and in such  form as is
                             reasonably  satisfactory  to  Landlord  and  in  an
                             amount  which will be one  hundred  twenty  percent
                             (120%)  of the cost of  performing  such  work,  as
                             specified  by Tenant's  general  contractor  in its
                             contract for the performance of such work.

                      (ix)   Any work  affecting any  mechanical  systems of the

<PAGE>

                             Building,   including,   without  limitation,   the
                             electrical, plumbing and life safety systems, shall
                             be  performed  at Tenant's  expense by a contractor
                             designated  by  Landlord,  provided  the charges of
                             such contractors shall be commercially reasonable.

Notice is  hereby  given  that  Landlord  shall  not be liable  for any labor or
materials  furnished  or to be  furnished  to Tenant  upon  credit,  and that no
mechanic's  or other lien for any such  labor or  materials  shall  attach to or
affect the  reversion  or other  estate or  interest  of  Landlord in and to the
demised premises.

               6.02 Any mechanic's  lien,  filed against the demised premises or
the Building  for work  claimed to have been done for, or  materials  claimed to
have been  furnished  to,  Tenant shall be  discharged  by Tenant at its expense
within  thirty  (30) days  after such  filing,  by  payment,  filing of the bond
required by law or otherwise.

               6.03 All alterations,  installations,  additions and improvements
made and installed by Landlord,  including without  limitation any work referred
to in Article 2 hereof  shall be the  property of Landlord and shall remain upon
and be surrendered with the demised premises as a part thereof at the end of the
term of this Lease.

               6.04 All alterations,  installations,  additions and improvements
made and  installed by Tenant,  or at Tenant's  expense,  upon or in the demised
premises  which are of a permanent  nature and which  cannot be removed  without
damage to the demised  premises or Building  shall become and be the property of
Landlord,  and shall remain upon and be surrendered with the demised premises as
a part thereof at the end of the term of this Lease,  except that Landlord shall
have the  right  and  privilege  at any time up to six (6)  months  prior to the
expiration  of the term of this  Lease  to serve  notice  upon  Tenant  that any
"Non-Standard  Alterations" (as hereinafter  defined in this Section 7.05) shall
be removed and, in the event of service of such notice, Tenant will, at Tenant's
own cost and expense,  remove the same in accordance  with such request,  repair
any damage to the  demised  premises  caused by such  removal  and  restore  the
demised  premises  to  their  original  condition,  ordinary  wear  and tear and
casualty excepted;  provided that Landlord shall have advised Tenant at the time
it consented to any such  Non-Standard  Alteration that Landlord may require its
removal at the end of the Term if Tenant shall have  requested  such advice when
it requested  Landlord's  consent to such  Alteration.  For the purposes of this
Article  6,  "Non-Standard  Alteration"  shall mean the  following  non-standard
Building  improvements:  auditoriums or similar type special use areas,  vaults,
atriums,   kitchen  equipment  and  installations,   internal

<PAGE>

stairways,  slab reinforcements  which reduce the height of the finished ceiling
from the floor (assuming a customary  distance  between the finished ceiling and
the underside of the floor slab above) or impede the  installation  of duct work
and  other  normal  installations  above  the  finished  ceiling,  and any other
Alteration  which is not suitable for normal office  occupancy or which would be
unusually  difficult or costly to remove in comparison to the usual  Alterations
required for general office purposes.

               6.05  Where  furnished  by  or  at  the  expense  of  Tenant  all
furniture, furnishings and trade fixtures, including without limitation, murals,
business machines and equipment,  counters,  screens, cages, movable partitions,
metal railings, movable closets, and any other movable property shall remain the
property of Tenant  which may, at its option,  remove all or any part thereof at
any time prior to the expiration of the term of this Lease. In case Tenant shall
decide not to remove any part of such property,  Tenant shall notify Landlord in
writing not less than three (3) months  prior to the  expiration  of the term of
this Lease, specifying the items of property which it has decided not to remove.
If,  within  thirty (30) days after the service of such notice,  Landlord  shall
request Tenant to remove any of the said property, Tenant shall, at its expense,
remove the same and at Landlord's option either repair any damage caused by such
removal or restore the affected  portion of the demised premises to its original
condition. As to such property which Landlord does not request Tenant to remove,
the same shall be, if left by Tenant,  deemed  abandoned by Tenant and thereupon
the same shall become the property of Landlord.

If any  alterations,  installations,  additions,  improvements or other property
which  Tenant  shall have the right to remove or be  requested  by  Landlord  to
remove as provided in Sections 6.04 and 6.05 hereof (herein in this Section 6.06
called the "property") are not removed on or prior to the expiration of the term
of this  Lease,  Landlord  shall  have the right to remove the  property  and to
dispose of the same  without  accountability  to Tenant and at the sole cost and
expense of Tenant. In case of any damage to the demised premises or the Building
resulting  from the removal of the property  Tenant shall repair such damage or,
in default  thereof,  shall reimburse  Landlord for Landlord's cost in repairing
such damage. This obligation shall survive any termination of this Lease.

               6.06  Tenant  shall have the right to install,  and Tenant  shall
maintain  throughout the term of this lease,  at Tenant's sole cost and expense,
signage on the entrance  door to the demised  premises on any floor in which the
demised  premises is located (full or partial) and in the elevator  lobby of any
full floor upon which the demised  premises are located.  Any such signage shall
be of a Building

<PAGE>

standard  size  and  material,   subject  to  Landlord's  consent,   not  to  be
unreasonably  withheld,  and otherwise in compliance  with all applicable  laws,
rules and regulations.

               6.07  Tenant   shall  keep   records  of  Tenant's   alterations,
installations,  additions  and  improvements  costing in excess of Ten  Thousand
Dollars  ($10,000),  and of the cost thereof.  Tenant shall,  within thirty (30)
days after  demand by Landlord,  furnish to Landlord  copies of such records and
cost if Landlord shall require same in connection  with any proceeding to reduce
the assessed  valuation of the Building,  or in connection  with any  proceeding
instituted pursuant to Article 16 hereof.

                                    ARTICLE 7

                                     REPAIRS

               7.01 Tenant shall take good care of the demised  premises and the
fixtures,  equipment and  appurtenances  therein and shall, at its sole cost and
expense,  make such repairs to the demised premises and the fixtures,  equipment
and  appurtenances  therein  as are  necessitated  by  the  (i)  act,  omission,
occupancy or negligence of Tenant or Tenant's employees, contractors,  invitees,
licensees or other occupants of the demised  premises or (ii) use of the demised
premises  in a manner  contrary  to the  purposes  for which  same are leased to
Tenant, as and when needed to preserve them in good working order and condition.
Notwithstanding the foregoing,  all damage or injury to the Building,  or to its
fixtures,   equipment  and  appurtenances,   whether  requiring   structural  or
non-structural repairs, caused by or resulting from the act, omission, occupancy
or negligence of Tenant or Tenant's employees, contractors,  invitees, licensees
or other occupants of the demised premises, shall be repaired promptly by Tenant
(or by Landlord,  if a structural  repair),  at Tenant's  sole cost and expense.
Except as otherwise provided in Section 9.05 hereof, all damage or injury to the
demised  premises and to its  fixtures,  appurtenances  and  equipment or to the
Building or to its fixtures, appurtenances and equipment caused by Tenant moving
property into or out of the Building or by installation or removal of furniture,
fixtures or other property, shall be repaired,  restored or replaced promptly by
Tenant  at  its  sole  cost  and  expense,   which  repairs,   restorations  and
replacements  shall  be in  quality  and  class  equal to the  original  work or
installations.  If  Tenant  fails  to  commence  such  repairs,  restoration  or
replacements  within ten (10) days after demand from Landlord (or if, after such
commencement,  Tenant fails to complete  such repairs with due  diligence),  the
same may be made by Landlord at the expense of Tenant

<PAGE>

and such expense shall be  collectible  as additional  rent and shall be paid by
Tenant  within  fifteen  (15)  days  after  rendition  of a bill  therefor.  The
provisions  of this Section 7.01 shall be subject to the  provisions  of Section
9.08.

               The exterior  walls of the  Building,  the portions of any window
sills outside the windows, the windows, the fire stairs, utility closets and any
shafts passing  through the floor on which the demised  premises are located are
not part of the premises demised by this Lease, and Landlord reserves all rights
to such parts of the Building.

               7.02 Tenant  shall not place a load upon any floor of the demised
premises  exceeding  the floor  load per  square  foot area which such floor was
designed to carry and which is allowed by law.

               7.03 Business  machines and  mechanical  equipment used by Tenant
which  cause  vibration,  noise,  cold or heat  that may be  transmitted  to the
Building  structure or to any leased space to such a degree as to be  reasonably
objectionable to Landlord or to any other tenant in the Building shall be placed
and  maintained  by Tenant at its expense in settings of cork,  rubber or spring
type  vibration  eliminators  sufficient to absorb and prevent such vibration or
noise,  or  prevent  transmission  of such  cold or  heat.  The  parties  hereto
recognize  that  the  operation  of  elevators,  air  conditioning  and  heating
equipment  will  cause  some  vibration,  noise,  heat  or  cold  which  may  be
transmitted  to other  parts  of the  Building  and  demised  premises.  Neither
Landlord  nor Tenant  shall be under any  obligation  to endeavor to reduce such
vibration, noise, heat or cold.

               7.04  Except as  otherwise  specifically  provided in this Lease,
there shall be no allowance  to Tenant for a  diminution  of rental value and no
liability  on the part of  Landlord  by reason of  inconvenience,  annoyance  or
injury  to  business  arising  from  the  making  of any  repairs,  alterations,
additions  or  improvements  in or to any portion of the Building or the demised
premises or in or to fixtures, appurtenances or equipment thereof. In connection
with such repairs,  alterations,  additions or improvements,  Landlord shall use
reasonable  efforts to minimize any interference  with Tenant's  construction or
the  conduct  of  Tenant's  business  in  the  demised  premises,   without  any
obligation, however, to employ labor at overtime or other premium pay rates.

               7.05  Landlord,  at its  expense,  shall  keep and  maintain  the
Building and its systems and facilities  serving the demised  premises,  in good
working order,  condition and repair and shall make all repairs,  structural and
otherwise,  interior  and  exterior,  as and when needed in or about the demised
premises,  except for

<PAGE>

those repairs for which Tenant is responsible  pursuant to any other  provisions
of this Lease.

                                    ARTICLE 8

                               REQUIREMENTS OF LAW

               8.01 Tenant, at Tenant's sole cost and expense, shall comply with
all laws,  orders and  regulations  of  federal,  state,  county  and  municipal
authorities,  and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation,  order or duty upon Landlord or Tenant
with  respect  to the  demised  premises,  or the  use  or  occupation  thereof.
Notwithstanding  the  foregoing,  Tenant  shall  not be  required  to  make  any
structural  alterations  in the demised  premises or changes or additions to any
Building  systems to comply with laws unless the  necessity for same shall arise
from Tenant's particular manner of use of the demised premises or the particular
manner of operation  of its  installations,  equipment or other  property in the
demised premises, any cause or condition created by or at the instance of Tenant
or any breach of Tenant's obligations hereunder.

               8.02  Notwithstanding  the  provisions  of Section  8.01  hereof,
Tenant, at its own cost and expense, may contest, in any manner permitted by law
(including  appeals to a court, or governmental  department or authority  having
jurisdiction in the matter), the validity or the enforcement of any governmental
act, regulation or directive with which Tenant is required to comply pursuant to
this Lease, and may defer compliance therewith provided that:

                      (a)    such non-compliance shall not subject Landlord to
criminal prosecution or subject the Land and/or Building to lien or sale;

                      (b) such  non-compliance  shall not be in violation of any
fee mortgage, or of any ground or underlying lease or any mortgage thereon;

                      (c) Tenant  shall first  deliver to Landlord a surety bond
issued by a surety  company  of  recognized  responsibility,  or other  security
satisfactory to Landlord,  indemnifying and protecting Landlord against any loss
or injury by reason of such non-compliance; and

                      (d) Tenant shall  promptly and  diligently  prosecute such
contest.

<PAGE>

               Landlord,  without  expense or liability  to it, shall  cooperate
with Tenant and execute any  documents or pleadings  required for such  purpose,
provided that Landlord shall reasonably be satisfied that the facts set forth in
any such documents or pleadings are accurate.

                                    ARTICLE 9

                    INSURANCE, LOSS, REIMBURSEMENT, LIABILITY

               9.01 Tenant shall not cause,  do, or permit to be done any act or
thing upon the demised  premises,  which will  invalidate or be in conflict with
New York standard fire insurance  policies  covering the Building,  and fixtures
and  property  therein,  or which  would  increase  the  rate of fire  insurance
applicable to the Building to an amount  higher than it otherwise  would be; and
Tenant shall  neither do nor permit to be done any act or thing upon the demised
premises  which shall subject  Landlord to any liability or  responsibility  for
injury to any person or  persons or to  property  by reason of any  business  or
operation  being  carried on within the  demised  premises;  but nothing in this
Section 9.01 shall prevent Tenant's use of the demised premises for the purposes
stated in Article 5 hereof.

               9.02  If,  as a  result  of any  act or  omission  by  Tenant  or
violation of this Lease,  the rate of fire insurance  applicable to the Building
shall be increased to an amount higher than it otherwise  would be, Tenant shall
reimburse  Landlord for all increases of Landlord's  fire insurance  premiums so
caused;  such  reimbursement to be additional rent payable upon the first day of
the month  following  Landlord's  giving of a notice to Tenant setting forth any
outlay by Landlord for such increased fire insurance premiums.  In any action or
proceeding  wherein Landlord and Tenant are parties,  a schedule or "make-up" of
rates for the  Building  or  demised  premises  issued by the body  making  fire
insurance rates for the demised premises,  shall be presumptive  evidence of the
facts therein  stated and of the several items and charges in the fire insurance
rate then applicable to the demised premises.

               9.03 Landlord or its agents shall not be liable for any injury or
damage to persons or property resulting from fire,  explosion,  falling plaster,
steam,  gas,  electricity,  water,  rain or snow or  leaks  from any part of the
Building,  or from the pipes,  appliances  or  plumbing  works or from the roof,
street or  subsurface  or from any other  place or by  dampness  or by any other
cause of whatsoever  nature,  unless any of the foregoing  shall be caused by or
due to the negligence of Landlord, its agents, servants or employees.

<PAGE>

               9.04  Landlord  or its agents  shall not be liable for any damage
which Tenant may sustain,  if at any time any window of the demised  premises is
broken,  or temporarily or permanently  (restricted to windows on a lot line, if
permanently)  closed,  darkened or bricked up for any reason whatsoever,  except
only Landlord's arbitrary acts if the result is permanent,  and Tenant shall not
be entitled to any compensation  therefor or abatement of rent or to any release
from any of Tenant's obligations under this Lease, nor shall the same constitute
an eviction.

               9.05 Tenant shall reimburse Landlord for all expenses, damages or
fines  incurred or suffered by Landlord,  by reason of any breach,  violation or
non-performance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by  moving  property  of or for  Tenant  in or out  of the  Building,  or by the
installation  or removal of furniture or other  property of or for Tenant except
as provided in Section 6.05 of this Lease, or by reason of or arising out of the
carelessness,  negligence or improper conduct of Tenant, or its agents, servants
or employees,  in the use or occupancy of the demised  premises.  Subject to the
provisions  of Section  8.02  hereof,  where  applicable,  Tenant shall have the
right,  at Tenant's own cost and expense,  to  participate in the defense of any
action  or  proceeding  brought  against  Landlord,   and  in  negotiations  for
settlement  thereof if, pursuant to this Section 9.05, Tenant would be obligated
to reimburse  Landlord for  expenses,  damages or fines  incurred or suffered by
Landlord.

               9.06  Tenant  shall  give  Landlord  notice  in  case  of fire or
accidents in the demised premises promptly after Tenant is aware of such event.

               9.07  Tenant  agrees to look  solely  to  Landlord's  estate  and
interest  in the Land and  Building,  or any ground or  underlying  lease of the
Building,  or of the  Land  and  Building,  and the  demised  premises,  for the
satisfaction  of any right or remedy of Tenant for the  collection of a judgment
(or other judicial process)  requiring the payment of money by Landlord,  in the
event of any liability by Landlord,  and no other property or assets of Landlord
(or the partners or members  thereof if Landlord is other than an  individual or
corporation)  shall  be  subject  to  levy,  execution,   attachment,  or  other
enforcement  procedure for the  satisfaction of Tenant's  remedies under or with
respect to this Lease,  the  relationship of Landlord and Tenant  hereunder,  or
Tenant's use and occupancy of the demised  premises,  or any other  liability of
Landlord to Tenant.

               9.08  (a)  Landlord  agrees  that it  will  include  in its  fire
insurance policies appropriate clauses pursuant to which the insurance companies
(i) waive all

<PAGE>

right of  subrogation  against  Tenant with respect to losses payable under such
policies  and/or (ii) agree that such policies shall not be  invalidated  should
the  insured  waive in  writing  prior to a loss  any or all  right of  recovery
against any party for losses covered by such policies. But should any additional
premiums be exacted for any such clause or clauses,  Landlord  shall be released
from the  obligation  hereby  imposed  unless  Tenant shall pay such  additional
premium.

                      (b) Tenant agrees to include in its fire insurance  policy
or policies on its furniture, furnishings, fixtures and other property removable
by Tenant under the  provisions of this Lease  appropriate  clauses  pursuant to
which the  insurance  company or  companies  (i) waive the right of  subrogation
against  Landlord and any tenant of space in the Building with respect to losses
payable  under such  policy or  policies  and/or  (ii) agree that such policy or
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery  against any party for losses  covered by such
policy or policies.  But should any  additional  premium be exacted for any such
clause or clauses,  Tenant shall be released from the obligation  hereby imposed
unless Landlord or the other tenants shall pay such additional premium.

                      (c) Provided that Landlord's  right of full recovery under
its  policy or  policies  aforesaid  is not  adversely  affected  or  prejudiced
thereby,  Landlord  hereby  waives any and all right of recovery  which it might
otherwise have against Tenant, its servants,  agents and employees,  for loss or
damage occurring to the Building and the fixtures,  appurtenances  and equipment
therein,   to  the  extent  the  same  is  covered  by   Landlord's   insurance,
notwithstanding that such loss or damage may result from the negligence or fault
of Tenant,  its servants,  agents or employees.  Provided that Tenant's right of
full recovery under its aforesaid  policy or policies is not adversely  affected
or prejudiced thereby,  Tenant hereby waives any and all right of recovery which
it might otherwise have against  Landlord,  its servants,  agents and employees,
and against every other tenant in the Building who shall have executed a similar
waiver as set forth in this  Section  9.08(c)  for loss or damage  to,  Tenant's
furniture,  furnishings,  fixtures and other property  removable by Tenant under
the provisions hereof to the extent that same is covered by Tenant's  insurance,
notwithstanding that such loss or damage may result from the negligence or fault
of Landlord,  its servants,  agents or  employees,  or such other tenant and the
servants, agents or employees thereof.

                      (d) Landlord  and Tenant  hereby agree to advise the other
promptly if the clauses to be included in their  respective  insurance  policies
pursuant to  subdivisions  9.08 (a) and (b) hereof cannot be obtained.  Landlord
and Tenant hereby also agree to notify the other promptly of any cancellation or
change of the

<PAGE>

terms of any such policy which would affect such clauses.

               9.09  Tenant  covenants  and  agrees to  provide on or before the
Commencement Date and to keep in force during the term hereof for the benefit of
Landlord and Tenant the  following  insurance  policy  naming  Landlord  and, if
Landlord  gives Tenant the names thereof,  Landlord's  managing  agent,  lessors
under superior leases and the holders of any mortgages affecting the Land and/or
Building as additional  insureds.  Tenant  covenants to provide on or before the
commencement of the term of this Lease:

LIABILITY  INSURANCE:  Tenant shall  procure and at all times during the term of
this Lease shall maintain policies of commercial  general and umbrella liability
insurance  covering the demised  premises on an  occurrence  basis and shall not
contain any  deductibles  (other  than in  commercially  reasonable  amounts) or
self-insured  retentions.  The policy  shall  provide  that general and specific
aggregates are per location covered and shall further provide minimum limits, as
follows:

         COMMERCIAL GENERAL LIABILITY:

         $1,000,000 per occurrence; combined single limit bodily injury and
         property damage

         $5,000 medical payments coverage

         $50,000 fire legal liability coverage

         $2,000,000 general aggregate

         $1,000,000 per occurrence
         $2,000,000 annual aggregate; personal injury coverage

         $1,000,000 per occurrence
         $2,000,000 annual aggregate; products/completed operations
         coverage

         UMBRELLA LIABILITY:

         $10,000,000 per occurrence

         $10,000,000 general and specific aggregates

<PAGE>

Policy shall cover excess of general and automobile  liability and shall include
said policies as underlying  and  provisions of the umbrella  shall apply in the
same manner as the primary policies.

WORKERS' COMPENSATION

Tenant  shall  procure  and at all times  during  the term of this  Lease  shall
maintain a policy of statutory worker's compensation insurance covering Tenant's
employees with unlimited employer's liability coverage.

UMBRELLA LIABILITY

Umbrella  liability  shall cover in the same  manner as the  primary  commercial
general  liability  policy above and shall contain no  additional  exclusions or
limitations than those of the general liability policy.

PROPERTY INSURANCE

Tenant  shall  procure  and at all times  during  the term of this  Lease  shall
maintain a policy of all risk property  insurance in an amount adequate to cover
the cost of replacement  of all Tenant's  decorations,  improvements,  fixtures,
furniture,  stock and other  contents;  time element  coverage  including  extra
expense  to cover  Tenant's  loss as a  result  of a loss  sustained  by a peril
covered under the policy.

GENERAL

Commercial  general  liability and any umbrella policy will provide coverage for
and on behalf of the Landlord and its  designees  pursuant to the  provisions of
this Lease as  additional  insured and will  reflect that thirty (30) days prior
written  notice of  cancellation,  modification  or  non-renewal  be provided to
Landlord at the address so designated by Landlord.

Policy will provide that Tenant pays all premium  under the policy.  Landlord or
its agents  shall not be  responsible  for the payment of any  premiums for such
insurance.

Tenant will provide a certificate  of insurances to Landlord  prior to occupancy
of the  demised  premises  and a minimum of twenty (20) days in advance for each
renewal or replacement of such  insurance.  If the policy contains more than one
location,   Tenant  may  provide  a  certificate  of  insurance  reflecting  and
confirming  that the  insurance  is provided in  accordance  with the  insurance
provisions  of  this  Lease  and  shall  also  include  thereon  a  copy  of all
endorsements specifically applicable to

<PAGE>

Landlord and the demised premises.

The minimum limits of insurance coverage required by the insurance provisions of
this Lease shall be subject to increase by Landlord from time to time, after the
commencement  of the  third  (3rd)  anniversary  of  the  Commencement  Date  if
Landlord, in its reasonable judgment, shall deem the same necessary for adequate
protection.  Within  thirty  (30) days of demand  for such  increased  coverage,
Tenant shall deliver to Landlord evidence of such increased coverage in the form
of an endorsement or replacement  insurance policy or certificate and in keeping
with all other insurance  provisions  contained herein. In the event of Tenant's
failure to procure or maintain the  coverages  required  hereunder in accordance
with  the  insurance  provisions  contained  herein,  Landlord  may,  but is not
obligated  to,  procure  said  insurance at the cost and expense of Tenant to be
deemed  additional  rent  hereunder,  payable on demand.  The minimum  limits of
insurance  coverage required by the insurance  provisions of this Lease shall in
no way limit or diminish Tenant's liability.

Insurance  companies  must  be  satisfactory  to  Landlord  as to an  acceptable
Standard & Poor's or A.M. Best Rating with a minimum A. M. Best Rating of A - X.

In the event of Tenant's  failure to procure or maintain the coverages  required
hereunder in accordance with the insurance provisions contained herein, Landlord
may, but is not obligated to,  procure said insurance at the cost and expense of
Tenant to be deemed additional rent hereunder, payable on demand.

Tenant's failure to provide and keep in force the aforementioned insurance shall
be regarded as a material default hereunder  entitling  Landlord to exercise any
or all of the remedies  provided in this Lease in the event of Tenant's  default
and continued failure after notice and the expiration of two (2) Business Days.

                                   ARTICLE 10

                          DAMAGE BY FIRE OR OTHER CAUSE

               10.01 If the Building or the demised  premises shall be partially
or totally damaged or destroyed by fire or other cause,  then whether or not the
damage or  destruction  shall have resulted from the fault or neglect of Tenant,
or its  employees,  agents or  visitors  (and if this Lease  shall not have been
terminated as in this Article 10  hereinafter  provided),  Landlord shall repair
the damage and restore and rebuild the Building and/or the demised premises,  at
its expense (without

<PAGE>

limiting the rights of Landlord under any other provisions of this Lease),  with
reasonable  dispatch after notice to it of the damage or destruction;  provided,
however,  that  Landlord  shall not be  required  to repair  or  replace  any of
Tenant's property.

               10.02 If the Building or the demised  premises shall be partially
damaged  or  partially  destroyed  by fire or other  cause,  the  rents  payable
hereunder  shall be abated to the extent  that the demised  premises  shall have
been  rendered  untenantable  for the  period  from the date of such  damage  or
destruction to the date the damage shall be repaired or restored. If the demised
premises  or a major part  thereof  shall be totally  (which  shall be deemed to
include  substantially  totally)  damaged or  destroyed  or rendered  completely
(which  shall be deemed to include  substantially  completely)  untenantable  on
account  of fire or other  cause,  the rents  shall  abate as of the date of the
damage or destruction  and until Landlord shall repair,  restore and rebuild the
Building and the demised  premises  substantially  to its condition  immediately
prior to the fire or other  casualty,  provided,  however,  that  should  Tenant
reoccupy a portion of the demised  premises to conduct  its  business  therefrom
during  the period the  restoration  work is taking  place and prior to the date
that the same are made  completely  tenantable,  rents allocable to such portion
shall be payable by Tenant from the date of such occupancy.

               10.03 If the  Building or the demised  premises  shall be totally
damaged or  destroyed by fire or other  cause,  or if the  Building  shall be so
damaged or destroyed by fire or other cause (whether or not the demised premises
are damaged or destroyed) as to require a reasonably  estimated  expenditure  of
more  than  forty  percent  (40%) of the full  insurable  value of the  Building
immediately  prior to the  casualty,  then in  either  such  case  Landlord  may
terminate  this Lease by giving  Tenant notice to such effect within ninety (90)
days  after  the date of the  fire or  other  cause.  In case of any  damage  or
destruction  mentioned in this Article 10,  Tenant may  terminate  this Lease by
notice to  Landlord,  if Landlord has not  completed  the making of the required
repairs and restored and rebuilt the  Building and the demised  premises  within
twelve (12) months from the date of such damage or  destruction,  or within such
period  after  such date  (not  exceeding  six (6)  months)  as shall  equal the
aggregate  period  Landlord may have been delayed in doing so by  adjustment  of
insurance, labor trouble,  governmental controls, act of God, or any other cause
beyond Landlord's reasonable control.

               10.04 No  damages,  compensation  or claim  shall be  payable  by
Landlord  for  inconvenience,  loss of business or  annoyance  arising  from any
repair or restoration of any portion of the demised  premises or of the Building
pursuant to this Article 10.

<PAGE>

               10.05  Notwithstanding  any of the  foregoing  provisions of this
Article 10, if Landlord or the lessor of any superior lease or the holder of any
superior  mortgage  shall be unable to  collect  all of the  insurance  proceeds
(including rent insurance  proceeds)  applicable to damage or destruction of the
demised  premises  or the  Building  by fire or other  cause,  by reason of some
action or  inaction  on the part of Tenant  or any of its  employees,  agents or
contractors,  then,  without  prejudice  to  any  other  remedies  which  may be
available against Tenant, there shall be no abatement of Tenant's rents, but the
total amount of such rents not abated (which would  otherwise  have been abated)
shall not exceed the amount of uncollected insurance proceeds.

               10.06 Landlord will not carry  separate  insurance of any kind on
Tenant's property,  and, except as provided by law or by reason of its breach of
any of its  obligations  hereunder,  shall not be obligated to repair any damage
thereto or  replace  the same.  Tenant  shall  maintain  insurance  on  Tenant's
property,  and Landlord  shall not be obligated to repair any damage  thereto or
replace the same.

               10.07  Landlord and Tenant shall each look first to any insurance
in its favor  before  making any claim  against the other party for recovery for
loss or damage resulting from fire or other casualty.

               10.08 The  provisions  of this Article 10 shall be  considered an
express  agreement  governing any cause of damage or  destruction of the demised
premises by fire or other casualty,  and Section 227 of the Real Property Law of
the State of New York,  providing  for such a  contingency  in the absence of an
express agreement,  and any other law of like import, now or hereafter in force,
shall have no application in such case.

               10.09  If  during  the  final  two (2)  years of this  Lease  the
Building or the demised premises shall be damaged or destroyed to the extent set
forth in Section  10.03,  either  party shall have the right to  terminate  this
Lease upon  written  notice to the other  party  given  within  thirty (30) days
following  such casualty in accordance  with the notice  requirements  set forth
herein.

                                   ARTICLE 11

                    ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.

               11.01  Tenant  shall not (a) assign or  otherwise  transfer this

<PAGE>

Lease or the term and estate hereby granted,  (b) sublet the demised premises or
any part  thereof  or allow  the same to be used or  occupied  by  others  or in
violation of Article 5 hereof or (c) mortgage,  pledge or encumber this Lease or
the demised  premises or any part thereof in any manner or permit any lien to be
filed against this Lease,  the demised premises or the Building by reason of any
act or  omission on the part of Tenant or enter into any  agreement  which would
permit the filing of a lien by any broker without,  in each instance,  obtaining
the prior consent of Landlord,  except as otherwise  expressly  provided in this
Article 11. For  purposes of this  Article 11, (i) the transfer of a majority of
the  issued and  outstanding  capital  stock of any  corporate  tenant,  or of a
corporate subtenant,  or the transfer of a majority of the total interest in any
partnership  tenant or  subtenant,  however  accomplished,  whether  in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment  of this Lease,  or of such  sublease,  as the case may be, except
that the  transfer  of any of the  outstanding  capital  stock of any  corporate
tenant,  or  subtenant,  shall be deemed not to include  the sale  (including  a
public   offering)   of  such  stock  by  persons  or   parties,   through   the
"over-the-counter  market" or through any recognized stock exchange,  other than
those deemed  "insiders"  within the meaning of the  Securities  Exchange Act of
1934 as amended,  (ii) a takeover  agreement  shall be deemed a transfer of this
Lease,  (iii) any person or legal  representative  of Tenant,  to whom  Tenant's
interest  under this Lease passes by operation  of law, or  otherwise,  shall be
bound by the provisions of this Article 11, and (iv) a  modification,  amendment
or extension of a sublease shall be deemed a sublease.

               11.02 The  provisions  of Section 11.01 hereof shall not apply to
transactions  with a  corporation  into  or  with  which  Tenant  is  merged  or
consolidated or with an entity to which substantially all of Tenant's assets are
transferred  (provided  such merger or transfer of assets is for a good business
purpose and not principally for the purpose of transferring the leasehold estate
created hereby, and provided further, that the assignee has a net worth at least
equal to the net worth of Tenant  immediately  prior to such merger or transfer)
or, if Tenant is a partnership, with a successor partnership.

               11.03 Any  assignment or transfer,  whether made with  Landlord's
consent as required by Section 11.01 or without  Landlord's  consent pursuant to
Section  11.02,  shall be made only if, and shall not be  effective  until,  the
assignee  shall  execute,  acknowledge  and  deliver to  Landlord  a  recordable
agreement,  in form and substance reasonably  satisfactory to Landlord,  whereby
the assignee  shall assume the  obligations  and  performance  of this Lease and
agree  to be  bound  by  and  upon  all  of the  covenants,  agreements,  terms,
provisions  and  conditions  hereof  on the part of Tenant  to be  performed  or
observed from and after

<PAGE>

the date of the  assignment  or transfer,  and whereby the assignee  shall agree
that the  provisions  of Section  11.01 hereof  shall,  notwithstanding  such an
assignment  or transfer,  continue to be binding  upon it in the future.  Tenant
covenants that,  notwithstanding  any assignment or transfer,  whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
fixed annual rent by Landlord from an assignee or transferee or any other party,
Tenant  shall  remain  fully and  primarily  liable for the payment of the fixed
annual rent and  additional  rent due and to become due under this Lease and for
the  performance  of all of the  covenants,  agreements,  terms,  provisions and
conditions of this Lease on the part of Tenant to be performed or observed.

               11.04 The liability of Tenant,  and the due performance by Tenant
of the  obligations on its part to be performed  under this Lease,  shall not be
discharged,  released or impaired in any respect by an agreement or  stipulation
made by Landlord or any grantee or assignee of Landlord,  by way of mortgage, or
otherwise,  extending the time of, or modifying any of the obligations contained
in this  Lease,  or by any waiver or failure of  Landlord  to enforce any of the
obligations on Tenant's part to be performed under this Lease,  and Tenant shall
continue liable  hereunder.  If any such agreement or  modification  operates to
increase the obligations of a tenant under this Lease,  the liability under this
Section  11.04 of the  tenant  named in this Lease or any of its  successors  in
interest,  (unless such party shall have expressly  consented in writing to such
agreement  or  modification)  shall  continue  to be no  greater  than  if  such
agreement  or  modification  had not been made.  To charge  Tenant named in this
Lease and its  successors in interest,  no demand or notice of any default shall
be required.  Tenant and each of its  successors  in interest  hereby  expressly
waive any such demand or notice.

               11.05 (a) Should Tenant agree  subject to the  provisions of this
Lease to assign this Lease, other than by an assignment  contemplated by Section
11.02, Tenant shall as soon as that agreement is consummated,  but, in the event
of a transaction described in clause (b) of this Section 11.05, no less than two
(2) months prior to the effective date of the contemplated  assignment,  deliver
to Landlord a duplicate original of such agreement, and all ancillary agreements
with the proposed assignee,  and Landlord shall then have the right to elect, by
notifying Tenant within thirty (30) days of such delivery, to (i) terminate this
Lease,  as of such effective date as if it were the Expiration Date set forth in
this Lease or (ii) accept an  assignment  of this Lease from Tenant,  and Tenant
shall then promptly execute and deliver to Landlord,  or Landlord's  designee if
so elected by Landlord,  in form reasonably  satisfactory to Landlord's counsel,
an assignment which shall be effective as of such effective date.

<PAGE>

                      (b) In the event  that this  Lease  shall be  assigned  to
Landlord or Landlord's  designee or if the demised  premises  shall be sublet to
Landlord or Landlord's  designee  pursuant to this Section 11.05, the provisions
of any such  sublease or  assignment  and the  obligations  of Landlord  and the
rights of Tenant with  respect  thereto  shall not be binding  upon or otherwise
affect the rights of any holder of a superior  mortgage  or of a lessor  under a
superior  lease  unless such holder or lessor  shall elect by written  notice to
Tenant to succeed to the position of Landlord or its  designee,  as the case may
be, thereunder.

                      (c) Should Tenant agree, subject to the provisions of this
Lease, to sublet the demised  premises or any portion  thereof,  other than by a
sublease  contemplated by Sections 11.02 or 11.10, Tenant shall, as soon as that
agreement is consummated, but no less than two (2) months prior to the effective
date of the contemplated sublease,  deliver to Landlord, a duplicate original of
the proposed sublease and all ancillary  agreements with the proposed sublessee,
and  Landlord  shall then have the right to elect,  by notifying  Tenant  within
thirty (30) days of such delivery, to (i) terminate this Lease as to the portion
of the demised premises  affected by such subletting or as to the entire demised
premises,  in the case of a  subletting  thereof  for all or  substantially  the
remainder of the Term, as of such effective date, (ii) in the case of a proposed
subletting of the entire demised premises for all or substantially the remainder
of the Term, or any lesser period,  either terminate this Lease or enter into an
assignment  of this Lease or a  subletting  of the demised  premises to Landlord
from Tenant for the  remainder of the Term,  at  Landlord's  option,  and Tenant
shall then promptly execute and deliver to Landlord,  or Landlord's  designee if
so elected by Landlord,  in form reasonably  satisfactory to Landlord's counsel,
an assignment or subletting,  as the case may be, which shall be effective as of
such  effective  date  (there  being no need to execute an  agreement  more than
merely confirming the date of termination in the event of Landlord's election of
same, this clause being  self-operative) or, (iii) accept a sublease from Tenant
of the portion of the demised premises  affected by such proposed  subletting if
less than all or substantially all of the entire demised premises in the case of
a proposed  subletting  thereof for less than the  remaining  term  hereof,  and
Tenant  shall then  promptly  execute  and deliver a sublease  to  Landlord,  or
Landlord's designee if so elected by Landlord, for the proposed term thereof, at
Landlord's option, commencing with such effective date, at either (x) the rental
terms  reflected in the proposed  sublease or (y) the rental terms  contained in
this Lease on a per rentable  square foot basis,  as elected by Landlord in such
notice.  In the case of a termination  under clause (i) of this  subsection (c),
Tenant  shall be  released  from all of its  obligations  under  this Lease with
respect to the portion of the  demised  premises  affected by Tenant's  proposed
subletting  or as to the  entire  demised  premises  in the  case of a  proposed
subletting  thereof  to  the

<PAGE>

same extent as if the effective  date of such  termination  were the  Expiration
Date.  Tenant shall not be liable to Landlord  for any default by any  subtenant
designated by Landlord under clause (ii) or (iii) of this subsection (c).

                      (d)    If Landlord should elect to have Tenant execute and
deliver a sublease to Landlord or its designee pursuant to any of the provisions
of this Section 11.05, said sublease shall be in a form reasonably  satisfactory
to Landlord's counsel and on all the terms contained in this Lease, except that:

                           (i) The rental terms, if elected by Landlord,  may be
                      either as provided  in item (x) or item (y) of  subsection
                      11.05(c) hereof,

                          (ii) The sublease shall not provide for any work to be
                      done for the subtenant or for any initial rent concessions
                      or contain provisions  inapplicable to a sublease,  except
                      that  in the  case of a  subletting  of a  portion  of the
                      demised premises Tenant shall reimburse  subtenant for the
                      cost of erecting such  demising  walls as are necessary to
                      separate the subleased  premises from the remainder of the
                      demised premises and to provide access thereto,

                           (iii) The subtenant  thereunder  shall have the right
                      to underlet the subleased  premises,  in whole or in part,
                      without Tenant's consent,

                          (iv) The subtenant  thereunder shall have the right to
                      make,  or  cause  to be made,  any  changes,  alterations,
                      decorations,   additions   and   improvements   that  such
                      subtenant may desire or authorize,

                           (v)  Such  sublease   shall   expressly   negate  any
                      intention  that  any  estate  created  by  or  under  such
                      sublease be merged with any other estate held by either of
                      the parties thereto,

                           (vi) Any consent required of Tenant,  as lessor under
                      that  sublease,  shall be deemed  granted if consent  with
                      respect thereto is granted by Landlord,

                           (vii) There shall be no  limitation  as to the use of
                      the sublet premises by the subtenant thereunder,

<PAGE>

                           (viii) Any  failure of the  subtenant  thereunder  to
                      comply with the  provisions of said  sublease,  other than
                      with  respect to the payment of rent to Tenant,  shall not
                      constitute a default  thereunder  or hereunder if Landlord
                      has consented to such non-compliance, and

                          (ix)  Such   sublease   shall  provide  that  Tenant's
                      obligations  with respect to vacating the demised premises
                      and  removing  any  changes,   alterations,   decorations,
                      additions or improvements  made in the subleased  premises
                      shall be limited to those  which  accrued  and  related to
                      such as  were  made  prior  to the  effective  date of the
                      sublease.

                      (e) If  pursuant  to  the  exercise  of any of  Landlord's
options  pursuant to Section  11.05 hereof this Lease is terminated as to only a
portion of the demised  premises,  then the fixed annual rent payable  hereunder
and the additional  rent payable  pursuant to Article 3 hereof shall be adjusted
in  proportion  to  the  portion  of  the  demised  premises  affected  by  such
termination.

               11.06 In the event that  Landlord  does not  exercise  any of the
options  available to it pursuant to Section  11.05 hereof,  Landlord  shall not
unreasonably  withhold or delay its consent to an  assignment of this Lease or a
subletting of the whole or any part of the demised premises, provided:

                      (a)  Tenant  shall  furnish  Landlord  with  the  name and
business address of the proposed subtenant or assignee, information with respect
to the nature and character of the proposed  subtenant's or assignee's business,
or activities, such references and current financial information with respect to
net worth, credit and financial responsibility as are reasonably satisfactory to
Landlord, and an executed counterpart of the sublease or assignment agreement;

                      (b) The  proposed  subtenant  or  assignee  is a reputable
party  whose  financial  net worth,  credit  and  financial  responsibility  is,
considering the responsibilities involved, reasonably satisfactory to Landlord;

<PAGE>

                      (c) The nature and character of the proposed  subtenant or
assignee,  its business or activities  and intended use of the demised  premises
is, in  Landlord's  reasonable  judgment,  in keeping with the  standards of the
Building and the floor or floors on which the demised premises are located;

                      (d)    The proposed subtenant or assignee is not then an
occupant  of any part of the  Building  or a party who dealt  with  Landlord  or
Landlord's  agent  (directly  or through a broker)  with respect to space in the
Building during the twelve (12) months  immediately  preceding  Tenant's request
for Landlord's consent if comparable space is then available in the Building for
a comparable term;

                      (e)  All  costs   incurred   with   respect  to  providing
reasonably  appropriate  means of ingress and egress from the sublet space or to
separate the sublet  space from the  remainder  of the demised  premises  shall,
subject  to  the   provisions   of  Article  6  with  respect  to   alterations,
installations, additions or improvements be borne by Tenant or subtenant;

                      (f) Each sublease shall  specifically state that (i) it is
subject to all of the terms, covenants,  agreements,  provisions, and conditions
of this Lease, (ii) the subtenant or assignee, as the case may be, will not have
the right to a further assignment thereof or sublease or assignment  thereunder,
or to allow the demised  premises  to be used by others,  without the consent of
Landlord  in each  instance,  (iii) a consent by Landlord  thereto  shall not be
deemed or construed to modify,  amend or affect the terms and provisions of this
Lease, or Tenant's obligations  hereunder,  which shall continue to apply to the
premises involved,  and the occupants thereof,  as if the sublease or assignment
had not been made;

                      (g)  Tenant  shall  together  with  requesting  Landlord's
consent  hereunder,  have paid  Landlord  any  reasonable,  out-of-pocket  costs
incurred by Landlord to review the  requested  consent  including  any attorneys
fees incurred by Landlord;

                      (h) The  proposed  subtenant or assignee is not (i) a bank
trust  company,  safe deposit  business,  savings and loan  association  or loan
company;   (ii)  employment  or  recruitment  agency;  (iii)  school,   college,
university  or  educational  institution  whether  or  not  for  profit;  (iv) a
government or any subdivision or agency thereof;

                      (i)  In the  case  of a  subletting  of a  portion  of the
demised  premises,  the portion so sublet shall be regular in shape and suitable
for normal renting purposes and such subletting will not result in more than two
occupants (including Tenant) occupying each floor of the demised premises;

                      (j) The proposed  assignment  shall be for a consideration
or the  proposed  subletting  shall be at a rental rate  determined  in an arm's
length transaction,  and in no event shall Tenant advertise or list with brokers
at a lower  rental rate then the rental  rates then being  charged  under leases
being entered into

<PAGE>

by Landlord for comparable space in the Building.

               11.07 If Tenant  shall  assign this Lease or sublease  all or any
part of the demised premises, Tenant shall pay to Landlord, as additional rent:

                    (i) in the case of an  assignment,  an amount equal to fifty
percent  (50%)  of all sums  and  other  considerations  paid to  Tenant  by the
assignee for or by reason of such  assignment or otherwise  (including,  but not
limited to, sums paid for the sale of Tenant's fixtures, leasehold improvements,
equipment, furniture,  furnishings or other personal property, less, in the case
of a sale  thereof,  the then net  unamortized  or  undepreciated  cost  thereof
determined on the basis of Tenant's federal income tax returns,  as certified to
by the Chief  Financial  Officer of Tenant) and less the reasonable  legal fees,
brokerage  commissions and advertising expenses incurred in connection with such
assignment, amortized over the remaining term of this Lease.

                    (ii) in the case of a  sublease,  an  amount  equal to fifty
percent (50%) of the rents,  additional  charge or other  consideration  payable
under the sublease or otherwise to Tenant by the subtenant which is in excess of
the fixed  annual  rent and  additional  rent  accruing  during  the term of the
sublease in respect of the subleased  space (at the rate per square foot payable
by Tenant hereunder)  pursuant to the terms hereof  (including,  but not limited
to,  sums  paid  for  the  sale  or  rental  of  Tenant's  fixtures,   leasehold
improvements, equipment, furniture or other personal property, less, in the case
of the sale thereof,  the then net  unamortized  or  undepreciated  cost thereof
determined on the basis of Tenant's federal income tax returns,  as certified to
by the Chief  Financial  Officer of Tenant) and less the reasonable  legal fees,
brokerage  commissions and advertising expenses incurred in connection with such
subletting amortized over the term of such sublease.

The sums payable  under this Section 11.07 shall be paid to Landlord as and when
paid by the subtenant or assignee, as the case may be, to Tenant.

               11.08 If Tenant defaults in the payment of any rent,  Landlord is
authorized to collect any rents due or accruing from any assignee,  subtenant or
other occupant of the demised premises and to apply the net amounts collected to
the fixed  annual  rent and  additional  rent  reserved  herein.  The receipt by
Landlord of any amounts from an assignee or subtenant,  or other occupant of any
part of the  demised  premises  shall not be deemed or  construed  as  releasing
Tenant from Tenant's obligations  hereunder or the acceptance of that party as a
direct tenant.

<PAGE>

               11.09 In  connection  with any proposed  assignment  or sublease,
Tenant shall grant to  Landlord's  then managing  agent the  exclusive  right to
sublease  or to assign this Lease as the case may be for a period of ninety (90)
days after Tenant's notice of such proposed assignment or subletting.

               11.10 Notwithstanding  anything to the contrary contained herein,
Tenant shall not be required to obtain Landlord's consent (and the provisions of
Section  11.07  shall  not  apply)  to the use of up to  one-third  (1/3) of the
rentable  square  feet of the  demised  premises  to any one  entity,  and up to
one-half  (1/2) of the  rentable  square  feet of the  demised  premises  in the
aggregate,  as desk space in the demised  premises by one or more entities (each
of which is hereinafter  individually  called a  "Relationship  Entity") each of
which has entered  into a  financial  relationship  with  Tenant  other than the
providing  for of  desk  space  in the  demised  premises.  Permission  to  such
Relationship  Entity(ies) to use the demised premises shall not create a tenancy
or any other  interest in the demised  premises  except a license  revocable  by
Tenant at will which shall cease and expire in any event  automatically  without
notice upon the  expiration or  termination  of the letting under this Lease and
all acts, omissions and operations of such Relationship Entities shall be deemed
acts,  omissions  and  operations  of the Tenant.  Use of the  demised  premises
pursuant  thereto shall not be deemed to entitle such  Relationship  Entities to
rights or privileges  which  Landlord has or may hereafter  accord to lessees of
space in the Building.

                                   ARTICLE 12

                            CERTIFICATE OF OCCUPANCY

               12.01  Tenant  will  not at any time use or  occupy  the  demised
premises in violation of the Certificate of Occupancy issued for the Building.

                                   ARTICLE 13

                         ADJACENT EXCAVATION -- SHORING

               13.01 If an excavation or other  substructure  work shall be made
upon land adjacent to the demised  premises,  or shall be authorized to be made,
Tenant  shall  afford  to  the  person  causing  or  authorized  to  cause  such
excavation,  license to enter upon the demised premises for the purpose of doing
such work as

<PAGE>

shall be  necessary to preserve the wall of or the Building of which the demised
premises  form a part from  injury or damage and to  support  the same by proper
foundations  without any claim for damages or  indemnity  against  Landlord,  or
diminution or abatement of rent.

                                   ARTICLE 14

                                  CONDEMNATION

               14.01 In the event that the whole of the demised  premises  shall
be lawfully condemned or taken in any manner for any public or quasi-public use,
this Lease and the term and estate  hereby  granted  shall  forthwith  cease and
terminate  as of the date of vesting of title.  In the event that only a part of
the demised premises shall be so condemned or taken,  then,  effective as of the
date of vesting of title,  the fixed annual rent under  Article 1 hereunder  and
additional  rents under Article 3 hereunder shall be abated in an amount thereof
apportioned according to the area of the demised premises so condemned or taken.
In the  event  that  only a part (but  more  than a de  minimus  portion  of the
Building shall be so condemned or taken,  then (a) Landlord  (whether or not the
demised  premises be affected) may, at Landlord's  option,  terminate this Lease
and the term and estate  hereby  granted as of the date of such vesting of title
by  notifying  Tenant in  writing  of such  termination  within  sixty (60) days
following the date on which  Landlord  shall have received  notice of vesting of
title, or (b) if such  condemnation or taking shall be of a substantial  part of
the demised  premises or of a substantial  part of the means of access  thereto,
Tenant  may, at  Tenant's  option,  by delivery of notice in writing to Landlord
within 30 days following the date on which Tenant shall have received  notice of
vesting of title, terminate this Lease and the term and estate hereby granted as
of the date of vesting of title, or (c) if neither Landlord nor Tenant elects to
terminate this Lease, as aforesaid, this Lease shall be and remain unaffected by
such  condemnation  or taking,  except that the fixed annual rent payable  under
Article 1 and  additional  rents  payable under Article 3 shall be abated to the
extent  hereinbefore  provided in this Article 14. In the event that only a part
of the demised  premises  shall be so  condemned or taken and this Lease and the
term and estate  hereby  granted  with respect to the  remaining  portion of the
demised  premises are not terminated as  hereinbefore  provided,  Landlord will,
with reasonable  diligence and at its expense,  restore the remaining portion of
the demised premises as nearly as practicable to the same condition as it was in
prior to such condemnation or taking.

               14.02  In the  event  of  its  termination  in  any of the  cases

<PAGE>

hereinbefore  provided,  this Lease and the term and estate hereby granted shall
expire as of the date of such  termination  with the same effect as if that were
the  Expiration  Date,  and the fixed annual rent and  additional  rents payable
hereunder shall be apportioned as of such date.

               14.03 In the event of any  condemnation  or  taking  hereinbefore
mentioned  of all or a part of the  Building,  Landlord  shall  be  entitled  to
receive the entire award in the  condemnation  proceeding,  including  any award
made for the value of the  estate  vested by this  Lease in  Tenant,  and Tenant
hereby  expressly  assigns to Landlord any and all right,  title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant  shall be  entitled  to receive no part of such  award.  Tenant  shall be
permitted to make a separate claim with the condemning  authority for its moving
and relocation expenses and the cost of its fixtures and leasehold  improvements
provided that such claim shall not have and adverse affect upon Landlord's award
as herein provided.

               14.04 It is expressly  understood  and agreed that the provisions
of this Article 14 shall not be  applicable  to any  condemnation  or taking for
governmental  occupancy for a limited  period and in such event this Lease shall
continue in full force and effect; provided, however, if Landlord is compensated
by the  condemning  or taking  authority and Tenant shall have paid fixed annual
rent hereunder for a period it was not provided  occupancy of the entire demises
premises as a result of such temporary  condemnation  or taking,  Landlord shall
pay over to Tenant the  applicable  portion of such  award,  in an amount not to
exceed such fixed annual rent paid by Tenant,  attributable  to any space not so
occupied by Tenant.

               14.05 In the  event of any  taking  of less than the whole of the
Building which does not result in a termination  of this Lease,  or in the event
of a taking for a temporary  use or  occupancy of all or any part of the demised
premises which does not result in a termination of this Lease,  Landlord, at its
expense,  and  whether or not any award or awards  shall be  sufficient  for the
purpose,  shall proceed with reasonable  diligence to repair,  alter and restore
the remaining  parts of the Building and the demised  premises to  substantially
their former  condition  immediately  prior to the taking to the extent that the
same may be feasible and so as to constitute a complete and tenantable  Building
and demised premises.

               14.06 In the event any part of the  demised  premises be taken to
effect  compliance with any law or requirement of public authority other than in
the manner hereinabove provided in this Article 14, then, (i) if such compliance
is the  obligation  of Tenant under this Lease,  Tenant shall not be entitled to
any

<PAGE>

diminution or abatement of rent or other  compensation  from Landlord  therefor,
but (ii) if such compliance is the obligation of Landlord under this Lease,  the
fixed annual rent hereunder shall be reduced and additional  rents under Article
3 shall be adjusted in the same manner as is provided in Section 14.01 according
to the reduction in rentable area of the demised  premises  resulting  from such
taking.

                                   ARTICLE 15

                       ACCESS TO DEMISED PREMISES; CHANGES

               15.01  Tenant shall  permit  Landlord to erect,  use and maintain
pipes, ducts and conduits in and through the demised premises, provided the same
are  installed  in a concealed  manner  behind walls and ceilings of the demised
premises  or, if not  practicable,  then  adjacent  to such walls and  ceilings.
Landlord shall to the extent practicable  install such pipes, ducts and conduits
by such methods and at such locations as will not  materially  interfere with or
impair Tenant's layout or use of the demised premises. Landlord or its agents or
designees  shall have the right to enter the  demised  premises,  at  reasonable
times during  business  hours,  for the making of such repairs or alterations as
Landlord may deem necessary for the Building or which Landlord shall be required
to or shall have the right to make by the  provisions of this Lease or any other
lease in the Building and,  subject to the foregoing,  shall also have the right
to enter the demised  premises for the purpose of inspecting  them or exhibiting
them  to  prospective  purchasers  or  lessees  of  the  entire  Building  or to
prospective  mortgagees of the fee or of Landlord's  interest in the property of
which the demised  premises are a part or to  prospective  assignees of any such
mortgages  or to the holder of any  mortgage on the  Landlord's  interest in the
property,  its  agents  or  designees.  Landlord  shall be  allowed  to take all
material into and upon the demised premises that may be required for the repairs
or alterations above mentioned as the same is required for such purpose, without
the same  constituting  an eviction of Tenant in whole or in part,  and the rent
reserved shall in no wise abate while said repairs or alterations are being made
by reason of loss or  interruption  of the  business  of Tenant  because  of the
prosecution of any such work. Landlord shall exercise reasonable diligence so as
to minimize  the  disturbance  but nothing  contained  herein shall be deemed to
require Landlord to perform the same on an overtime or premium pay basis.

               15.02 Landlord reserves the right,  without the same constituting
an eviction  and without  incurring  liability to Tenant  therefor,  to renovate
and/or  change the  arrangement  and/or  location of public  entrances,

<PAGE>

lobbies passageways,  doors, doorways, corridors,  elevators, stairways, toilets
and other public parts of the Building;  provided,  however,  that access to the
Building  shall  not  be  cut  off  and  that  there  shall  be no  unreasonable
obstruction of access to the demised premises or unreasonable  interference with
the use or enjoyment thereof.

               15.03 Landlord  reserves the right to light from time to time all
or any portion of the demised  premises  at night for display  purposes  without
paying Tenant therefor.

               15.04  Landlord  may,  during the  twelve  (12)  months  prior to
expiration  of  the  term  of  this  Lease,  exhibit  the  demised  premises  to
prospective tenants.

               15.05 If  Tenant  shall  not be  personally  present  to open and
permit an entry  into the  demised  premises  at any time when for any reason an
entry therein shall be urgently  necessary by reason of fire or other emergency,
Landlord or  Landlord's  agents may forcibly  enter the same  without  rendering
Landlord  or such  agents  liable  therefor  (if during  such entry  Landlord or
Landlord's agents shall accord reasonable care to Tenant's property) and without
in any manner affecting the obligations and covenants of this Lease.

                                   ARTICLE 16

                            CONDITIONS OF LIMITATION

               16.01  This  Lease and the term and  estate  hereby  granted  are
subject to the limitation  that whenever  Tenant shall make an assignment of the
property  of Tenant for the  benefit  of  creditors,  or shall file a  voluntary
petition  under any  bankruptcy or insolvency  law or any  involuntary  petition
alleging an act of bankruptcy or insolvency  shall be filed against Tenant under
any  bankruptcy or insolvency  law, or whenever a petition  shall be filed by or
against  Tenant  under  the  reorganization  provisions  of  the  United  States
Bankruptcy Act or under the provisions of any law of like import,  or whenever a
petition shall be filed by Tenant under the arrangement provisions of the United
States  Bankruptcy  Act or under the  provisions  of any law of like import,  or
whenever a  permanent  receiver  of Tenant or of or for the  property  of Tenant
shall be appointed,  then, Landlord may, (a) at any time after receipt of notice
of the  occurrence  of any such event,  or (b) if such event occurs  without the
acquiescence  of Tenant,  at any time after the event  continues  for sixty (60)
days,  give  Tenant a notice of  intention  to end the term of

<PAGE>

this Lease at the  expiration  of five (5) days from the date of service of such
notice of intention,  and upon the expiration of said five (5) day period,  this
Lease and the term and  estate  hereby  granted,  whether  or not the term shall
theretofore have commenced,  shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as provided
in Article 18.

               16.02  This  Lease and the term and  estate  hereby  granted  are
subject to further limitation as follows:

                      (a)    whenever Tenant shall default in the payment of any
installment  of fixed annual rent, or in the payment of any  additional  rent or
any other charge  payable by Tenant to Landlord,  on any day upon which the same
ought to be paid,  and  such  default  shall  continue  for five (5) days  after
Landlord shall have given Tenant a notice specifying such default, or

                      (b)  whenever  Tenant  shall do or permit  anything  to be
done,  whether by action or  inaction,  contrary to any of Tenant's  obligations
hereunder,  and if such  situation  shall  continue and shall not be remedied by
Tenant  within  fifteen  (15) days after  Landlord  shall have given to Tenant a
notice  specifying  the same,  or, in the case of a happening  or default  which
cannot with due  diligence be cured within a period of fifteen (15) days and the
continuation of which for the period required for cure will not subject Landlord
to the risk of criminal  liability (as more particularly  described in Article 8
hereof) or  termination  of any superior  lease or  foreclosure  of any superior
mortgage,  if Tenant shall not,  (i) within said fifteen (15) day period  advise
Landlord of Tenant's  intention to duly institute all steps  necessary to remedy
such  situation,  (ii) duly institute  within said fifteen (15) day period,  and
thereafter  diligently  and  continuously  prosecute  to  completion  all  steps
necessary  to remedy the same and (iii)  complete  such remedy  within such time
after the date of the giving of said notice to Landlord as shall  reasonably  be
necessary, or

                      (c)  whenever  any event  shall  occur or any  contingency
shall arise  whereby this Lease or the estate  hereby  granted or the  unexpired
balance of the term hereof would, by operation of law or otherwise, devolve upon
or  pass to any  person,  firm or  corporation  other  than  Tenant,  except  as
expressly permitted by Article 11, or

                      (d)  whenever  Tenant  shall  abandon  (i.e.,  vacate  the
demised premises and not provide security therein and extermination  thereof and
make efforts to sublet the demised  premises) the demised  premises (unless as a
result of a casualty), or

<PAGE>

                      (e) [Intentionally Omitted.]

                      (f)  whenever  Tenant  shall  default in the due  keeping,
observing or performance of any covenant,  agreement,  provision or condition of
Article 5 hereof on the part of Tenant to be kept,  observed or performed and if
such  default  shall  continue  and  shall  not be  remedied  by  Tenant  within
twenty-four  (24)  hours  after  Landlord  shall  have  given to Tenant a notice
specifying the same,

                      (g) if during any  consecutive  eighteen (18) month period
during  the term of this  Lease  (i)  Tenant  shall  have on  three  (3) or more
occasions paid any  installment of fixed annual rent or any additional rent more
than ten (10) days after the same was due hereunder and (ii) Landlord shall have
given Tenant  notice of such default  pursuant to  subsection  (a) hereof before
such default was cured,

then in any of said cases set forth in the foregoing  subsections (a), (b), (c),
(d),  (e),  (f) and (g) Landlord may give to Tenant a notice of intention to end
the term of this Lease at the  expiration of three (3) days from the date of the
service of such notice of intention,  and upon the  expiration of said three (3)
days this Lease and the term and estate hereby granted,  whether or not the term
shall  theretofore  have  commenced,  shall terminate with the same effect as if
that day were the Expiration Date, but Tenant shall remain liable for damages as
provided in Article 18.

                                   ARTICLE 17

                        RE-ENTRY BY LANDLORD, INJUNCTION

               17.01 If Tenant shall  default in the payment of any  installment
of fixed annual rent, or of any additional rent, on any date upon which the same
ought to be paid,  and if such  default  shall  continue for five (5) days after
Landlord shall have given to Tenant a notice specifying such default, or if this
Lease shall expire as in Article 16 provided,  Landlord or Landlord's agents and
employees  may  immediately  or at any  time  thereafter  re-enter  the  demised
premises,  or any part thereof,  either by summary dispossess  proceedings or by
any suitable  action or proceeding at law, or by force or otherwise (but only to
the extent such  re-entry and the manner of such  re-entry is not  prohibited by
law), without being liable to indictment,  prosecution or damages therefrom,  to
the end that Landlord may have, hold and enjoy the demised premises again as and
of its first estate and interest therein. The word re-enter,  as herein used, is
not restricted to its technical  legal meaning.  In the event of any termination
of this Lease under the  provisions of Article 16 or if Landlord  shall re-enter
the demised  premises under the provisions of

<PAGE>

this  Article  17 or in the  event  of the  termination  of  this  Lease,  or of
re-entry,  by or under any summary  dispossess or other proceedings or action or
any  provision  of law by reason of  default  hereunder  on the part of  Tenant,
Tenant shall thereupon pay to Landlord the fixed annual rent and additional rent
payable by Tenant to Landlord up to the time of such  termination of this Lease,
or of such recovery of possession  of the demised  premises by Landlord,  as the
case may be, and shall also pay to Landlord damages as provided in Article 18.

               17.02 In the event of a breach or threatened  breach by Tenant of
any of its obligations  under this Lease,  Landlord shall also have the right of
injunction.  The special  remedies to which  Landlord may resort  hereunder  are
cumulative  and are not intended to be exclusive of any other  remedies or means
of redress to which  Landlord  may lawfully be entitled at any time and Landlord
may invoke any remedy  allowed at law or in equity as if specific  remedies were
not provided for herein.

               17.03 If this  Lease  shall  terminate  under the  provisions  of
Article  16, or if  Landlord  shall  re-enter  the  demised  premises  under the
provisions of this Article 17, or in the event of the termination of this Lease,
or of re-entry, by or under any summary dispossess or other proceeding or action
or any  provision  of law by reason of default  hereunder on the part of Tenant,
Landlord  shall be  entitled  to retain all  moneys,  if any,  paid by Tenant to
Landlord,  whether as advance rent, security or otherwise, but such moneys shall
be credited by Landlord  against any fixed  annual rent or  additional  rent due
from Tenant at the time of such termination or re-entry or, at Landlord's option
against any damages  payable by Tenant  under  Articles 16 and 18 or pursuant to
law.

               17.04  Tenant  hereby  expressly  waives  any and all  rights  of
redemption granted by or under any present or future laws in the event of Tenant
being  evicted  or  dispossessed  for any  cause,  or in the  event of  Landlord
obtaining  possession  of the demised  premises,  by reason of the  violation by
Tenant of any of the covenants and conditions of this Lease or otherwise.

                                   ARTICLE 18

                                     DAMAGES

               18.01 If this Lease is terminated under the provisions of Article
16, or if Landlord shall  re-enter the demised  premises under the provisions of
Article 17, or in the event of the termination of this Lease, or of re-entry, by
or

<PAGE>

under any summary  dispossess or other  proceeding or action or any provision of
law by reason of default  hereunder  on the part of Tenant,  Tenant shall pay to
Landlord as damages, at the election of Landlord, either

                      (a) a sum  which at the time of such  termination  of this
Lease or at the  time of any  such  re-entry  by  Landlord,  as the case may be,
represents the then present value of the excess  (discounted using the same rate
as U.S. Treasury Securities with a term equivalent to the period of time between
the date of  termination  of the Lease  and the date the  Lease  was  originally
scheduled to expire absent such termination) if any, of

                             (1) the  aggregate of the fixed annual rent and the
                      additional  rent payable  hereunder  which would have been
                      payable by Tenant  (conclusively  presuming the additional
                      rent  to  be  the  same  as  was   payable  for  the  year
                      immediately   preceding  such   termination   except  that
                      additional  rent on account of  increases in Taxes and the
                      Wage Rate shall be  presumed to increase at the average of
                      the rates of increase  thereof  previously  experienced by
                      Landlord  during the period (not to exceed 3 years)  prior
                      to such  termination) for the period  commencing with such
                      earlier  termination of this Lease or the date of any such
                      re-entry,  as  the  case  may  be,  and  ending  with  the
                      Expiration  Date,  had this Lease not so terminated or had
                      Landlord not so re-entered the demised premises, over

                             (2)  the  aggregate  rental  value  of the  demised
                      premises for the same period, or

                      (b) sums equal to the fixed annual rent and the additional
rent (as above  presumed)  payable  hereunder  which would have been  payable by
Tenant had this Lease not so  terminated,  or had Landlord not so re-entered the
demised premises, payable upon the due dates therefor specified herein following
such  termination  or such  re-entry and until the  Expiration  Date,  provided,
however,  that if Landlord shall re-let the demised premises during said period,
Landlord  shall credit Tenant with the net rents  received by Landlord from such
re-letting,  such net rents to be determined by first  deducting  from the gross
rents as and when  received  by  Landlord  from such  re-letting,  the  expenses
incurred or paid by Landlord in  terminating  this Lease or in  re-entering  the
demised premises and in securing  possession thereof, as well as the expenses of
re-letting,  including  altering  and  preparing  the demised  premises  for new
tenants,  brokers'  commissions,  and all  other  expenses  properly  chargeable
against the demised  premises and the rental

<PAGE>

thereof;  it  being  understood  that any  such  re-letting  may be for a period
shorter or longer than the remaining  term of this Lease;  but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder, or shall Tenant be entitled in any suit for the
collection of damages  pursuant to this subsection to a credit in respect of any
net  rents  from a  re-letting,  except  to the  extent  that such net rents are
actually  received  by  Landlord.  If the demised  premises or any part  thereof
should be re-let in combination with other space, then proper apportionment on a
square foot basis shall be made of the rent received from such re-letting and of
the expenses of re-letting.

If the  demised  premises  or any part  thereof  be re-let by  Landlord  for the
unexpired  portion of the term of this Lease, or any part thereof,  to an entity
unaffiliated with Landlord,  before presentation of proof of such damages to any
court,  commission or tribunal, the amount of rent reserved upon such re-letting
shall,  prima  facie,  be the fair and  reasonable  rental value for the demised
premises, or part thereof, so re-let during the term of the re-letting.

               18.02  Suit or suits for the  recovery  of such  damages,  or any
installments  thereof,  may be  brought  by  Landlord  from  time to time at its
election,  and nothing  contained  herein shall be deemed to require Landlord to
postpone  suit until the date when the term of this Lease would have  expired if
it had not been so terminated  under the  provisions of Article 16, or under any
provision of law, or had Landlord not re-entered the demised  premises.  Nothing
herein  contained  shall be construed to limit or preclude  recovery by Landlord
against  Tenant of any sums or  damages to which,  in  addition  to the  damages
particularly  provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Notwithstanding the foregoing, Landlord
shall not be entitled to consequential  damages under this Section 18.02.  Other
than as specifically provided above, nothing herein contained shall be construed
to limit or  prejudice  the  right  of  Landlord  to  prove  for and  obtain  as
liquidated damages by reason of the termination of this Lease or re-entry of the
demised  premises for the default of Tenant under this Lease, an amount equal to
the  maximum  allowed by any  statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved whether or
not such amount be greater,  equal to, or less than any of the sums  referred to
in Section 18.01.

<PAGE>

                                   ARTICLE 19

                LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS

               19.01 If Tenant shall default in the observance or performance of
any term or covenant on Tenant's  part to be observed or  performed  under or by
virtue of any of the terms or  provisions  in any  Article  of this  Lease,  (a)
Landlord  may remedy such  default for the  account of Tenant,  immediately  and
without  notice in case of  emergency,  or in any other case only  provided that
Tenant  shall fail to remedy such  default with all  reasonable  dispatch  after
Landlord  shall  have  notified  Tenant  in  writing  of  such  default  and the
applicable  grace period for curing such default shall have expired;  and (b) if
Landlord makes any  expenditures  or incurs any  obligations  for the payment of
money in connection with such default including,  but not limited to, reasonable
attorneys'  fees  in  instituting,   prosecuting  or  defending  any  action  or
proceeding,  such  sums  paid or  obligations  incurred,  with  interest  at the
Interest Rate, shall be deemed to be additional rent hereunder and shall be paid
by Tenant to Landlord upon rendition of a bill to Tenant therefor.

                                   ARTICLE 20

                                 QUIET ENJOYMENT

               20.01 Landlord covenants and agrees that subject to the terms and
provisions of this Lease, if, and so long as, Tenant keeps and performs each and
every covenant, agreement, term, provision and condition herein contained on the
part or on behalf of Tenant to be kept or performed,  then Tenant's rights under
this Lease shall not be cut off or ended  before the  expiration  of the term of
this Lease, subject however, to: (i) the obligations of this Lease, and (ii) the
provisions of Article 25 hereof with respect to ground and underlying leases and
mortgages which affect this Lease.

                                   ARTICLE 21

                             SERVICES AND EQUIPMENT

               21.01 Landlord shall, at its cost and expense:

                      (a)  Provide   appropriate   elevator   facilities  during
Business Hours of Business Days and shall have at least one elevator  subject to
call at all other times. At Landlord's  option,  the elevators shall be operated
by automatic  control or by manual control,  or by a combination of both of such
methods.

<PAGE>

                      (b) Furnish heat to the demised  premises  during Business
Hours of Business Days.  Landlord shall have no  responsibility or liability for
the ventilating conditions and/or temperature of the demised premises during the
hours  or days  Landlord  is not  required  to  furnish  heat  pursuant  to this
paragraph.

                      (c)  Furnish  cold water for  lavatory  and  drinking  and
office cleaning purposes.  Tenant, at Tenant's sole cost and expense, shall have
the right to  install a hot water  heater to  provide  hot water to the  demised
premises.  If Tenant  requires,  uses or consumes water for any other  purposes,
Tenant agrees to Landlord installing a meter or meters or other means to measure
Tenant's water consumption,  and Tenant further agrees to reimburse Landlord for
the cost of the meter or meters and the installation thereof, and to pay for the
maintenance of said meter equipment and/or to pay Landlord's cost of other means
of measuring such water consumption by Tenant.  Tenant shall reimburse  Landlord
on demand  for the cost of all water  consumed,  as  measured  by said  meter or
meters or as otherwise measured, including sewer rents.

                      (d)  Provide  Tenant  with up to ten (10)  listings in the
existing  Building's  directory  and, as and to the extent  that a  computerized
directory is  hereinafter  installed in the  Building,  up to  twenty-five  (25)
listings thereafter.

                      (e) Upon reasonable prior notice from Tenant,  provide air
conditioning,  heating,  elevator,  plumbing,  electric and other systems during
non-Business  Hours at Tenant's sole cost and expense which shall equal the then
current costs imposed by Landlord therefor.

                      (f) Clean and maintain  the lobby and other public  common
areas of the Building pursuant to a reasonable  cleaning schedule  determined by
Landlord.

               21.02   Landlord   reserves  the  right   without  any  liability
whatsoever,  or abatement of fixed annual rent, or additional  rent, to stop the
heating,  air-conditioning,  elevator, plumbing, electric and other systems when
necessary  by reason of  accident  or  emergency  or for  repairs,  alterations,
replacements  or  improvements,  provided  that  except  in case  of  emergency,
Landlord will notify Tenant in advance,  if possible,  of any such stoppage and,
if ascertainable,  its estimated duration,  and will proceed diligently with the
work necessary to resume such service as promptly as possible and in a manner so
as to minimize  interference  with  Tenant's  use and  enjoyment  of the demised
premises.

               21.03 Tenant  shall clean and  maintain the demised  premises

<PAGE>

and shall contract  directly with the cleaner and a carting  company for rubbish
removal designated by Landlord (and charging competitive rates)from time to time
to render such services to tenants of the Building.

               21.04 It is  expressly  agreed  that only  Landlord or any one or
more persons,  firms or  corporations  authorized in writing by Landlord will be
permitted to furnish  laundry,  linen,  towels,  drinking water,  ice, and other
similar supplies and services to tenants and licensees in the Building. Landlord
may fix, in its  reasonable  discretion,  at any time and from time to time, the
hours during which and the  regulations  under which such  supplies and services
are to be furnished  and under which,  foods and  beverages  may be brought into
Building by persons other than regular employees of Tenant.

               21.05 As part of  Tenant's  Work,  Tenant  shall  install an air-
cooled  packaged  air  conditioning  unit on each floor of the demised  premises
(hereinafter  called the  "Units")  to provide air  conditioning  to the demised
premises.  Tenant shall, at its sole cost and expense,  operate and maintain the
Units. Such maintenance  obligations  shall be performed  throughout the term of
this Lease,  on  Tenant's  behalf and at Tenant's  expense,  by a reputable  air
conditioning   maintenance  company,  first  reasonably  approved  by  Landlord.
Tenant's obligation to maintain the Units shall include,  but not be limited to,
the periodic cleaning and/or  replacement of filters,  replacements of fuses and
belts,  the  calibration  of  thermostats  and all  startup and shut down of the
Units. Tenant shall, at its sole cost and expense, perform any and all necessary
repairs,  and cause any and all  replacements  of, the Units.  The Units and any
replacements  thereof shall be and remain at all times the property of Landlord,
and Tenant shall  surrender the Units and all such  replacements  to Landlord on
the Expiration Date.

               21.06 Subject to the terms of this Lease and to force majeure and
other  matters  beyond  Landlord's  control,  Tenant  shall  have  access to the
Building twenty-four (24) hours a day, seven (7) days per week.

               21.07  Landlord  will  not  be  required  to  furnish  any  other
services, except as otherwise provided in this Lease.

                                   ARTICLE 22

                                   DEFINITIONS

               22.01 The term  "Landlord"  as used in this Lease  means only the

<PAGE>

owner,  or the  mortgagee  in  possession,  for the  time  being of the Land and
Building (or the owner of a lease of the Building or of the Land and  Building),
so that in the event of any  transfer of title to said Land and Building or said
lease, or in the event of a lease of the Building,  or of the Land and Building,
upon  notification  to Tenant  of such  transfer  or lease  the said  transferor
Landlord  shall be and  hereby is  entirely  freed and  relieved  of any and all
covenants,  obligations and liabilities of Landlord  hereunder  arising from and
after the date of transfer,  and it shall be deemed and  construed as a covenant
running with the land  without  further  agreement  between the parties or their
successors  in interest,  or between the parties and the  transferee of title to
said Land and Building or said lease, or the said lessee of the Building,  or of
the Land and Building,  that the transferee or the lessee has assumed and agreed
to carry out any and all such covenants, obligations and liabilities of Landlord
hereunder.

               22.02  The  term  "Business  Days"  as used in this  Lease  shall
exclude Saturdays,  Sundays and all days observed by the Federal, State or local
government  as legal  holidays as well as all other days  recognized as holidays
under  applicable  union  contracts.  The term "Business  Hours" as used in this
Lease shall mean the hours between 8:00 a.m. and 6:00 p.m.

               22.03  "Interest  Rate"  shall mean a rate per annum equal to the
lesser of (a) three  percent (3%) above the  commercial  lending rate  announced
from time to time by  Citibank,  N.A.,  as its prime rate for  90-day  unsecured
loans, or (b) the maximum applicable legal rate, if any.

               22.04  "Legal   Requirements"   shall  mean  laws,  statutes  and
ordinances  (including building codes and zoning regulations and ordinances) and
the orders,  rules,  regulations,  directives and  requirements  of all federal,
state, county, city and borough departments, bureaus, boards, agencies, offices,
commissions and other subdivisions  thereof,  or of any official thereof,  or of
any  other  governmental  public  or  quasi-public  authority,  whether  now  or
hereafter  in force,  which may be  applicable  to the Land or  Building  or the
demised premises or any part thereof, or the sidewalks,  curbs or areas adjacent
thereto and all  requirements,  obligations and conditions of all instruments of
record on the date of this Lease.

                                   ARTICLE 23

                           INVALIDITY OF ANY PROVISION

               23.01 If any term, covenant, condition or provision of this Lease

<PAGE>

or the  application  thereof  to any  circumstance  or to any  person,  firm  or
corporation  shall be invalid or  unenforceable  to any  extent,  the  remaining
terms,  covenants,  conditions and  provisions of this Lease or the  application
thereof to any  circumstances or to any person,  firm or corporation  other than
those as to which any term, covenant,  condition or provision is held invalid or
unenforceable,  shall not be affected thereby and each remaining term, covenant,
condition and provision of this Lease shall be valid and shall be enforceable to
the fullest extent permitted by law.

                                   ARTICLE 24

                                    BROKERAGE

               24.01 Landlord and Tenant each covenants, represents and warrants
to the other that it has had no dealings or  communications  with any broker, or
agent other than  Newmark & Company  Real Estate,  Inc.  (which is  representing
Landlord) and Julien J. Studley,  Inc. in connection  with the  consummation  of
this Lease.  Landlord and Tenant each covenants and agrees to pay, hold harmless
and  indemnify the other from and against any and all cost,  expense  (including
reasonable  attorneys' fees) or liability for any  compensation,  commissions or
charges  claimed by any broker or agent  alleging to have dealt with Landlord or
Tenant,  respectively,  other than the brokers set forth in this Section  24.01,
with respect to this Lease or the  negotiation  thereof.  Landlord shall pay the
brokerage fees due to Newmark & Company Real Estate, Inc. and Julien J. Studley,
Inc.  pursuant  to  separate  agreements.  This  Article  24 shall  survive  the
expiration or sooner termination of this Lease.

                                   ARTICLE 25

                                  SUBORDINATION

               25.01 This Lease is and shall be subject and  subordinate  to all
ground or underlying  leases which may now or hereafter affect the real property
of which the demised  premises form a part and to all mortgages which may now or
hereafter  affect  such  leases  or such  real  property,  and to all  renewals,
modifications,  replacements  and  extensions  thereof.  The  provisions of this
Section 25.01 shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination,  Tenant shall promptly
execute and deliver at its own cost and expense any  instrument,  in  recordable
form

<PAGE>

if required,  that Landlord, the lessor of the ground or underlying lease or the
holder of any such  mortgage or any of their  respective  successors in interest
may reasonably request to evidence such subordination.

               25.02 In the event of a  termination  of any ground or underlying
lease,  or if the  interests  of Landlord  under this Lease are  transferred  by
reason  of,  or  assigned  in lieu  of,  foreclosure  or other  proceedings  for
enforcement of any mortgage,  or if the holder of any mortgage  acquires a lease
in substitution therefor, then Tenant under this Lease will, at the option to be
exercised in writing by the lessor under such ground or underlying lease or such
mortgagee  or  purchaser,  assignee  or lessee,  as the case may be,  either (i)
attorn to it and will  perform  for its  benefit  all the terms,  covenants  and
conditions  of this Lease on Tenant's  part to be performed  with the same force
and effect as if said lessor,  such mortgagee or purchaser,  assignee or lessee,
were the landlord originally named in this Lease, or (ii) enter into a new lease
with said  lessor  or such  mortgagee  or  purchaser,  assignee  or  lessee,  as
landlord,  for the remaining  term of this Lease and otherwise on the same terms
and conditions and with the same options, if any, then remaining.  The foregoing
provisions  of clause (i) of this  Section  25.02  shall enure to the benefit of
such lessor, mortgagee,  purchaser,  assignee or lessee, shall be self-operative
upon the exercise of such option, and no further instrument shall be required to
give effect to said provisions. Tenant, however, upon demand of any such lessor,
mortgagee,  purchaser,  assignee or lessee agrees to execute, from time to time,
instruments in confirmation  of the foregoing  provisions of this Section 25.02,
reasonably satisfactory to any such lessor,  mortgagee,  purchaser,  assignee or
lessee, acknowledging such attornment and setting forth the terms and conditions
of its tenancy.

               25.03 Anything herein contained to the contrary  notwithstanding,
under no circumstances shall the aforedescribed lessor under the ground lease or
mortgagee or purchaser,  assignee or lessee,  as the case may be, whether or not
it shall have succeeded to the interests of the landlord under this Lease, be

                      (a) liable for any act,  omission  or default of any prior
landlord prior to the  foreclosure or other transfer;  it being  understood that
the foregoing is not intended to relieve any successor landlord of any liability
arising by reason of its acts or  omissions  from and after the date it succeeds
to the  interests of Landlord,  including a  continuation  of the failure of the
prior Landlord to perform its  obligations  under this Lease, in which case such
successor landlord shall have a reasonable period of time to remedy same; or

<PAGE>

                      (b) subject to any offsets,  claims or defenses  which the
Tenant might have against any prior landlord; or

                      (c)  bound by any fixed  annual  rent or  additional  rent
which  Tenant  might have paid to any prior  landlord for more than one month in
advance or for more than three  months in advance  where such rent  payments are
payable at intervals of more than one month; or

                      (d) bound by any modification,  amendment or abridgment of
this Lease, or any cancellation or surrender of the same, made without its prior
written approval.

               25.04 If, in connection  with the financing of the Building,  the
holder of any mortgage shall request reasonable modifications in this Lease as a
condition of approval thereof,  Tenant will not unreasonably withhold,  delay or
defer  making  such  modifications;  provided  same  do  not  increase  Tenant's
obligations or reduce Tenant's rights beyond a de minimus extent.

               25.05  Tenant  agrees  that,  except for the first  month's  rent
hereunder,  it will pay no rent under this Lease more than  thirty  (30) days in
advance of its due date, if so restricted by any existing or future ground lease
or  mortgage to which this Lease is  subordinated  or by an  assignment  of this
Lease to the ground lessor or the holder of such mortgage,  and, in the event of
any act or omission by Landlord, Tenant will not exercise any right to terminate
this Lease or to remedy the  default and deduct the cost  thereof  from rent due
hereunder  until Tenant shall have given written  notice of such act or omission
to the ground  lessor and to the holder of any mortgage on the fee or the ground
lease who shall have furnished such lessor's or holder's last address to Tenant,
and until a  reasonable  period for  remedying  such act or omission  shall have
elapsed  following the giving of such notices,  during which time such lessor or
holder shall have the right,  but shall not be obligated,  to remedy or cause to
be remedied such act or omission.  Tenant shall not exercise any right  pursuant
to this  Section  26.02 if the holder of any mortgage or such  aforesaid  lessor
commences to cure such  aforesaid act or omission  within a reasonable  time and
diligently prosecutes such cure thereafter.

                                   ARTICLE 26

                              CERTIFICATE OF TENANT

               26.01  Tenant  agrees,  at any  time and  from  time to time,  as

<PAGE>

requested by Landlord, upon not less than ten (10) days prior notice, to execute
and deliver to Landlord a statement certifying that this Lease is unmodified and
in full force and effect (or if there have been  modifications  that the same is
in full force as modified and stating the  modifications),  certifying the dates
to which the annual fixed rent and  additional  rent have been paid, and stating
whether or not, to Tenant's knowledge,  Landlord is in default in performance of
any of its  obligations  under this  Lease,  and,  if so,  specifying  each such
default of which  Tenant may have  knowledge,  it being  intended  that any such
statement  delivered  pursuant  hereto  may be relied  upon by others  with whom
Landlord may be dealing.

                                   ARTICLE 27

                     LEGAL PROCEEDINGS WAIVER OF JURY TRIAL

               27.01  Landlord  and Tenant do hereby  waive trial by jury in any
action,  proceeding  or  counterclaim  brought by either of the  parties  hereto
against  the  other  on any  matters  whatsoever  arising  out of or in any  way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the demised premises, and/or any other claims (except claims for
bodily injury or damage to physical  property),  and any emergency  statutory or
any other  statutory  remedy.  It is further  mutually  agreed that in the event
Landlord  commences any summary  proceeding for non-payment of rent, Tenant will
not interpose and does hereby waive the right to interpose any  counterclaim  of
whatever  nature or description in any such  proceeding,  except with respect to
compulsory counterclaims.

                                   ARTICLE 28

                              SURRENDER OF PREMISES

               28.01 Upon the  expiration  or other  termination  of the term of
this Lease,  Tenant shall quit and  surrender to Landlord the demised  premises,
broom clean,  in good order and condition,  ordinary wear and tear and damage by
fire,  the elements or other casualty  excepted,  and Tenant shall remove all of
its property as herein provided.  Tenant's obligation to observe or perform this
covenant shall survive the  expiration or other  termination of the term of this
Lease.

               28.02 In the event Tenant  remains in  possession  of the demised
premises  after the  Expiration  Date or the date of sooner  termination of this
Lease,

<PAGE>

Tenant,  at the option of Landlord,  shall be deemed to be occupying the demised
premises as a holdover  tenant from  month-to-month,  at a monthly rent equal to
two (2) times the higher of (x) the sum of (i) the monthly  installment of fixed
annual rent  payable  during the last month of the term of this Lease,  and (ii)
one-twelfth  (1/12th) of the additional rent payable during the last year of the
term of this  Lease  of (y) the  fair  market  value  of the  demised  premises,
calculated on a monthly basis, subject to all of the other terms and obligations
of this Lease insofar as the same are applicable to a month-to-month tenancy.

                                   ARTICLE 29

                              RULES AND REGULATIONS

               29.01 Tenant and Tenant's  servants,  employees  and agents shall
observe  faithfully and comply strictly with the Rules and Regulations set forth
in  Exhibit  C  attached  hereto  and  made  part  hereof  entitled  "Rules  and
Regulations"  and such other and further  reasonable  Rules and  Regulations  as
Landlord or  Landlord's  agents may from time to time adopt  provided,  however,
that in case of any conflict or  inconsistency  between the  provisions  of this
Lease and of any of the Rules and  Regulations  as  originally  or as  hereafter
adopted,  the provisions of this Lease shall control.  Reasonable written notice
of any additional Rules and Regulations  shall be given to Tenant.  Tenant shall
not be subject to any Rules and  Regulations  which are more  onerous than those
imposed on any other tenant in the Building.

               Nothing in this Lease contained shall be construed to impose upon
Landlord  any duty or  obligation  to enforce the Rules and  Regulations  or the
terms,  covenants or conditions in any other lease,  against any other tenant of
the  Building,  and Landlord  shall not be liable to Tenant for violation of the
same  by  any  other  tenant,  its  servants,  employees,  agents,  visitors  or
licensees.

                                   ARTICLE 30

                             CONSENTS AND APPROVALS

               30.01  Wherever in this Lease  Landlord's  consent or approval is
required, if Landlord shall delay or refuse such consent or approval,  Tenant in
no event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby  waives any claim,  for money  damages  (nor shall Tenant claim any money

<PAGE>

damages by way of  set-off,  counterclaim  or  defense)  based upon any claim or
assertion by Tenant that Landlord  unreasonably withheld or unreasonably delayed
its consent or approval.  Tenant's  sole remedy shall be an action or proceeding
to  enforce  any  such  provision,  for  specific  performance,   injunction  or
declaratory judgment.  Notwithstanding the foregoing, Landlord and Tenant hereby
agree that any  disputes  relating  to  Tenant's  rights to assign this Lease or
sublet the  demised  premises  shall be  resolved by  expedited  arbitration  in
accordance with Article 38 hereof.

                                   ARTICLE 31

                                     NOTICES

               31.01 Any notice or demand, consent, approval or disapproval,  or
statement  required to be given by the terms and provisions of this Lease, or by
any law or governmental regulation, either by Landlord to Tenant or by Tenant to
Landlord,  shall  be in  writing.  Unless  otherwise  required  by  such  law or
regulation,  such notice or demand  shall be given,  and shall be deemed to have
been  served  and given on the date of first  attempted  delivery,  by  personal
delivery,  sent via Federal Express or like overnight national courier or mailed
by registered or certified mail, return receipt requested, deposited enclosed in
a securely closed post-paid  wrapper,  in a United States Government  general or
branch post office, or official depository within the exclusive care and custody
thereof,  addressed to either party,  at its address set forth on page 1 of this
Lease. After Tenant shall occupy the demised premises, the address of Tenant for
notices,  demands,  consents,  approvals or disapprovals  shall be the Building.
Either  party may, by notice as  aforesaid,  designate  a  different  address or
addresses for notices, demands, consents,  approvals or disapprovals.  Copies of
notices sent by Tenant to Landlord shall be sent to Arent Fox Kintner  Plotkin &
Kahn PLLC, 1675 Broadway, New York, New York 10019,  Attention:  Jeffrey Walker,
Esq.  Copies of notices sent by Landlord to Tenant shall be sent to Kramer Levin
Naftalis & Frankel LLP, 919 Third Avenue,  New York, New York 10022,  Attention:
Neil Tucker, Esq.

               31.02 In addition  to the  foregoing,  either  Landlord or Tenant
may, from time to time,  request in writing that the other party serve a copy of
any notice or demand,  consent,  approval or disapproval,  or statement,  on one
other person or entity  designated in such request,  such service to be effected
as provided in Section 31.01 hereof.

<PAGE>

                                   ARTICLE 32

                                    NO WAIVER

               32.01 No  agreement  to accept a surrender of this Lease shall be
valid  unless in writing  signed by  Landlord.  No  employee  of  Landlord or of
Landlord's  agents  shall  have any  power  to  accept  the keys of the  demised
premises  prior to the  termination  of this Lease.  The delivery of keys to any
employee of Landlord or of  Landlord's  agent shall not operate as a termination
of this Lease or a surrender of the demised premises.  In the event of Tenant at
any time  desiring to have  Landlord  sublet the premises for Tenant's  account,
Landlord  or  Landlord's  agents are  authorized  to receive  said keys for such
purpose without  releasing Tenant from any of the obligations  under this Lease.
The failure of Landlord or Tenant to seek  redress for a violation  by the other
party of, or to insist  upon the strict  performance  by the other party of, any
covenant  or  condition  of this Lease or any of the Rules and  Regulations  set
forth herein, or hereafter  adopted by Landlord,  shall not prevent a subsequent
act, which would have  originally  constituted a violation,  from having all the
force and effect of an  original  violation.  The  receipt by  Landlord,  or the
payment  by  Tenant  of rent  with or  without  knowledge  of the  breach of any
covenant of this Lease shall not be deemed a waiver of such breach.  The failure
of Landlord to enforce any of the Rules and  Regulations  set forth  herein,  or
hereafter adopted,  against Tenant and/or any other tenant in the Building shall
not be deemed a waiver of any such Rules and  Regulations.  No provision of this
Lease shall be deemed to have been  waived by  Landlord  or Tenant,  unless such
waiver be in writing  signed by such  party.  No payment by Tenant or receipt by
Landlord of a lesser  amount than the monthly  rent herein  stipulated  shall be
deemed to be other than on the  account of the  earliest  stipulated  rent,  nor
shall any endorsement or statement on any check or any letter  accompanying  any
check or payment of rent be deemed an accord and satisfaction,  and Landlord may
accept such check or payment  without  prejudice to Landlord's  right to recover
the balance of such rent or pursue any other remedy in this Lease provided.

               32.02  This  Lease  contains  the entire  agreement  between  the
parties,  and any executory  agreement  hereafter  made shall be  ineffective to
change,  modify,  discharge or effect an  abandonment  of it in whole or in part
unless such  executory  agreement is in writing and signed by the party  against
whom  enforcement  of the change,  modification,  discharge  or  abandonment  is
sought.

<PAGE>

                                   ARTICLE 33

                                    CAPTIONS

               33.01 The captions are inserted  only as a matter of  convenience
and for  reference,  and in no way define,  limit or describe  the scope of this
Lease nor the intent of any provision thereof.

                                   ARTICLE 34

                              INABILITY TO PERFORM

               34.01  If,  by reason of (1)  strike,  (2)  labor  troubles,  (3)
governmental  pre-emption in connection with a national emergency, (4) any rule,
order or  regulation of any  governmental  agency,  (5)  conditions of supply or
demand  which  are  affected  by war  or  other  national,  state  or  municipal
emergency,  or any other cause or (6) any cause  beyond  Landlord's  or Tenant's
reasonable  control,  Landlord or Tenant, as the case may be, shall be unable to
fulfill  its  obligations  under  this  Lease or shall be unable  to supply  any
service which Landlord is obligated to supply,  Landlord or Tenant,  as the case
may be, shall have no liability therefor and this Lease and Tenant's  obligation
to pay rent hereunder shall in no wise be affected, impaired or excused. Nothing
in the  foregoing  shall be deemed to permit Tenant to delay or avoid making any
payment of fixed  annual  rent or  additional  rent under this Lease as and when
such payment is due and payable.  Each party shall notify the other  promptly of
any event of the type described in this Section 34.01, and shall diligently work
to restore its ability to perform its obligations under this Lease.

                                   ARTICLE 35

                         NO REPRESENTATIONS BY LANDLORD

               35.01 Landlord or Landlord's agents have made no  representations
or promises  with respect to the Building or demised  premises  except as herein
expressly set forth.

<PAGE>

                                   ARTICLE 36

                                NAME OF BUILDING

               36.01  Landlord shall have the full right at any time to name and
change  the name of the  Building  and to change the  designated  address of the
Building.  The  Building  may be named after any  person,  firm,  or  otherwise,
whether or not such name is, or resembles, the name of a tenant of the Building.

                                   ARTICLE 37

                              RESTRICTIONS UPON USE

               37.01 It is expressly  understood  that no portion of the demised
premises shall be used as, by or for (i) a bank,  trust  company,  savings bank,
industrial  bank,  savings and loan  association  or personal  loan bank (or any
branch office or public accommodation office of any of the foregoing), or (ii) a
public stenographer or typist,  barber shop, beauty shop, beauty parlor or shop,
telephone  or telegraph  agency,  telephone or  secretarial  service,  messenger
service, travel or tourist agency,  employment agency, public restaurant or bar,
commercial  document  reproduction  or offset printing  service,  public vending
machines,  retail,  wholesale or discount shop for sale of  merchandise,  retail
service shop, labor union,  school or classroom (except for ancillary  training,
provided  such  training does not  constitute  use of the demised  premises as a
school or classroom under  applicable  zoning  regulations),  or governmental or
quasi-governmental   bureau,  department  or  agency,  including  an  autonomous
governmental corporation.

                                   ARTICLE 38

                                   ARBITRATION

               38.01 In each case  specified  in this  Lease in which  resort to
arbitration shall be required,  such arbitration (unless otherwise  specifically
provided  in  other  Sections  of  this  Lease)  shall  be in New  York  City in
accordance  with the Commercial  Arbitration  Rules of the American  Arbitration
Association  and the  provisions  of this Lease.  The  decision and award of the
arbitrators  shall be in writing,  shall be final and conclusive on the parties,
and  counterpart  copies  thereof shall be delivered to each of the parties.  In
rendering such decision and awards,  the arbitrators  shall not add to, subtract
from or otherwise  modify the  provisions of this Lease.  Judgment may be had on
the decision and award of the  arbitrators so rendered in any court of competent
jurisdiction.  The  prevailing  party in the  arbitration  (as determined by the
arbitrators)   shall  pay  the  reasonable   legal  fees  and

<PAGE>

expenses of the non-prevailing party.

                                   ARTICLE 39

                                    INDEMNITY

               39.01 Tenant shall indemnify, defend and save Landlord its agents
and employees  and any  mortgagee of Landlord's  interest in the Land and/or the
Building and any lessor under any superior  lease  harmless from and against any
liability or expense arising from the use or occupation of the demised  premises
by Tenant or anyone in the demised  premises with Tenant's  permission,  or from
any breach of this Lease by Tenant.

                                   ARTICLE 40

                               MEMORANDUM OF LEASE

               40.01 Tenant shall,  at the request and cost of Landlord  execute
and  deliver a  statutory  form of  memorandum  of this Lease for the purpose of
recording,  but said memorandum of this Lease shall not in any  circumstances be
deemed to modify or to change any of the  provisions of this Lease.  In no event
shall Tenant record this Lease or a memorandum thereof.

                                   ARTICLE 41

                                  MISCELLANEOUS

               41.01 Irrespective of the place of execution or performance, this
Lease shall be governed and construed in  accordance  with the laws of the State
of New York.

               41.02  This  Lease  shall  be  construed  without  regard  to any
presumption or other rule requiring  construction against the party causing this
Lease to be drafted.

               41.03 Except as otherwise  expressly provided in this Lease, each
covenant,  agreement,  obligation  or other  provision of this Lease on Tenant's
part to be performed shall be deemed and construed as a separate and independent

<PAGE>

covenant of Tenant, not dependent on any other provision of this Lease.

               41.04 All terms and words used in this Lease,  regardless  of the
number or gender in which they are used,  shall be deemed to  include  any other
number and any other gender as the context may require.

               41.05 Time shall be of the essence  with  respect to the exercise
of any option granted under this Lease.

               41.06 Except as otherwise  provided  herein  whenever  payment of
interest is required by the terms hereof it shall be at the Interest Rate.

               41.07  If the  demised  premises  or any  additional  space to be
included  within the demised  premises  shall not be available  for occupancy by
Tenant on the specific date hereinbefore  designated for the commencement of the
term of this Lease or for the inclusion of such space for any reason whatsoever,
then this Lease shall not be affected  thereby but, in such case,  said specific
date shall be deemed to be postponed until the date when the demised premises or
such  additional  space shall be available for  occupancy by Tenant,  and Tenant
shall not be entitled to possession of the demised  premises or such  additional
space until the same are available for occupancy by Tenant,  provided,  however,
that Tenant shall have no claim  against  Landlord,  and Landlord  shall have no
liability to Tenant by reason of any such  postponement  of said specific  date,
and the  parties  hereto  further  agree that any  failure  to have the  demised
premises or such  additional  space  available  for  occupancy by Tenant on said
specific  date  or on  the  Commencement  Date  shall  in  no  wise  affect  the
obligations  of Tenant  hereunder nor shall the same be construed in any wise to
extend the term of this Lease  unless  specifically  provided to the contrary in
the preamble to this Lease and  furthermore,  this Section 41.07 shall be deemed
to be an express provision to the contrary of Section 223-a of the Real Property
Law of the State of New York and any other law of like  import now or  hereafter
in force.

               41.08 In the event that  Tenant is in arrears in payment of fixed
annual rent or additional rent hereunder,  Tenant waives Tenant's right, if any,
to  designate  the items  against  which any  payments  made by Tenant are to be
credited,  and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request  by Tenant  as to the items  against  which any such  payments  shall be
credited.

               41.09 This Lease  shall not be binding  upon  Landlord  until the

<PAGE>

same is executed by Landlord  and Tenant and an executed  copy  thereof has been
delivered to Tenant.

                                   ARTICLE 42

                                SECURITY DEPOSIT

               42.01 Tenant shall  simultaneously  upon  execution of this Lease
deliver to Landlord and, shall, except as otherwise provided herein, maintain in
effect at all times during the term hereof, an irrevocable  letter of credit, in
the form  annexed  hereto as Exhibit E and in the amount of One Million  Dollars
($1,000,000.00)  as security  for the faithful  performance  and  observance  by
Tenant of the terms,  provisions,  covenants and conditions of this Lease.  Such
letter  of  credit  shall  be  issued  by  a  banking   corporation   reasonably
satisfactory  to Landlord and having its principal place of business or its duly
licensed  branch or agency in the State of New York. Such letter of credit shall
have an  expiration  date no earlier than the first  anniversary  of the date of
issuance  thereof and shall be  automatically  renewed  from year to year unless
terminated  by the  issuer  thereof  by notice to  Landlord  given not less than
thirty (30) days prior to the expiration  thereof.  Except as otherwise provided
herein, Tenant shall, throughout the term of this Lease, deliver to Landlord, in
the event of the termination of any such letter of credit,  replacement  letters
of credit in lieu  thereof  (each such letter of credit and such  extensions  or
replacements  thereof,  as the  case may be,  is  hereinafter  referred  to as a
"Security  Letter") no later than thirty (30) days prior to the expiration  date
of the preceding Security Letter. The term of each such Security Letter shall be
not less than one (1) year and  shall be  automatically  renewable  from year to
year as aforesaid.  If Tenant shall fail to obtain any replacement of a Security
Letter within the time limits set forth in this Section 42.01, Landlord may draw
down the full  amount of the  existing  Security  Letter  and retain the same as
security hereunder.

               42.02 In the  event  Tenant  defaults  in  respect  to any of the
terms,  provisions,  covenants and conditions of this Lease after the expiration
of any notice and cure periods  provided for in this Lease,  including,  but not
limited to, the payment of rent and additional rent,  Landlord may use, apply or
retain the whole or any part of the security so deposited to the extent required
for the  payment  of any rent and  additional  rent or any other sum as to which
Tenant is in default or for any sum which Landlord may expend or may be required
to  expend by  reason  of  Tenant's  default  in  respect  of any of the  terms,
provisions,  covenants,  and conditions of this Lease, including but not limited
to, any damages or

<PAGE>

deficiency  accrued  before or after summary  proceedings  or other  re-entry by
Landlord.  To insure that Landlord may utilize the security  represented  by the
Security  Letter in the manner,  for the purpose,  and to the extent provided in
this Article,  each Security  Letter shall provide that the full amount  thereof
may be drawn down by  Landlord  upon the  presentation  to the  issuing  bank of
Landlord's  draft drawn on the issuing  bank without  accompanying  memoranda on
statement of beneficiary,  except for a certification  from Landlord that Tenant
is in default beyond any applicable notice and cure periods.

               42.03 In the event that Tenant  defaults in respect of any of the
terms, provisions,  covenants and conditions of this Lease and Landlord utilizes
all or any part of the security  represented by the Security Letter but does not
terminate  this Lease,  Landlord  may, in addition to  exercising  its rights as
provided  in Section  42.02,  retain  the  unapplied  and unused  balance of the
principal amount of the Security Letter as security for the faithful performance
and observance by Tenant thereafter of the terms, provisions,  and conditions of
this Lease,  and may use, apply, or retain the whole or any part of said balance
to the extent required for payment of rent, additional rent, or any other sum as
to which  Tenant is in  default or for any sum which  Landlord  may expend or be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants,  and  conditions  of this  Lease.  In the event  Landlord  applies or
retains any portion or all of the  security  delivered  hereunder,  Tenant shall
restore the amount so applied or retained  within ten (10) days after  demand by
Landlord  so that at all times the amount  deposited  shall be not less than the
security required by Section 42.01 hereof.

               42.04 (a) In the event that  Tenant  shall  fully and  faithfully
comply with all of the terms, provisions, covenants and conditions of this Lease
and  shall  not have been in  default  hereunder  more than two (2) times in any
given year or more than five (5) times in the  aggregate,  the security shall be
reduced after the fifth (5th)  anniversary of the Rent Commencement Date to Five
Hundred Thousand Dollars ($500,000),  provided that as of such anniversary,  the
"tangible net worth" (as that term is hereinafter defined) of Tenant shall equal
or exceed Fifty Million  Dollars  ($50,000,000)  (the "Minimum Net Worth").  For
purposes of this  Section  42.04,  "tangible  net worth"  shall mean a net worth
determined  under  GAAP and  excluding  all  assets  which  would be  treated as
intangible under sound accounting principles, including but not limited to, such
items as goodwill, trademarks, copyrights and patents.

               (b) In the event that Tenant  shall fully and  faithfully  comply
with all of the terms,  provisions,  covenants and  conditions of this lease and
shall not have been in  default  hereunder  more than two (2) times in any given
year or more than

<PAGE>

five (5) times in the aggregate, the security shall be reduced after the seventh
(7th)  anniversary  of the  Rent  Commencement  Date to Three  Hundred  Thousand
Dollars  ($300,000)  provided that as of such anniversary Tenant has the Minimum
Net Worth. Notwithstanding,  anything to the contrary included elsewhere herein,
Tenant  agrees that if at any time after the  reduction of security  pursuant to
this Section  42.04 (b) (if any) Tenant shall default under this Lease more than
two (2) times in any given year or more than five (5) times in the aggregate, or
the  tangible  net worth of Tenant  shall be less than the  Minimum  Net  Worth,
Tenant shall  immediately upon notice from Landlord restore the security to Five
Hundred Thousand Dollars  ($500,000).  Tenant agrees that on each anniversary of
the date  hereof,  Tenant  shall  deliver to Landlord an  unconditional  audited
financial  statement of Tenant for the prior year evidencing  Tenant's  tangible
net worth, prepared in accordance with GAAP, consistently applied from period to
period,  by an  independent  certified  public  accounting  firm  acceptable  to
Landlord    (an    "Acceptable    Firm").    Landlord    hereby    agrees   that
PricewaterhouseCoopers,  LLP or another so- called "Big 5" accounting firm shall
be deemed acceptable to Landlord.

               42.05 In the event that Tenant shall fully and faithfully  comply
with all of the terms,  provisions,  covenants and conditions of this Lease, the
security  shall be  returned  to Tenant  within  ninety (90) days after the date
fixed as the end of this Lease and after  delivery of entire  possession  of the
demised premises to Landlord. In the event of a sale of the Land and Building or
leasing of the Building, Landlord shall transfer any interest it may have in the
Security Letter to the vendee or lessee and Landlord shall thereupon be released
by Tenant from all liability for the return of such  Security  Letter,  provided
such vendee or lessee assumes any  responsibilities  of Landlord with respect to
such Security  Letter,  and Tenant agrees to look solely to the new landlord for
the return of said Security Letter;  and it is agreed that the provisions hereof
shall apply to every transfer or assignment made of the Security Letter to a new
landlord.  Tenant  further  covenants  that it will not  assign or  encumber  or
attempt to assign or encumber the monies  deposited  herein as security and that
neither  Landlord  nor its  successors  or  assigns  shall  be bound by any such
assignment,  encumbrance,  attempted assignment or attempted encumbrance. In the
event of a sale of the Building  Landlord shall have the right to require Tenant
to deliver a replacement  Security Letter naming the new landlord as beneficiary
and, if Tenant shall fail to timely  deliver the same, to draw down the existing
Security  Letter  and  retain  the  proceeds  as  security   hereunder  until  a
replacement Security Letter is delivered.

<PAGE>

                                   ARTICLE 43

                                   PARTNERSHIP

               43.01 If Tenant (or any permitted assignee of Tenant from time to
time) is a  partnership,  the liability of each of the partners  comprising  the
partnership  Tenant shall be joint and several.  The  technical  dissolution  of
Tenant  by  reason  of  the  death,  retirement,   resignation,   bankruptcy  or
adjudication  of  incompetency  of one or more  partners,  shall not affect this
Lease or the liability  thereunder  of the partners,  and Tenant agrees that the
partnership shall nevertheless  continue as Tenant with respect to the remaining
partners.  Similarly,  a merger or consolidation  with another firm shall not be
deemed a sublease or assignment or a violation of the provisions of this Lease.

               43.02 Upon  execution  of this Lease by Landlord and Tenant shall
promptly deliver to Landlord a list of the names and residence  addresses of all
existing partners  comprising the partnership Tenant. In the event Tenant admits
any new partners,  Tenant agrees,  within thirty (30) days  thereafter,  to give
notice to  Landlord of that fact and of the name and  residence  address of each
new partner,  together with such reasonable proof as Landlord shall require that
all of such  new  partners  have in  writing  assumed  performance  of  Tenant's
obligations under this Lease.

               43.03 In the event of a merger or  consolidation,  Tenant agrees,
within thirty (30) days thereafter,  to give notice to Landlord of that fact and
all of the  names and  residence  addresses  of the  partners  of the  merged or
consolidated firm, together with such reasonable proof as Landlord shall require
that all of such  partners  have in  writing  assumed  performance  of  Tenant's
obligations under this Lease.

                                   ARTICLE 44

                                    SUBLEASE

               44.01 Notwithstanding  anything to the contrary contained herein,
Tenant acknowledges that this Lease is a sublease of the demised premises and is
subject and subordinate to all of the terms, covenants,  conditions,  agreements
and  provisions  in the lease  dated May 1, 1957  between  Prudential  Insurance
Company of  America,  as landlord  and  Landlord's  predecessor-in-interest,  as
tenant,  and in the sublease dated June 27, 1958 between  500-512 Seventh Avenue
Associates, as sublessor and Landlord's  predecessor-in-interest (such lease

<PAGE>

and sublease as the same has been amended and assigned are hereinafter severally
and  collectively  called  the  "Superior  Documents").  Landlord  warrants  and
represents that nothing in the Superior  Documents  prohibits the making of this
Lease or the terms thereof and that the Superior Documents are in full force and
effect.

               44.02 Anything in this Lease to the contrary notwithstanding,  if
there  exists a breach by  Landlord of any of its  obligations  under this Lease
caused  solely by a  corresponding  breach  by the  lessor  under  any  Superior
Document of its obligations  thereunder,  then and in such event,  Tenant's sole
remedy  against  Landlord in the event of any such breach of  obligations  under
this  Lease,  shall be the  right to  pursue a claim at  Tenant's  sole cost and
expense in the name of Landlord  against  such lessor.  Landlord  agrees that it
will, at Tenant's expense, cooperate with Tenant in the pursuit of such claim.

               44.03 Landlord and Tenant agree that the leasehold estate created
by this  Lease  shall not merge with any other  estate  held by  Landlord  or an
affiliate of Landlord in the property of which the demised  premises form a part
or any other  interest of Landlord in the  demised  premises  and the  Building,
unless Landlord shall expressly elect to have such estates merge.

                                   ARTICLE 45

                              INTENTIONALLY OMITTED

                                   ARTICLE 46

                              INTENTIONALLY OMITTED

                                   ARTICLE 47

                                ADDITIONAL SPACE

        47.01 Effective as of February 1, 2002 or such earlier date as the Added
Space (as hereinafter defined) shall be made available for Tenant's Occupancy in
accordance  with  Section  2.01  above  (hereinafter  called  the  "Added  Space
Inclusion  Date"),  there shall be added to and included in the demised premises
the remaining portion of the seventeenth (17th) floor of the Building not

<PAGE>

previously  demised  hereunder,  as shown on the floor  plan  annexed  hereto as
Exhibit  F (such  additional  space is  hereinafter  referred  to as the  "Added
Space").

        47.02 The inclusion of the Added Space in the demised  premises shall be
subject to and in accordance  with all of the terms and conditions of this Lease
as  modified  by the  following  terms and  conditions,  all of which shall take
effect as of the Added Space Inclusion Date:

               (a) The Added Space shall be deemed  added to and included in the
Demised  Premises for the period beginning on the Added Space Inclusion Date and
ending on the Expiration Date.

               (b) The fixed annual rent payable  under  provisions of Article 1
of this Lease shall be increased by the following amounts:

                      (i) Two Hundred Twenty-Four  Thousand Three Hundred Twenty
               Dollars  ($224,320.00)  per annum for the period beginning on the
               date  which  is  three  (3)  months  following  the  Added  Space
               Inclusion   Date  and  ending  on  the  last  day  of  the  month
               immediately  preceding  the month in which occurs the fifth (5th)
               anniversary of the Rent Commencement Date;

                      (ii)  Two  Hundred   Thirty-Five   Thousand  Five  Hundred
               Thirty-Six  Dollars   ($235,536.00)  per  annum  for  the  period
               beginning on the first day of the month in which occurs the fifth
               (5th) anniversary of the Rent Commencement Date and ending on the
               Expiration Date.

               (c) Tenant's  Proportionate  Share, as defined in Section 3.01(b)
hereof, shall be increased from 4.35% to 5.45%;

               (d) The Wage Rate  Multiple set forth in Section  3.01(k)  hereof
shall be increased from 22,246 to 27,854;

               (e) Tenant  shall be entitled to an  additional  Base Work Credit
and  Tenant's  Work  Credit  (as such  terms  are  hereinafter  defined),  to be
distributed  in  accordance  with Sections  50.07 and 50.08 below,  in an amount
equal to  $22,432  and  $196,280,  respectively,  multiplied  by a  number,  the
numerator of which is number of full months  remaining in the Lease term through
the Expiration Date and the denominator of which is 120; and

               (f) Tenant shall immediately increase the security deposited with
Landlord in accordance  with Article 42 by $90,000,  which such amount shall not
be subject to  reduction  pursuant to Section  42.04 above (so that the $500,000
and $300,000  figures set forth in Section  42.04 above  shall,  as of the Added
Space   Inclusion   Date,   be  deemed   increased  to  $590,000  and  $390,000,
respectively, for

<PAGE>

purposes of such Section 42.04).

        47.03 Tenant  agrees to accept the Added Space in its "as is"  condition
and  state  of  repair  existing  as of  the  Added  Space  Inclusion  Date  and
understands  and agrees that Landlord shall perform no work and incur no cost or
expense in  connection  with the  preparation  of the Added  Space for  Tenant's
occupancy, except as hereinabove provided (i.e., Landlord shall perform the work
described  in Section  2.01 prior to the Added Space  Inclusion  Date).  Without
limiting the  generality of the foregoing,  the rent  abatement  provided for in
Section 1.05 hereof shall not apply with respect to the Added Space.

        47.04 (a) Tenant acknowledges that the Added Space is currently occupied
and will likely continue to be occupied until the Existing Lease Expiration Date
(as  hereinafter  defined)  Tenant  shall have no claim  against  Landlord,  and
Landlord  shall  have no  liability  to  Tenant,  by reason of the  delivery  of
possession  of the  Added  Space to Tenant  after the date set forth in  Section
47.01 as intended  to be the Added  Space  Inclusion  Date.  The parties  hereto
further  agree that the failure to have the Added Space  available for occupancy
by Tenant on the date set forth in  Section  47.01 as  intended  to be the Added
Space Inclusion Date shall in no way affect the obligations of Tenant  hereunder
except as  hereinafter  expressly set forth,  nor shall the same be construed in
any way to extend the term of this Lease.  Landlord shall use reasonable efforts
to obtain  and  deliver  possession  of the  Added  Space to  Tenant,  including
commencement of summary  proceedings  against the tenant currently occupying the
Added Space and holding-over  under expired leases.  In the event Landlord fails
to deliver the Added Space to Tenant on the date set forth in Section  47.01 and
intended to be the Added Space Inclusion Date, Landlord shall not be required to
perform  any of  Landlord's  Work on the Added  Space  until the Added  Space is
vacant and has been  delivered to Tenant and the fixed annual rent for the Added
Space not so  delivered  to Tenant  shall  abate for three (3) months  following
delivery of the Added Space to Tenant,  as more particularly set forth in clause
(b) (i) of Section  47.02.  This Section  47.04 shall be deemed to be an express
provision to the contrary of Section 223-a of the Real Property Law of the State
of New York and any other law of like import now or hereafter in force.

                      (b)    Notwithstanding anything to the contrary in Section
41.07 or this Article 47, if Landlord is unable,  for any reason, to deliver the
Added Space to Tenant on or before July 1, 2002, then, at Tenant's option, to be
exercised by notice to Landlord given on or before July 15, 2002, Landlord's and
Tenant's  obligations  under this Article 47 shall terminate and the Added Space
shall not be leased to Tenant, but may be leased by Landlord to any other party,

<PAGE>

free and clear of Tenant's  rights  under this Article 47.  Landlord  represents
that the  lease to the  existing  tenant  of the  Added  Space is set to  expire
pursuant  to its terms on  January  31,  2002 (the  "Existing  Lease  Expiration
Date").

                                   ARTICLE 48

                              INTENTIONALLY OMITTED

                                   ARTICLE 49

                              INTENTIONALLY OMITTED

                                   ARTICLE 50
                      LAYOUT AND FINISH; TENANT WORK CREDIT

        50.01 Tenant  hereby  covenants and agrees that Tenant will, at Tenant's
own cost and expense,  and in a good and workmanlike  manner,  make and complete
the work and  installations  in and to the demised  premises  set forth below in
such  manner  so that  the  demised  premises  will be  tasteful  and  dignified
executive and administrative offices.

        50.02 Tenant, at Tenant's  expense,  shall prepare a final plan or final
set of plans and  specifications  (which said plan or set of plans,  as the case
may be, and  specifications are hereinafter called the "final plan") which shall
contain complete  information and dimensions  necessary for the construction and
finishing of the demised premises. The final plan shall be submitted to Landlord
for  Landlord's  written  approval  which  approval  shall  not be  unreasonably
withheld or delayed with respect to work which is interior,  non-structural  and
does not adversely affect Building Systems,  the exterior of the Building or any
area of the Building outside the demised premises.  Landlord shall not be deemed
unreasonable  in  withholding  its  consent  to the  extent  that the final plan
prepared by Tenant  pursuant  hereto  involves  the  performance  of work or the
installation  in the demised  premises of materials  or  equipment  which do not
equal or exceed the  standard  of quality of  Building  Standard  installations.
Tenant  shall  reimburse  Landlord  promptly  upon  demand  for any  reasonable,
out-of-pocket  costs and  expenses  incurred  by  Landlord  in  connection  with
Landlord's  review of the final  plan.  Landlord  agrees to respond to  Tenant's
initial request for approval of the final plan within fifteen (15) Business Days
and to Tenant's request for modifications  thereof or changes thereto

<PAGE>

within ten (10) Business Days, following Tenant's request therefor.

        50.03 In substantial accordance with the final plan, Tenant, at Tenant's
expense,  will make and  complete  in and to the demised  premises  the work and
installations  including,  without  limitation,  renovation  of the common  area
(including the common area bathrooms) on the 16th Floor of the Building (despite
the fact that Tenant is not initially occupying the entire 16th Floor hereunder)
(hereinafter  collectively  called "Tenant's Work") specified in the final plan.
Tenant  agrees that  Tenant's  Work will be  performed  with the least  possible
disturbance  to  the  occupants  of  other  parts  of  the  Building  and to the
structural and mechanical parts of the Building as is reasonably  possible,  and
Tenant will, at its own cost and expense,  leave all  structural  and mechanical
parts of the  Building  which shall or may be affected by Tenant's  Work in good
and workmanlike  operating condition.  Tenant, in performing Tenant's Work will,
at its  own  cost  and  expense,  promptly  comply  with  all  laws,  rules  and
regulations of all public authorities  having  jurisdiction in the Building with
reference  to  Tenant's  Work.  If any act or  omission of Tenant or its general
contractor,  subcontractors  or agents  render the Building of which the demised
premises are a part liable to any mechanic's  lien or other lien and if any such
lien or liens be filed against the Building of which the demised  premises are a
part, or against  Tenant's  Work, or any part thereof,  Tenant will, at Tenant's
own cost and expense, promptly remove the same of record, by payment or bonding,
within  thirty  (30) days after the filing of such lien or liens;  or in default
thereof,  Landlord  may cause any such lien or liens to be  removed of record by
payment of bond or otherwise,  as Landlord may elect, and Tenant shall reimburse
Landlord for all costs and expenses  incidental  to the removal of any such lien
or liens incurred by Landlord. Tenant shall indemnify and save harmless Landlord
of and from all claims,  counsel fees, loss,  damage and expenses  whatsoever by
reason of any liens,  charges or  payments  of any kind  whatsoever  that may be
incurred or become  chargeable  against  Landlord  or the  Building of which the
demised premises are a part, or Tenant's Work or any part thereof,  by reason of
any work done or to be done or materials furnished or to be furnished to or upon
the demised  premises in connection with Tenant's Work.  Tenant hereby covenants
and agrees to  indemnify  and save  harmless  Landlord  of and from all  claims,
counsel fees,  loss,  damage and expenses  whatsoever by reason of any injury or
damage,  howsoever  caused,  to any person or  property  occurring  prior to the
completion of Tenant's Work or occurring after such  completion,  as a result of
anything  done or omitted in  connection  therewith  or arising out of any fine,
penalty or  imposition  or out of any other matter or thing  connected  with any
work done or to be done or materials  furnished or to be furnished in connection
with Tenant's  Work. At any and all times during the progress of Tenant's  Work,
Landlord shall be entitled to have a representative  or  representatives  on the
site to inspect Tenant's Work and

<PAGE>

such  representative or representatives  shall have free and unrestricted access
to any and  every  part of the  demised  premises  upon  reasonable  notice  and
provided such access shall not unduly disrupt Tenant's Work. Tenant shall advise
Landlord in writing of Tenant's  general  contractor who is to do Tenant's Work,
and such  general  contractor  shall be  subject  to  Landlord's  prior  written
approval,  which shall not be unreasonably  withheld or delayed; such contractor
shall,  to the extent  permitted by law, use  subcontractors  and  employees for
Tenant's  Work who will  work  harmoniously  with  other  employees  on the job.
Notwithstanding  the  foregoing,   Tenant  shall  use  the  life  safety  system
subcontractor  designated  by Landlord (and  charging  commercially  competitive
rates) to perform any work to connect  Tenant's  installations to the Building's
life safety system.

        50.04  Tenant  shall,  at  Tenant's  sole  cost  and  expense,  file all
necessary  architectural plans and obtain all necessary approvals and permits in
connection with Tenant's Work being performed by it pursuant to this Article 50.
Tenant shall submit to Landlord  Tenant's final plans for  Landlord's  review no
later than May 30, 2000.

        50.05 The following conditions shall also apply to Tenant's Work:

                      (i) all Tenant's  Work shall be of material,  manufacture,
design,  capacity and color at least equal to the  standard  adopted by Landlord
for the Building (hereinafter called "Building Standard");

                      (ii)  Tenant,  at  Tenant's  expense,  shall  (i) file all
required  architectural,  mechanical  and  electrical  drawings  and  obtain all
necessary permits,  and (ii) furnish and perform all engineering and engineering
drawings in  connection  with  Tenant's  Work.  Tenant shall  obtain  Landlord's
approval of the  drawings  referred to in (i) and (ii)  hereof,  which  approval
shall not be unreasonably withheld or delayed;

                      (iii) Tenant shall use an engineer  reasonably approved by
Landlord with respect to the  preparation of Tenant's  engineering  drawings for
Tenant's Work;

                      (iv)  All of the  provisions  of  Articles  6 and 8 hereof
shall apply to Tenant's performance of Tenant's Work; and

                      (v) Tenant's Work shall be completed no later than October
31, 2000 subject to delays beyond Tenant's control.

<PAGE>

        50.06 Tenant  agrees to install the Units (as defined in Section  21.05)
as part of  Tenant's  Work and to perform  all work  necessary  to  upgrade  the
restrooms on the sixteenth (16th) and seventeenth  (17th) floors of the Building
on which the demised  premises  are  located,  in  compliance  with the Building
Standards and all legal requirements  (collectively,  the "Base Work"). Landlord
shall allow Tenant a credit not to exceed the amount of One Hundred  Seventy-Two
Thousand Five Hundred Forty-Six Dollars  ($172,546.00)  (hereinafter  called the
"Base Work  Credit"),  which credit shall be applied solely against the cost and
expense  incurred in  connection  with the Base Work. In the event that the cost
and  expense of the Base Work shall  exceed the amount of the Base Work  Credit,
Tenant shall be entirely responsible for such excess. In the event that the cost
and expense of Base Work shall be less than the amount of the Base Work  Credit,
then the amount of the Base Work Credit shall be reduced accordingly.

        50.07  Landlord  shall allow Tenant a credit not to exceed the amount of
Seven  Hundred  Seventy-Eight  Thousand  Six Hundred  Ten Dollars  ($778,610.00)
(hereinafter  called the "Tenant's Work Credit"),  which credit shall be applied
solely against the cost and expense  incurred in performing  Tenant's Work other
than the Base Work.  In the event that the cost and expense of the Tenant's Work
(exclusive  of the Base Work) shall  exceed the amount of Tenant's  Work Credit,
Tenant shall be entirely responsible for such excess. In the event that the cost
and expense of Tenant's Work (exclusive of the Base Work) shall be less than the
amount of Tenant's Work Credit, then the amount of Tenant's Work Credit shall be
reduced accordingly.

               50.08 (a) Provided Tenant shall not be in default under the terms
of this Lease beyond applicable notice and cure periods,  Landlord hereby agrees
to make  periodic  payments of up to ninety  (90%) of the  Tenant's  Work Credit
and/or  the Base  Work  Credit to Tenant  as  Tenant's  Work and the Base  Work,
respectively,   progresses,   in  accordance   with  the  terms  and  conditions
hereinafter  set forth (the "Work Payment  Conditions")  in this subsection (a).
Tenant shall submit to Landlord from time to time,  but not more often than once
per month,  requisitions  (herein  referred to as "Tenant's  Request")  for such
periodic  payment with respect to the  portion(s)  of Tenant's Work and the Base
Work performed  subsequent to the  immediately  preceding  Tenant's  Request (if
any), together with the following:

                      (i)  copies  of   invoices   from  the   contractors   and
subcontractors  who  performed  the portions of Tenant's  Work and the Base Work
referred to in such Tenant's Request, and from the materialmen and suppliers who
supplied the materials and supplies referred to in such Tenant's Request;

<PAGE>

                      (ii) a  certificate  from  Tenant's  architect  or general
contractor  or  construction  manager that (1) such portion of the Tenant's Work
and  the  Base  Work  , as  applicable,  has  been  substantially  completed  in
accordance  with the final plan and revisions  thereto  theretofore  approved by
Landlord;  and (2) there are no uncured violations of record as a result of such
portion of the Tenant's Work or the Base Work, as applicable; and

                      (iii)  lien waivers from Tenant's general contractor and
construction  manager,  and each major (for  purposes  hereof,  a major shall be
deemed to mean a  subcontractor,  materialman  or supplier  under contract in an
amount in excess of $10,000.00)  subcontractor,  materialman and supplier to the
extent of the amount paid to such parties through the requisition preceding such
Tenant's Request.

        Promptly  following  any Tenant's  Request  together  with the aforesaid
accompanying  documentation,  Landlord shall have the right to enter the demised
premises for the purpose of verifying that such portion of Tenant's Work and the
Base Work  covered by  Tenant's  Request  has been  performed  substantially  in
accordance with the Tenant's Plans and revisions thereto theretofore approved by
Landlord. If the Work Payment Conditions have been satisfied, then within thirty
(30) days  after  Landlord's  receipt of  Tenant's  Request,  together  with the
accompanying documentation, Landlord shall pay to Tenant the amount shown on the
"Current Payment Due" on the Tenant's Request.  The balance of the Tenant's Work
Credit and/or the Base Credit, if any, after the completion of Tenant's Work and
the Base  Work,  respectively,  shall be paid to Tenant in  accordance  with the
terms and conditions set forth in paragraph (b) below.

                      (b) Subject to the  provisions of this  Section,  Landlord
hereby  agrees to pay the balance of the  Tenant's  Work Credit  and/or the Base
Work Credit,  in accordance  with the terms and  conditions  hereinafter in this
subsection  (b) (the "Final Work Payment  Conditions").  After the completion of
the  Tenant's  Work and the  Base  Work,  Tenant  shall  submit  to  Landlord  a
requisition  (herein  referred to as the "Final Request") for the balance of the
Tenant's Work Credit and/or the Base Work Credit, together with the following:

                      (i) a  certificate  from  Tenant's  architect  or  general
contractor or construction  manager that (1) all Tenant's Work and the Base Work
has been completed in substantial  accordance with the final plans and revisions
thereto theretofore approved by Landlord; (2) there are no uncured violations of
record,  as a result of any of the Tenant's Work or Base Work;  and all Tenant's
Work and the Base Work has been paid for in full;

<PAGE>

                      (ii) a general  release  and lien  waivers  from  Tenant's
general contractor,  and each major subcontractor,  materialman and supplier and
any other lien waiver Tenant has received in  connection  with Tenant's Work and
the Base Work;

                      (iii) copies of all New York City Building  Department and
New  York  City  Fire  Department  sign-offs,   inspection  certificates  and/or
self-certifications  by Tenant's subcontrators and/or any permits required to be
issued by any governmental  entity having  jurisdiction  thereover to the extent
required to permit the lawful occupancy of the demised premises by Tenant; and

                      (iv) two (2) copies of CAD "as built" plans of the demised
premises, or if Tenant has not had such CAD "as builts" prepared, the final plan
as finally  approved by Landlord and filed with the New York City  Department of
Buildings,  legibly marked with all field changes made during the performance of
Tenant's  Work and Base Work (other than de minimis  changes)  and  certified by
Tenant's architect as containing all such field changes.

                      (c) Promptly following the Final Request together with the
aforesaid accompanying documentation, Landlord shall have the right to enter the
demised  premises for the purpose of verifying that all of the Tenant's Work and
the Base Work has been completed and performed  substantially in accordance with
the final plan and revisions thereto  theretofore  approved by Landlord.  If the
Final Work Payment Conditions have been satisfied,  then within thirty (30) days
after  Landlord's  receipt of the Final Request  together with the  accompanying
documentation,  Landlord  shall pay to Tenant the balance of the  Tenant's  Work
Credit and/or the Base Credit.

               50.09  Tenant  acknowledges  that as of the date hereof there are
separate Class E systems and sprinkler  risers for the Building and that certain
building known and located at 500 Seventh  Avenue,  New York, New York (the "500
Building").  Tenant  further  acknowledges  that  during the term of this Lease,
Landlord in its sole  election,  may combine the lobbies of the Building and the
500 Building  Landlord  into a single lobby in a location on the street level to
be selected by Landlord,  in its sole discretion,  and unify the Class E systems
for the Building.  In the event  Landlord  shall elect to combine the lobbies of
the Building  and the 500  Building  and unify the Class E systems,  then Tenant
shall make all necessary  modifications and install all necessary devices within
the demised  premises to comply with applicable laws and  regulations.  Landlord
shall  reimburse  Tenant for any  reasonable  actual  out-of-pocket  expenses to
modify  the Class E systems  in the  demised

<PAGE>

premises incurred by Tenant as a result of Landlord's combining such lobbies and
unifying the Class E system of the Building and the 500 Building.  In connection
with the  performance  of  Tenant's  Work,  Landlord  shall  provide to Tenant a
reasonable  number of connection  points (at least one connection point on every
third (3rd) floor of the Building) to the Building's fire safety system to which
it may connect its smoke detectors and other life safety and security devices in
the demised  premises to comply with the  applicable  laws,  including,  without
limitation,  New York City local law; provided,  however, Tenant shall solely be
responsible for the cost of making such connection.

                                     * * * *

            [The remainder of this page is left intentionally blank;
                          the signature page follows.]

<PAGE>

               IN  WITNESS  WHEREOF,   Landlord  and  Tenant  have  respectively
executed this Lease as of the day and year first above written.

                      LANDLORD:

                      500-512 SEVENTH AVENUE LIMITED PARTNERSHIP

                      By:     500-512 ArCap LLC

                              By:    Archon Capital, L.P.

                                     By:    WH MezzCo GP, L.L.C., its General
                                            Partner

                                            By:    /s/ Illegible
                                               ---------------------------------
                                                   Name:
                                                   Title:

                                     By:    GS MezzCo GP, L.L.C., its General
                                            Partner

                                     By:  /s/ Robert Christie
                                         ---------------------------------------
                                            Name:   Robert Christie
                                            Title:

<PAGE>

                      TENANT:

                      THCG, INC.

                      By: /s/ Evan M. Marks
                         ---------------------------
                           Name:  Evan M. Marks
                           Title: EVP

Tenant's Tax Identification Number is 87-04 15597

<PAGE>AGREEMENT AND PLAN OF MERGER

                          dated as of August 11, 2000

                                  by and among

                                Zale Corporation

                             Jewelry Expansion Corp.

                                       and

                              Piercing Pagoda, Inc.

<PAGE>

                                TABLE OF CONTENTS
                                                           Page

ARTICLE I THE OFFER.........................................23
1.01 The Offer..............................................23
1.02  Company Actions.......................................25
1.03  Board of Directors and Committees; Section 14(f)......26
ARTICLE II THE MERGER.......................................27
2.01  The Merger............................................27
2.02  Effective Time........................................27
2.03  Effects of the Merger.................................27
2.04  Certificate of Incorporation and By-Laws..............27
2.05  Directors.............................................27
2.06  Officers..............................................28
2.07  Conversion of Shares..................................28
2.08  Employee Stock Options................................28
2.09  Conversion of Purchaser Common Stock..................28
2.10  Stockholders' Meeting.................................28
2.11  Merger Without Meeting of Stockholders................29
2.12  Closing...............................................29
ARTICLE III DISSENTING SHARES; EXCHANGE OF SHARES...........30
3.01  Dissenting Shares.....................................30
3.02  Exchange of Shares....................................30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....31
4.01  Organization..........................................31
4.02  Capitalization; Subsidiaries..........................31
4.03  Authority Relative to this Agreement..................32
4.04  Absence of Certain Changes............................33
4.05  No Undisclosed Liabilities............................33
4.06  Reports...............................................33
4.07  Offer Documents; Proxy Statements; Other Information..34
4.08  Consents and Approvals; No Violation..................34
4.09  Litigation, etc.......................................35
4.10  Title to Properties; Encumbrances.....................35
4.11  Benefit Plans.........................................36
4.12  Compliance With Agreements; Law.......................38
4.13  Patents, Trademarks, Trade Names, etc.................38
4.14  Taxes.................................................39
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER   43
5.01  Organization and Good Standing........................43
5.02  Authority Relative to this Agreement..................43
5.03  Consents and Approvals; No Violation..................44
5.04  Offer Documents; Proxy Statement......................44
5.05  Financing.............................................45
ARTICLE VI COVENANTS........................................45
6.01  Conduct of Business of the Company....................45
6.02  No Solicitation, etc..................................46
6.03  Access to Information.................................49
6.04 Reasonable Best Efforts................................49
6.05  Public Announcements..................................50
6.06  Indemnification; Insurance............................50
6.07  Employment Contracts, Benefits, etc...................51
6.08  Purchase of Shares....................................52

<PAGE>

6.09  Notification of Certain Matters.......................52
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER........53
7.01  Conditions to Each Party's Obligation to Effect the Merger   53
ARTICLE VIII TERMINATION; AMENDMENTS; WAIVER................53
8.01  Termination...........................................53
8.02  Effect of Termination.................................56
8.03  Amendment.............................................57
8.04  Extension; Waiver.....................................57
ARTICLE IX MISCELLANEOUS....................................57
9.01  Survival of Representations and Warranties............57
9.02  Brokerage Fees and Commissions........................58
9.03  Entire Agreement; Assignment..........................58
9.04  Validity..............................................58
9.05  Notices...............................................58
9.06  Governing Law.........................................59
9.07  Descriptive Headings..................................59
9.08  Counterparts..........................................60
9.09  Expenses..............................................60
9.10  Third Party Beneficiaries.............................60
9.11  Certain Definitions...................................60
9.12  Consent to Jurisdiction...............................61
9.13  Construction; Interpretation..........................61
Conditions of the Offer.....................................63
Agreement and Plan of Merger................................66

<PAGE>

                          AGREEMENT AND PLAN OF MERGER

        AGREEMENT AND PLAN OF MERGER,  dated as of August 11, 2000, by and among
Piercing Pagoda, Inc., a Delaware corporation (the "Company"), Zale Corporation,
a Delaware  corporation  ("Parent"),  and Jewelry  Expansion  Corp.,  a Delaware
corporation and a wholly owned subsidiary of Parent ("Purchaser").

                             W I T N E S S E T H :

        WHEREAS,  the Boards of Directors of Parent,  Purchaser  and the Company
deem it advisable and in the best  interests of the respective  stockholders  of
such  corporations  to  effect  the  merger of the  Purchaser  with and into the
Company (the  "Merger")  upon the terms and subject to the  conditions set forth
herein; and

        WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company  have  approved  the  acquisition  of the  Company  by  Parent  and,  in
furtherance of such  acquisition,  Parent  proposes to cause Purchaser to make a
cash tender offer for all of the issued and outstanding  shares of common stock,
par value $.01 per share (the  "Common  Stock"),  of the  Company,  on the terms
specified  herein and the Board of  Directors  of the Company has  approved  the
tender  offer and  recommended  that it be accepted by the  stockholders  of the
Company.

        WHEREAS,  certain  stockholders  of the  Company  have  indicated  their
intention  to execute  and  deliver a Tender and Voting  Agreement,  in the form
attached  hereto as Exhibit A (the "Tender and Voting  Agreement"),  pursuant to
which, subject to the terms and conditions contained therein,  such stockholders
shall  tender all Shares  owned by them into the Offer and vote their  shares of
Common Stock in favor of the transactions contemplated by this Agreement.

        NOW,  THEREFORE,  in  consideration  of the foregoing and the respective
representations, warranties, covenants and agreements hereinafter contained, the
receipt and  sufficiency of which are hereby  acknowledged,  and intending to be
bound hereby the parties hereto agree as follows:

                               ARTICLE ITHE OFFER

      SECTION 1.01 The Offer.

             (a) Provided that this Agreement  shall not have been terminated in
        accordance  with  Article  VIII hereof and so long as none of the events
        set  forth in Annex A  hereto  shall  have  occurred  or be  continuing,
        Purchaser  shall,  and Parent shall cause  Purchaser  to, as promptly as
        practicable  commence  (within the meaning of the  applicable  rules and
        regulations  of the  Securities  and  Exchange  Commission  (the  "SEC")
        promulgated  under the Securities  Exchange Act of 1934, as amended (the
        "Exchange Act")) an offer to purchase for cash (the "Offer") any and all
        of the issued and outstanding shares of Common Stock (the "Shares") at a
        price of $21.50 per Share, net to

<PAGE>

        the  seller  in  cash.  For  purposes  of  this   Agreement,   the  term
        "Transaction  Consideration"  shall mean $21.50 per Share in cash or any
        higher price as shall be paid in respect of the Shares in the Offer. The
        obligations of Purchaser to commence the Offer and to accept for payment
        and to pay for  any  Shares  tendered  shall  be  subject  to  only  the
        conditions set forth in Annex A hereto (any or all of which may, subject
        to the provisions  hereof, be waived by Parent or Purchaser,  subject to
        applicable  law). The initial  expiration date of the Offer shall be the
        20th  business day following the  commencement  of the Offer  determined
        using Rule 14d-2  under the  Exchange  Act,  unless  this  Agreement  is
        terminated  in  accordance  with Article  VIII,  in which case the Offer
        (whether or not previously extended in accordance with the terms hereof)
        shall  expire on such date of  termination.  Without  the prior  written
        consent of the Company, Purchaser shall not (i) decrease the Transaction
        Consideration, (ii) decrease the number of Shares to be purchased in the
        Offer, (iii) change the form of consideration payable in the Offer, (iv)
        add to or change the  conditions  to the Offer set forth in Annex A, (v)
        waive the  Minimum  Condition  (as  defined in Annex A) or (vi) make any
        other  change in the  terms or  conditions  of the  Offer in any  manner
        materially  adverse  to  the  holders  of  Shares.  Notwithstanding  the
        foregoing, Purchaser may, without the consent of the Company, (i) extend
        the Offer in  increments  of not more than ten business days each, if at
        the then scheduled expiration date of the Offer any of the conditions to
        Purchaser's obligation to purchase Shares are not satisfied,  until such
        time as such  conditions are satisfied or waived,  (ii) extend the Offer
        for any  period  required  by any rule,  regulation,  interpretation  or
        position  of the SEC or the staff  thereof  applicable  to the Offer and
        (iii) make available a subsequent offering period (within the meaning of
        Rule 14d-11  under the  Exchange  Act).  Without  limiting  the right of
        Purchaser to extend the Offer,  provided that this  Agreement  shall not
        have been  terminated  in  accordance  with Article VIII hereof,  if the
        conditions  set forth in Annex A are not  satisfied  or,  to the  extent
        permitted  hereby,  waived by  Purchaser  as of the date the Offer would
        otherwise have expired,  then, except to the extent that such conditions
        are  incapable  of  being  satisfied,  at the  request  of  the  Company
        Purchaser  will  extend the Offer from time to time until the earlier of
        the  consummation  of the Offer or the Final Date (as defined in Section
        9.11).  Purchaser  shall,  subject  to the terms and  conditions  of the
        Offer,  accept for payment  Shares  validly  tendered and not  withdrawn
        promptly after  expiration of the Offer in compliance with Rule 14e-1(c)
        promulgated under the Exchange Act.

             (b) On the date the Offer is commenced,  Parent and Purchaser shall
        file with the SEC a Tender  Offer  Statement on Schedule TO with respect
        to the Offer,  which shall  contain an offer to  purchase  and a related
        letter of transmittal  and summary  advertisement  (such Schedule TO and
        the documents included therein pursuant to which the Offer will be made,
        together  with  any  amendments  or  supplements   thereto,  the  "Offer
        Documents").  The Company and its counsel shall be given an  opportunity
        to review the Offer  Documents  prior to their being filed with the SEC.
        Each of Parent,  Purchaser  and the Company shall  promptly  correct any
        information  provided by it for use in the Offer Documents if and to the
        extent that such information shall have become

<PAGE>

        false or  misleading  in any  material  respect,  and each of Parent and
        Purchaser  shall take all steps  necessary  to amend or  supplement  the
        Offer  Documents  and to cause  the Offer  Documents  as so  amended  or
        supplemented  to be  filed  with the SEC and to be  disseminated  to the
        Company's  stockholders,  in each case as and to the extent  required by
        applicable  federal  securities laws. Parent and Purchaser shall provide
        the Company and its counsel in writing  with any  comments  Parent,  the
        Purchaser  or their  counsel may receive  from the SEC or its staff with
        respect  to the  Offer  Documents  promptly  after the  receipt  of such
        comments.

        SECTION  1.02  Company  Actions.  Subject  to the  right of the Board of
Directors  of the  Company to take  action  permitted  by Section  6.02(b),  the
Company  hereby  consents  to the  Offer  and  represents  that (a) its Board of
Directors  (at a meeting  duly  called  and held) has duly  adopted  resolutions
unanimously  (i) declaring  that each of the Offer and the Merger is in the best
interests of the Company and its  stockholders  and is advisable and fair to the
stockholders  of the  Company,  (ii)  approving  the  Offer and the  Merger  and
approving  this  Agreement  and the  Tender  and  Voting  Agreement,  and  (iii)
recommending  acceptance of the Offer and approval and adoption of the Agreement
by the  stockholders  of the Company and (b) ING  Barings has  delivered  to the
Company's  Board of  Directors  its opinion  that the cash  consideration  to be
received by the holders of the Common  Stock in the Offer and the Merger is fair
to such stockholders from a financial point of view. The Company hereby consents
to the inclusion in the Offer Documents of the  recommendation  of the Company's
Board of Directors  described above in this Section 1.02, and shall not withdraw
or modify such  recommendation,  except in accordance with Section 6.02(b).  The
Company  shall  provide for  inclusion in the Offer  Documents  any  information
reasonably  requested  by Parent or  Purchaser,  and to the extent  requested by
Parent or Purchaser, the Company shall cooperate in the preparation of the Offer
Documents.  As soon as  practicable  on or prior to the  later of (x) as soon as
practicable  after the date the Offer  Documents  are filed  with the SEC or (y)
seven  business  days after the date of this  Agreement,  the Company shall file
with the SEC a  Solicitation/Recommendation  Statement  on  Schedule  14D-9 with
respect  to  the  Offer,   including  an   appropriate   information   statement
("Information  Statement") under Rule 14f-1 (such Schedule 14D-9 and Information
Statement,  as amended from time to time,  the "Schedule  14D-9") and shall mail
the Schedule  14D-9 to the holders of Shares.  The Schedule  14D-9 shall contain
the  recommendation   described  above,  unless  such  recommendation  has  been
withdrawn or modified in accordance with Section 6.02(b). Parent and its counsel
shall be given a reasonable  opportunity  to review the Schedule  14D-9 prior to
its being filed with the SEC.  Each of Parent,  Purchaser  and the Company shall
promptly correct any information provided by it for use in the Schedule 14D-9 if
and to the extent that such information shall have become false or misleading in
any material respect, and the Company shall take all steps necessary to amend or
supplement  the Schedule  14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented  to be filed with the SEC and to be  disseminated  to the Company's
stockholders,  in each case as and to the extent required by applicable  federal
securities  laws.  The Company shall  provide  Parent and its counsel in writing
with any  comments  the Company or its  counsel may receive  from the SEC or its
staff with  respect to the  Schedule  14D-9  promptly  after the receipt of such
comments.  In connection with the Offer,  provided that this Agreement shall not
have been terminated in accordance  with Article VIII hereof,  the Company will,
or will cause its transfer agent to, promptly furnish Purchaser with

<PAGE>

mailing labels, security position listings and any available listing or computer
file  containing  the names and addresses of the record holders of the Shares as
of the most recent  practicable  date,  and shall  furnish  Purchaser  with such
additional information (including,  but not limited to, updated lists of holders
of the  Shares  and  their  addresses,  mailing  labels  and  lists of  security
positions) and  assistance as Purchaser or its agents may reasonably  request in
communicating  the Offer to the  stockholders  of the  Company.  Subject  to the
requirements  of law, and except for such steps as are necessary to  disseminate
the  Offer  Documents,  Parent  and  Purchaser  shall  hold  in  confidence  the
information  contained  in any of such  labels  and  lists  and  the  additional
information  referred to in the preceding  sentence,  will use such  information
only in connection  with the Offer and, if this  Agreement is  terminated,  will
upon request deliver to the Company all copies of such  information  then in its
possession.

        SECTION 1.03 Board of Directors and Committees; Section 14(f).

             (a) Subject to the  requirements of applicable  law,  promptly upon
        the purchase by Purchaser of Shares  pursuant to the Offer and from time
        to time thereafter,  Purchaser shall be entitled to designate up to such
        number of directors,  rounded up to the next whole number,  on the Board
        of  Directors  of the  Company  (the  "Board")  as will  give  Purchaser
        representation  on the  Board  equal to the  product  of the  number  of
        directors on the Board, after giving effect to such representation,  and
        the  percentage  that such  number of Shares so  purchased  bears to the
        total number of issued and outstanding Shares, and the Company shall use
        its reasonable best efforts to, upon request by Purchaser,  promptly, at
        the Company's election,  either increase the size of the Board or secure
        the  resignation  of such number of  directors as is necessary to enable
        Purchaser's  designees  to be  elected  to the  Board  and  shall  cause
        Purchaser's  designees to be so elected.  At such times the Company will
        use its  reasonable  best  efforts to cause  individuals  designated  by
        Purchaser to  constitute  the same  percentage as is on the Board of (i)
        each  committee  of the Board  (other  than any  committee  of the Board
        established  to take action  under this  Agreement),  (ii) each board of
        directors of each subsidiary of the Company  designated by Purchaser and
        (iii) each committee of each such board.  Notwithstanding the foregoing,
        the Company shall use its reasonable  best efforts to ensure that all of
        the  members  of the  Board  and its  committees  and  such  boards  and
        committees of the Company's subsidiaries,  as of the date hereof who are
        not employees of the Company and who are not otherwise  affiliated  with
        Purchaser  shall  remain  members  of the  Board  and  such  boards  and
        committees until the Effective Time (as defined in Section 2.02).

             (b) The  Company's  obligations  to appoint  designees to the Board
        shall be  subject to Section  14(f) of the  Exchange  Act and Rule 14f-1
        promulgated  thereunder.  The Company  shall  promptly  take all actions
        required  pursuant  to Section  14(f) and Rule 14f-1 in order to fulfill
        its  obligations  under  this  Section  1.03,  including  mailing to its
        stockholders  an  Information   Statement   containing  the  information
        required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder.
        Parent or Purchaser  will supply to the Company in writing and be solely
        responsible  for any information so supplied with respect to any of them
        and their nominees,

<PAGE>

        officers,  directors and  affiliates  required by Section 14(f) and Rule
        14f-1 to be included in the Information Statement.

             (c) Following the election or appointment of Purchaser's  designees
        pursuant  to this  Section  1.03 and prior to the  Effective  Time,  any
        amendment of this Agreement or the Restated Certificate of Incorporation
        or By-Laws of the Company,  any extension by the Company of the time for
        the  performance  of any of the  obligations  or other acts of Parent or
        Purchaser  or  waiver of any of the  Company's  rights  hereunder,  will
        require the  concurrence  of a majority of the  directors of the Company
        then in office who are neither designated by Purchaser, employees of the
        Company  or  any of  its  subsidiaries  nor  otherwise  affiliated  with
        Purchaser.

        SECTION  1.04  Company  Board  Approval  Under  Section  203 the General
Corporation  Law of the State of Delaware (the "DGCL").  On or prior to the date
hereof,  the Company's Board of Directors shall have approved this Agreement and
taken all other  necessary  actions  under  Section 203 of the DGCL to cause the
transactions  contemplated hereby, not to be governed by such Section 203 of the
DGCL or be subject thereto.

                              ARTICLE IITHE MERGER

        SECTION  2.01 The Merger.  Upon the terms and subject to the  conditions
hereof, and in accordance with the DGCL, Purchaser shall be merged with and into
the Company as soon as  practicable  following the  satisfaction  or waiver,  if
permissible,  of the conditions  set forth in Article VII hereof.  Following the
Merger the Company shall continue as the surviving  corporation  (the "Surviving
Corporation") and the separate corporate existence of Purchaser shall cease.

        SECTION 2.02  Effective  Time. The Merger shall be  consummated,  as and
when  provided in Section 2.12 hereof,  by filing with the Secretary of State of
the State of Delaware a certificate  of merger or a certificate of ownership and
merger in such form as is required  by, and  executed in  accordance  with,  the
relevant  provisions  of the DGCL (the time of such filing being the  "Effective
Time").

        SECTION  2.03  Effects of the Merger.  The Merger shall have the effects
set forth in Section 259 of the DGCL and from and after the Effective  Time, the
Surviving  Corporation  shall  possess  all the rights,  privileges,  powers and
franchises and be subject to all of the restrictions,  disabilities, liabilities
and duties of the Company and Purchaser.  As of the Effective  Time, the Company
shall be a wholly owned subsidiary of Parent.

        SECTION 2.04  Certificate  of  Incorporation  and By-Laws.  The Restated
Certificate  of  Incorporation  and the  By-Laws  of the  Company  shall  be the
Certificate  of  Incorporation  and By-Laws of the Surviving  Corporation  until
thereafter changed or amended as provided therein or by law.

        SECTION 2.05 Directors.  The directors of Purchaser immediately prior to
the  Effective  Time shall  constitute  the Board of Directors of the  Surviving
Corporation until their respective successors are duly elected and qualified.

<PAGE>

        SECTION 2.06 Officers.  The officers of the Company immediately prior to
the  Effective  Time shall be the officers of the  Surviving  Corporation  until
their respective successors are duly elected and qualified.

        SECTION 2.07  Conversion  of Shares.  Each Share issued and  outstanding
immediately  prior to the Effective Time (other than Shares held by Parent,  the
Company or any  subsidiary of Parent or of the Company,  which shall be canceled
and retired and cease to exist, and Dissenting Shares (as hereinafter  defined))
shall,  by virtue of the Merger and without any action on the part of the holder
thereof,   shall  be  converted  into  the  right  to  receive  the  Transaction
Consideration in respect of such Shares in cash,  payable to the holder thereof,
without interest  thereon,  upon surrender of the certificate  representing such
Share.  The  Company  acknowledges  and agrees that  payment of the  Transaction
Consideration  to the  stockholders  of the Company in respect of the  foregoing
conversion  of Shares in the Merger shall be subject to  applicable  withholding
taxes, if any.

        SECTION 2.08 Employee Stock Options.  Immediately prior to the Effective
Time, all outstanding options to purchase Shares granted by the Company (whether
or not then  presently  exercisable)  (the  "Options")  will be canceled  and in
consideration  of such  cancellation  each  holder  thereof  will be entitled to
receive a payment in cash (subject to any applicable  withholding taxes), at the
Effective  Time,  equal to the product of (i) the total number of Shares subject
to the Option (including Options not currently exercisable) and (ii) the excess,
if any,  of the  Transaction  Consideration  over the  exercise  price per Share
subject to such Option.  If and to the extent required by the terms of the plans
governing  such  Options  or  pursuant  to  the  terms  of  any  Option  granted
thereunder, each of Parent and the Company shall use its reasonable best efforts
to obtain the consent of each  holder of  outstanding  Options to the  foregoing
treatment of such Options.

        SECTION 2.09 Conversion of Purchaser Common Stock.  Each share of common
stock, par value $.01 per share, of Purchaser issued and outstanding immediately
prior to the  Effective  Time  shall,  by virtue of the Merger and  without  any
action on the part of the holder thereof, be converted into and exchangeable for
one share of common stock of the Surviving Corporation.

        SECTION 2.10  Stockholders'  Meeting.  If required by applicable law, in
order to consummate the Merger, the Company, acting through its Board, shall:

             (a) duly call,  give notice of, convene and hold a special  meeting
        (the  "Special  Meeting")  of its  stockholders  as soon as  practicable
        following  the  expiration  or  termination  of the Offer at which  this
        Agreement  shall be  submitted  to the  Company's  stockholders  for the
        purpose of acting on this Agreement;

             (b) use its  reasonable  efforts to prepare and file a  preliminary
        Proxy  Statement with the SEC, and after  consultation  with Parent,  to
        respond promptly to comments of the SEC, if any, in connection therewith
        and to furnish all  information  regarding  the Company  required in the
        definitive Proxy Statement and to cause the Proxy Statement to be mailed
        to its

<PAGE>

        stockholders at the earliest practicable time following the expiration
        or termination of the Offer;

             (c) Subject to the Board's  fiduciary  duties under applicable law,
        the Board shall  recommend that the  stockholders of the Company vote in
        favor of approval and adoption of this Agreement at the Special Meeting,
        and  shall  cause  such  recommendation  to be  included  in  the  Proxy
        Statement;

             (d) use its reasonable  efforts  deemed  necessary and advisable to
        secure  the  vote  of  stockholders  required  by  applicable  law,  the
        Company's  Restated  Certificate  of  Incorporation  and  the  Company's
        By-Laws for adoption of this  Agreement by the  Company's  stockholders.
        Parent  agrees that, at the Special  Meeting,  it shall cause all of the
        Shares then owned by Parent,  Purchaser  or any other direct or indirect
        subsidiary of Parent to be voted for adoption of this Agreement.

        SECTION 2.11 Merger Without Meeting of Stockholders. Notwithstanding the
foregoing,  in the  event  that  Purchaser,  or any  other  direct  or  indirect
subsidiary  of  Parent,  shall  acquire  at least  ninety  percent  (90%) of the
outstanding  Shares,  the  parties  hereto  agree,  at the  request of Parent or
Purchaser,  to take all necessary and appropriate  action to cause the Merger to
become  effective,  as soon as  practicable  after the  expiration of the Offer,
without a meeting of stockholders of the Company, in accordance with Section 253
of the DGCL.

        SECTION  2.12  Closing.  Upon the terms and  subject  to the  conditions
hereof,  as soon as practicable  after  consummation  of the Offer and after the
vote of the  stockholders  of the  Company  in  favor  of the  approval  of this
Agreement has been  obtained,  if  applicable,  the Company shall execute in the
manner  required by the DGCL and deliver to the  Secretary of State of the State
of Delaware a duly  executed and verified  certificate  of merger as required by
the DGCL (or  Purchaser  shall  execute in the manner  required  by the DGCL and
deliver to the  Secretary of State of the State of Delaware a duly  executed and
verified  certificate  of ownership  and merger) and the parties shall take such
other  and  further  actions  as may be  required  by law  to  make  the  Merger
effective. Prior to the filings referred to in this Section 2.12, a closing (the
"Closing")   will  be  held  at  the   offices  of  Wolf,   Block,   Schorr  and
Solis-Cohen,LLP, 250 Park Avenue, New York, NY 10177 (or such other place as the
parties may agree) for the purpose of confirming all of the foregoing.

<PAGE>

               ARTICLE IIIDISSENTING SHARES; EXCHANGE OF SHARES

        SECTION  3.01  Dissenting  Shares.   Notwithstanding  anything  in  this
Agreement to the contrary,  Shares which are issued and outstanding  immediately
prior to the Effective Time and which are held by stockholders who object to the
Merger and comply with all of the relevant provisions of Section 262 of the DGCL
(the "Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the  consideration  provided in Section 2.07 of this  Agreement
but shall instead be entitled to receive  payment of the appraised value of such
Shares in accordance  with the relevant  provisions of such Section 262,  unless
and until such  holders  shall have failed to perfect or shall have  effectively
withdrawn or lost their rights to appraisal  and payment  under the DGCL. If any
such holder shall have so failed to perfect or shall have effectively  withdrawn
or lost such right,  such holder's Shares shall thereupon be deemed to have been
converted into and to have become  exchangeable  for, at the Effective Time, the
right to receive the consideration provided in Section 2.07.

        SECTION 3.02 Exchange of Shares.

             (a) Prior to the Effective  Time,  Parent shall designate a bank or
        trust  company or similar  entity  reasonably  acceptable to the Company
        which is authorized to exercise  corporate  trust or stock powers to act
        as Exchange Agent in the Merger (the "Exchange Agent"). At the Effective
        Time, Parent will provide the Exchange Agent funds necessary to make the
        cash payments contemplated by Section 2.07.

             (b)  Promptly  after the  Effective  Time,  Parent  shall cause the
        Exchange Agent to mail to each record holder,  as of the Effective Time,
        of an outstanding certificate or certificates which immediately prior to
        the Effective Time represented  outstanding Shares (the "Certificates"),
        one or more forms of a letter of  transmittal  (which shall specify that
        delivery  shall  be  effected,  and  risk  of  loss  and  title  to  the
        Certificates  shall pass, only upon proper delivery of the  Certificates
        to the  Exchange  Agent)  and  instructions  for  use in  effecting  the
        surrender of the Certificate or payment therefor.  Upon surrender to the
        Exchange  Agent  of  a   Certificate,   together  with  such  letter  of
        transmittal  duly  executed,  the  holder of such  Certificate  shall be
        entitled to receive in  exchange  therefor,  and Parent  shall cause the
        Exchange  Agent  to  promptly  so pay,  cash in an  amount  equal to the
        product  of  the  number  of  Shares  represented  by  such  Certificate
        multiplied by the amount of the Transaction  Consideration  with respect
        to Shares, and such Certificate shall then be canceled. No interest will
        be paid or  accrued  on the  cash  payable  upon  the  surrender  of any
        Certificate.  If payment is to be made to a person other than the person
        in whose name the Certificate  surrendered is registered,  it shall be a
        condition  of  payment  that the  Certificate  so  surrendered  shall be
        properly  endorsed or otherwise in proper form for transfer and that the
        person  requesting  such  payment  shall  pay  transfer  or other  taxes
        required by reason of the payment to a person other than the  registered
        holder of the Certificate  surrendered or establish to the  satisfaction
        of the  Surviving  Corporation  that  such tax has  been  paid or is not
        applicable. Until surrendered in accordance

<PAGE>

        with the provisions of this Section 3.02, each  Certificate  (other than
        Certificates  representing  Shares held by Parent or any  subsidiary  of
        Parent or of the Company and Dissenting  Shares) shall represent for all
        purposes  the right to receive  the  Transaction  Consideration  in cash
        multiplied  by the  number  of  Shares  evidenced  by such  Certificate,
        without any  interest  thereon.  Any funds  remaining  with the Exchange
        Agent one year  following the Effective Time shall be returned to Parent
        after  which  time  former  stockholders  of  the  Company,  subject  to
        applicable  law,  shall look only to Parent for  payment of amounts  due
        hereunder, without interest thereon.

             (c) After the  Effective  Time there shall be no  transfers  on the
        stock  transfer  books of the Surviving  Corporation of the Shares which
        were outstanding  immediately prior to the Effective Time. If, after the
        Effective Time, Certificates are presented to the Surviving Corporation,
        they shall be canceled and  exchanged for cash as provided in Article II
        and this Article III.

            ARTICLE IVREPRESENTATIONS AND WARRANTIES OF THE COMPANY

        Except as set forth in the  disclosure  schedule  delivered to Parent by
the Company prior to the execution of this Agreement, with specific reference to
the section of this Agreement to which the information stated in such disclosure
relates (the  "Disclosure  Schedule")  (provided that any section  thereof shall
each be deemed to include  all  disclosures  set forth in other  sections of the
Disclosure  Schedule as and to the extent the context of such disclosures  makes
it readily  apparent,  if read in the context of such other  section,  that such
disclosures  are applicable to such other section),  the Company  represents and
warrants to Parent and Purchaser as follows:

        SECTION 4.01 Organization. Each of the Company and its subsidiaries is a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its  organization,  and each
such  entity has all  requisite  corporate  power and  corporate  authority  (or
limited  liability  company  power  and  authority,  as the case may be) to own,
operate and lease its  respective  properties  and to carry on its businesses as
they are being conducted on the date of this Agreement.  The Company and each of
its subsidiaries is duly qualified and in good standing in each  jurisdiction in
which the nature of the property  owned,  leased or operated by it or the nature
of the business  conducted  by it requires  such  qualification  except for such
failures to be so qualified or in good  standing  which will not have a Material
Adverse Effect (as defined in Section 9.11 hereof).  All such  jurisdictions are
identified on Schedule 4.01 of the Disclosure  Schedule.  The Company has, prior
to the date of this  Agreement,  made  available to Parent  complete and correct
copies of the Company's Restated  Certificate of Incorporation and the Company's
By-Laws  and the  comparable  governing  documents  of  each of its  Significant
Subsidiaries  (as defined in Section 4.02),  in each case as amended and in full
force and effect as of the date of this Agreement.

        SECTION 4.02 Capitalization;  Subsidiaries. The authorized capital stock
of the Company  consists of 15,000,000  Shares and 3,000,000 shares of preferred
stock,  par value  $0.01 per share  ("Preferred  Stock").  As of the date hereof
there  were (a)  8,941,239  Shares  issued  and  outstanding,  (b) no  shares of
Preferred Stock issued and outstanding

<PAGE>

and no series of Preferred Stock has been  established,  (c) 254,150 Shares were
held in the  Company's  treasury,  (d) no shares of capital stock of the Company
were held by the Company's  subsidiaries,  and (e) 934,423  Shares were reserved
for future  issuance as of the date hereof  pursuant to Options  then  currently
outstanding (including the currently non-exercisable portions thereof).  Section
4.02 of the  Disclosure  Schedule sets forth a complete and accurate list of (i)
the  number of  outstanding  Options,  (ii) the  number  of Shares  which can be
acquired upon the exercise of all outstanding Options,  respectively,  and (iii)
the exercise price of each  outstanding  Option.  Except as set forth in Section
4.02 of the Disclosure  Schedule,  since March 31, 2000, the Company (i) has not
issued any Shares other than upon the  exercise of Options,  (ii) has granted no
Options to purchase  shares of Common Stock under the Company  Benefit Plans (as
defined in Section 4.11) to the Executive Officers (as defined in Section 9.11),
(iii) has not  granted  any  stock  option,  stock  incentive,  stock  purchase,
restricted stock, stock appreciation right, phantom stock or other similar award
to  any  of  the  Executive  Officers  and  (iv)  has  not  split,  combined  or
reclassified any of its shares of capital stock.  Except as set forth in Section
4.02 of the Disclosure  Schedule,  there are no outstanding  options,  warrants,
calls,  subscriptions  or  other  rights  or  other  agreements  or  commitments
obligating the Company or any of its subsidiaries to issue, transfer or sell any
shares of capital stock of the Company or any of its  subsidiaries.  The Company
has no outstanding bonds,  debentures,  notes or other obligations entitling the
holders  thereof  to vote (or  which are  convertible  into or  exercisable  for
securities  having the right to vote) with the  holders of Shares on any matter.
There are no outstanding  obligations of the Company or any of its  subsidiaries
to  repurchase,  redeem or otherwise  acquire any shares of capital stock of the
Company.  All issued and outstanding  Shares are validly issued,  fully paid and
nonassessable  and are not  subject  to,  and were not issued in  violation  of,
preemptive   rights.   There  are  no  voting  trusts  or  other  agreements  or
understandings to which the Company is a party with respect to the voting of the
capital stock of the Company or any of its subsidiaries.

        The only  "Significant  Subsidiaries"  (as such term is  defined in Rule
1-02 of Regulation S-X of the SEC  ("Significant  Subsidiaries")  of the Company
are those named in the Company Filings (as defined in Section 4.06).  All of the
outstanding  shares of capital  stock of the Company's  subsidiaries  are owned,
directly  or  indirectly,  by the Company  free and clear of all liens,  claims,
options,  charges,  security  interests or other legal and equitable  rights and
encumbrances of whatsoever  nature. All issued and outstanding shares of capital
stock  of  the  Company's  subsidiaries  are  validly  issued,  fully  paid  and
nonassessable  and are not  subject  to,  and were not issued in  violation  of,
preemptive rights.

        SECTION 4.03 Authority Relative to this Agreement.  The Company has full
corporate power and authority to execute and deliver this Agreement,  to perform
its  obligations  hereunder  and,  subject,  in the case of the  Merger,  to the
adoption of this Agreement by the stockholders of the Company,  if required,  to
consummate the transactions  contemplated  hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board and no other corporate proceedings
on the part of the Company are  necessary  to  authorize  this  Agreement  or to
consummate  the  transactions  so  contemplated  (other than, in the case of the
Merger,  the adoption of this Agreement by the holders of Shares  representing a
majority of the votes which may be cast by holders

<PAGE>

of Shares).  This Agreement has been duly and validly  executed and delivered by
the Company and, assuming this Agreement has been duly authorized,  executed and
delivered by each of Parent and Purchaser,  this  Agreement  constitutes a valid
and  binding  agreement  of the  Company,  enforceable  against  the  Company in
accordance  with its  terms,  except  that (i)  enforcement  may be  subject  to
applicable bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally and (ii)
the remedy of specific  performance  and injunctive and other forms of equitable
relief may be subject to equitable  defenses and to the  discretion of the court
before which any proceeding therefor may be brought.

        SECTION  4.04  Absence of Certain  Changes.  Since March 31,  2000,  (a)
neither the  Company  nor any of its  subsidiaries  has  suffered  any change or
changes in the financial condition or business, results of operations, or assets
which has  resulted or would be likely to result in a Material  Adverse  Effect,
(b) the Company and its  subsidiaries  have conducted their business only in the
ordinary course of business and in a manner  consistent with past practice,  and
(c) neither the Company nor any of its  subsidiaries  has taken any action that,
if taken  after the date of this  Agreement,  would  constitute  a breach of the
covenants set forth in Section 6.01.

           SECTION 4.05 No Undisclosed Liabilities. Except to the extent accrued
or reserved  in the  Company's  financial  statements  (including  the notes and
schedules  thereto) included in the Company Filings and publicly available prior
to the  date of this  Agreement  and as set  forth in the  Disclosure  Schedule,
neither  the  Company  nor  any of  its  subsidiaries  has  any  liabilities  or
obligations of any nature, whether accrued,  contingent,  absolute or otherwise,
except for those arising in the ordinary course of business consistent with past
practice and that would not,  individually  or in the  aggregate,  reasonably be
expected to have a Material Adverse Effect on the Company.

        SECTION 4.06 Reports.  The Company has filed all required forms, reports
and documents (including all prospectuses and all registration  statements) with
the SEC required to be filed by it with respect to all periods  commencing on or
after January 1, 1997 pursuant to the federal  securities laws and the SEC rules
and regulations thereunder,  all of which have complied in all material respects
with all applicable  requirements of the Securities Act of 1933 (the "Securities
Act") and the Exchange Act, and the rules and regulations promulgated thereunder
(the "Company Filings"). None of such Company Filings,  (excluding the financial
statements included therein,  which are dealt with in the following  paragraph),
nor any amendment or supplement  thereto, at the time filed contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

        The consolidated balance sheets and the related consolidated  statements
of income,  retained earnings and changes in financial  position  (including the
related  notes and  schedules  thereto) of the  Company  included in the Company
Filings  and the  balance  sheet  of the  Company  as of June  30,  2000 and the
statement(s)  of income and cash flows of the Company for the three months ended
June  30,  2000   previously   provided  to  Parent  (the  "June  30   Financial
Statements"), present fairly in all material respects the consolidated financial
position  of the  Company  as of their  respective  dates,  and the  results  of
consolidated operations and consolidated cash flows for the periods presented

<PAGE>

therein, all in conformity with generally accepted accounting principles applied
on a consistent basis,  except (i) as otherwise noted therein,  (ii) in the case
of quarterly  financial  statements  for the quarter  ended June 30,  2000,  for
non-material  year-end audit  adjustments and (iii) in the case of the quarterly
financial  statements  to the extent  they may not include  footnotes  or may be
condensed or summary financial statements.

        SECTION  4.07 Offer  Documents;  Proxy  Statements;  Other  Information.
Neither the Schedule  14D-9 nor any of the  information  relating to the Company
and its  subsidiaries  supplied  in  writing  by the  Company  specifically  for
inclusion  in the Offer  Documents,  including  any  amendments  or  supplements
thereto will at the respective times the Schedule 14D-9,  Offer Documents or any
amendments  or  supplements  thereto are filed with the SEC,  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 therein, in light of
the circumstances under which they were made, not misleading. The Schedule 14D-9
will comply in all  material  respects  with the  Exchange Act and the rules and
regulations  promulgated  thereunder.  If a Proxy  Statement is required for the
consummation of the Merger under applicable law, the Proxy Statement will comply
in all material  respects  with the  Exchange Act and the rules and  regulations
promulgated  thereunder  and, at the time any such Proxy  Statement is mailed to
stockholders  of the Company and at the time of any meeting of  stockholders  of
the Company,  such Proxy  Statement  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  therein,  in  light  of the
circumstances,  under  which  they were made,  not  misleading,  except  that no
representation  is made by the Company with respect to  information  supplied in
writing by Parent or Purchaser specifically for inclusion in the Proxy Statement
and no representation is made by the Company with respect to any Proxy Statement
or other document filed with the SEC or mailed to stockholders of the Company at
any time after the Board  Transition  Date (as  defined in  Section  6.01).  The
letter to stockholders, notice of meeting, proxy statement and form of proxy, or
the information statement, as the case may be, to be distributed to stockholders
in connection  with the Merger,  or any schedules  required to be filed with the
SEC in connection  therewith are  collectively  referred to herein as the "Proxy
Statement".

        SECTION 4.08 Consents and Approvals; No Violation. Neither the execution
and  delivery  of this  Agreement  by the Company  nor the  consummation  of the
transactions  contemplated hereby will (i) conflict with or result in any breach
of any provision of the  respective  Restated  Certificate of  Incorporation  or
By-Laws  (or other  similar  governing  documents)  of the Company or any of its
subsidiaries, (ii) require any consent, approval, authorization or permit of, or
filing with or  notification  to, any  governmental  or regulatory  authority or
body, except (A) in connection with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"),  (B) pursuant to the Securities Act and
the Exchange Act or the rules and  requirements  of The Nasdaq  National  Market
System,  (C) the filing of a certificate of merger (or  certificate of ownership
and merger) pursuant to the DGCL, (D) filings under state securities, "Blue-Sky"
or  takeover  laws or in  connection  with  maintaining  the good  standing  and
qualification of the Surviving  Corporation  following the Effective Time or (E)
where the failure to obtain such consent, approval,  authorization or permit, or
to make such  filing or  notification,  would not in the  aggregate  when  taken
together with all such other  failures  have a Material  Adverse  Effect;  (iii)
result in a default (or give rise to any right of

<PAGE>

termination, unilateral modification or amendment, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, license, agreement
or  other  instrument  or  obligation  to  which  the  Company  or  any  of  its
subsidiaries is a party or by which the Company,  any of its subsidiaries or any
of their respective assets may be bound,  except for such defaults (or rights of
termination, unilateral modification or amendment, cancellation or acceleration)
as to which  requisite  waivers or consents have been obtained prior to the date
Shares are first  accepted for payment under the Offer or which in the aggregate
would not have a Material  Adverse  Effect;  or (iv)  violate  any order,  writ,
injunction,  decree, judgment, ordinance, statute, rule or regulation applicable
to the Company, any of its subsidiaries or any of their respective properties or
businesses,  except for violations (other than of orders, writs,  injunctions or
decrees  issued  against  the Company or any of its  subsidiaries  or naming the
Company or any of its  subsidiaries as a party) which would not in the aggregate
have a Material Adverse Effect.

        SECTION 4.09 Litigation,  etc.  Section 4.09 of the Disclosure  Schedule
sets forth all claims,  actions or  proceedings  pending or, to the knowledge of
the Company,  threatened against the Company or any of its subsidiaries or their
respective  properties  or  businesses  before any  Governmental  Authority  (as
defined in Section  9.11  hereof)  with  respect to which there is a  reasonable
likelihood  of an adverse  determination  which  would  have a Material  Adverse
Effect. To the Company's knowledge, Section 4.09 of the Disclosure Schedule sets
forth all  pending  actions or  proceedings  to which the  Company or any of its
subsidiaries is a party. Neither the Company nor any of its subsidiaries nor any
of their  respective  properties  or  businesses  is subject to any  outstanding
order,  writ,  judgment,  stipulation,  award,  injunction  or decree or, to the
knowledge  of the Company,  any  investigation  or inquiry by, any  Governmental
Authority  issued against the Company or any of its  subsidiaries  or naming the
Company or any of its subsidiaries as a party which has or would have a Material
Adverse Effect.

        SECTION 4.10 Title to Properties;  Encumbrances. The Company and each of
its subsidiaries  has good title to all properties,  interests in properties and
assets (real and personal)  reflected in the  consolidated  balance sheet of the
Company at March 31, 2000 (except properties, interests in properties and assets
sold or otherwise disposed of in the ordinary course of business since March 31,
2000) free and clear of all mortgages,  liens, pledges,  charges or encumbrances
of any kind or character, except liens for current taxes not yet due and payable
and except for such mortgages,  liens,  pledges,  charges or encumbrances  which
would not in the aggregate have a Material  Adverse  Effect.  All leases of real
property leased for the use or benefit of the Company or any of its subsidiaries
to which the Company or any of its  subsidiaries is a party,  and all amendments
and  modifications  thereto,  are in full force and effect,  and there exists no
default under any such lease by the Company or any of its subsidiaries,  nor any
event which,  with notice or lapse of time or both,  would  constitute a default
thereunder by the Company or any subsidiary  except as would not have a Material
Adverse   Effect.   The  execution  and  delivery  of  this  Agreement  and  the
consummation of the transactions contemplated by this Agreement will not cause a
default  under any such  leases,  except for the need for those  consents as set
forth in Section 4.10 of the Disclosure Schedule or as would not have a Material
Adverse Effect.

<PAGE>

SECTION 4.11 Benefit Plans; Labor Relations. The Company has provided in Section
4.11 of the  Disclosure  Schedule a complete and accurate list as of the date of
this Agreement of all Company Benefit Plans (as defined herein).

             (a) With  respect  to each  employee  benefit  plan (as  defined in
Section 3(3) of the Employee  Retirement Income Security Act of 1974, as amended
("ERISA")),  and any material  bonus,  pension,  profit  sharing,  compensation,
deferred compensation,  incentive compensation, stock ownership, stock purchase,
stock option, restricted stock, phantom stock, retirement, vacation, employment,
severance, termination, disability, death benefit, hospitalization or insurance,
plan, agreement,  trust, fund, policy or arrangement (all of the foregoing being
herein called the "Company Benefit Plans"),  maintained or contributed to by the
Company or any of its  subsidiaries,  the  Company  has made  available,  to the
extent  applicable,  to Parent a true and  correct  copy of (i) the most  recent
annual report (Form 5500) filed with the Internal Revenue Service, including all
schedules  and  attachments,  (ii) such  Company  Benefit  Plan,  including  all
amendments,  (iii) each trust  agreement  and group  annuity  contract,  if any,
relating to such Company  Benefit Plan,  (iv) all service  provider  agreements,
insurance  contracts or agreements with investment managers in so far as each of
the foregoing  relates to Company  Benefit Plans,  (v) the current  summary plan
description  of each  Company  Benefit  Plan  subject to ERISA,  and any similar
descriptions of any other Company Benefit Plan, and (vi) if applicable, the most
recent  favorable  determination  letter from the Internal  Revenue Service with
respect to such Company Benefit Plan.

             (b) With respect to the Company Benefit Plans,  individually and in
the aggregate, no event has occurred, and to the knowledge of the Company, there
exists no condition or set of circumstances in connection with which the Company
or any of its subsidiaries  would be subject to any liability that is reasonably
likely to have a Material  Adverse Effect  (except  liability for benefit claims
and funding obligations  payable in the ordinary course),  under ERISA, the Code
(as defined in Section 4.14(e)) or any other applicable law.

             (c)  Each of the  Company  Benefit  Plans  has  been  operated  and
 administered in accordance with its terms and all applicable  federal and state
 laws and regulations, including, but not limited to, ERISA and the Code, except
 for such failures to so operate and administer  which,  individually  or in the
 aggregate, would not be likely to have a Material Adverse Effect.

             (d) Each Company Benefit Plan intended to satisfy the  requirements
of  a  "qualified   plan"  under  Code  ss.  401(a)  has  received  a  favorable
determination  letter from the Internal  Revenue Service and the Company and its
subsidiaries  are not aware of any facts or  circumstances  that could adversely
affect the qualified status of such Company Benefit Plan.

             (e) With respect to each Company  Benefit Plan,  all  contributions
(including   all   employer   contributions   and  employee   salary   reduction
contributions) which are due have been made within the time period prescribed by
ERISA and all  contributions  for any period  prior to the  earlier of the Board
Transition  Date or the  Effective  Time which are not yet due have been paid or
accrued in accordance  with the past custom and practices of the Company and its
subsidiaries. All premiums or other payments for all

<PAGE>

             periods ending prior to the earlier of the Board Transition Date or
the  Effective  Time have been made with  respect to each  Company  Benefit Plan
which is an "employee welfare plan" as defined in ERISA.

             (f) The  requirements  of Part 6 of  Subtitle B of Title I of ERISA
and Code ss. 4980B  ("COBRA")  have been  satisfied with respect to each Company
Benefit Plan subject to COBRA.  Neither the Company nor any of its  subsidiaries
maintains,  nor is any of them obligated to provide  benefits  under,  any life,
medical or health plan which  provides  benefits to retired or other  terminated
employees other than in accordance with COBRA.

             (g) Neither the Company nor any of its subsidiaries has at any time
contributed  or had an obligation to contribute to any "multiple  employer plan"
or  "multiemployer  plan" as defined in ERISA and the Code.  No Company  Benefit
Plan is subject to Title IV of ERISA.

             (h)  No  employer  securities,  employer  real  property  or  other
employer property is included in the assets of any Company Benefit Plan.

             (i)  Section  4.11(i)  of the  Disclosure  Schedule  sets forth all
 agreements  of the  Company  and its  subsidiaries  that would be affected by a
 change of control of the Company or any of its subsidiaries, including, without
 limitation,  any agreement with any Executive  Officer or other key employee of
 the Company or any of its subsidiaries the benefits of which are contingent, or
 the terms of which are materially altered, upon the occurrence of a transaction
 involving the Company or any of its subsidiaries of the nature  contemplated by
 this Agreement,  or any Company Benefit Plan, any of the benefits of which will
 be increased, or the vesting of benefits will be accelerated, by the occurrence
 of a transaction involving the Company or any of its subsidiaries of the nature
 contemplated  by this  Agreement  or the value of any benefits of which will be
 calculated  on  the  basis  of any of the  transactions  contemplated  by  this
 Agreement.

(j) Except as  disclosed  in Section  4.11(j) of the  Disclosure  Schedule or as
provided for in this  Agreement,  since March 31, 2000,  neither the Company nor
any of its subsidiaries has become a party to any oral or written (i) consulting
agreement,  (ii) union or collective  bargaining  agreement,  or (iii) agreement
with respect to any employee of the Company  providing any term of employment or
compensation  guarantee,  or (iv) has  approved or adopted  any Company  Benefit
Plan.

             (k) There is no (i) unfair labor  practice,  labor  dispute  (other
than routine individual  grievances) or labor arbitration proceeding pending or,
to the  knowledge of the Company,  threatened  against the Company or any of its
subsidiaries relating to their businesses, (ii) to the knowledge of the Company,
activity or  proceeding by a labor union or  representative  thereof to organize
any  employees  of the Company or any of its  subsidiaries,  or (iii)  lockouts,
strikes,  slowdowns, work stoppages or, to the knowledge of the Company, threats
thereof by or with respect to such  employees,  except for such  matters  which,
individually or in the aggregate, would not have or be likely to have a Material
Adverse  Effect.  The  Company is in  compliance  with all  applicable  laws and
regulations regarding employment, employment practices, terms and conditions of

<PAGE>

employment and wages,  except for such noncompliance  which,  individually or in
the  aggregate,  would not  reasonably  be expected  to have a Material  Adverse
Effect.

        SECTION 4.12 Compliance With  Agreements;  Law.  Neither the Company nor
any of its subsidiaries is in conflict with, or in default,  breach or violation
of (i) any term,  provision  or condition  of (A) its  Restated  Certificate  of
Incorporation  or  By-Laws  (or  similar  charter  documents)  or (B) any  note,
license, agreement or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company,  any of its subsidiaries
or any of  their  respective  assets  may be  bound  ("agreement"),  or (ii) any
judgment, order, writ, injunction,  decree, stipulation,  award, law, ordinance,
rule or regulation of any Governmental Authority (including, but not limited to,
any  law,  ordinance,  rule or  regulation  relating  to the  protection  of the
environment),  except for such conflicts, defaults violations or breaches in the
case of  clauses  (i)(B) and (ii)  which in the  aggregate  do not and would not
reasonably be expected to have a Material  Adverse  Effect.  To the knowledge of
the  Company,  no other party to any such  agreement  is, or,  based on existing
facts  and  circumstances,  with the  passage  of time will be,  in  default  or
violation  of  any  such  agreement  except  for  possible  violations  of  such
agreements which will not have a Material Adverse Effect. The Company and all of
its  subsidiaries  are  in  possession  of  all  licenses,   permits  and  other
governmental authorizations necessary to conduct all businesses conducted by the
Company and its  subsidiaries  except  where the failure to hold such  licenses,
permits and other governmental  authorizations would not in the aggregate have a
Material Adverse Effect. As of the date hereof, no suspension or cancellation of
any of such licenses,  permits, or governmental authorizations is pending or, to
the  knowledge  of the  Company,  threatened,  except  where the  suspension  or
cancellation of, would not, individually or in the aggregate,  be likely to have
a Material Adverse Effect.

        SECTION 4.13 Patents,  Trademarks,  Trade Names, etc. The Company or one
of its  subsidiaries  owns,  or is licensed or  otherwise  entitled to use,  all
patents,  trademarks,  trade names, service marks, copyrights,  applications for
any of the foregoing, together with all other technology,  know-how, tangible or
intangible proprietary  information or material and formulae in the countries to
which  such  apply,  that  are  used  in the  business  of the  Company  and its
subsidiaries as currently conducted (the "Company  Intellectual  Property").  No
claims with respect to the Company Intellectual  Property have been asserted or,
to the knowledge of the Company,  threatened by any person, nor does the Company
or any of its  subsidiaries  know of any valid grounds for any bona fide claims,
(i) to the effect  that the sale or use of any product or process as now used or
offered by the  Company or any  subsidiary  infringes  on any  copyright,  trade
secret,  patent or other intellectual property right of any person, (ii) against
the use by the Company or any of its  subsidiaries  of any Company  Intellectual
Property for the  operation of the business of the Company and its  subsidiaries
as  currently  conducted  or  presently  contemplated  or (iii)  challenging  or
questioning  the validity or  effectiveness  of any of the Company  Intellectual
Property.  Neither the Company nor any of its subsidiaries is, or as a result of
the execution,  delivery or performance of the Company's  obligations  hereunder
will be, in  violation  of, or lose any  rights  pursuant  to,  any  license  or
agreement in connection with Company Intellectual Property.  Except as set forth
in  Section  4.13 of the  Disclosure  Schedule,  no owned  Company  Intellectual
Property is subject to any outstanding order, judgment,  decree,  stipulation or
agreement  restricting  in any  material  manner  the  licensing  thereof by the
Company or any of its subsidiaries. Except as set forth in

<PAGE>

Section  4.13 of the  Disclosure  Schedule,  neither  the Company nor any of its
subsidiaries  has entered  into any  agreement  to  indemnify  any other  person
against any charge of infringement based upon such person's manufacture, sale or
use of any product,  service or process  incorporating any Company  Intellectual
Property.

        SECTION 4.14  Taxes.

(a)   Each of the Company and its subsidiaries has filed all Tax Returns that
        it was required to file.  All such Tax Returns were correct and
        complete in all material respects.  All material Taxes owed by any of
        the Company and its subsidiaries (whether or not shown on any Tax
        Return) have been paid.  None of the Company and its subsidiaries
        currently is the beneficiary of any extension of time within which to
        file any Tax Return.  No claim has ever been made by an authority in a
        jurisdiction where any of the Company and its subsidiaries does not
        file Tax Returns that it is or may be subject to taxation by that
        jurisdiction.  There are no security interests on any of the assets of
        any of the Company and its subsidiaries that arose in connection with
        any failure (or alleged failure) to pay any Tax.

(b)     Each of the Company and its  subsidiaries  has withheld and paid, in all
        material respects,  all Taxes required to have been withheld and paid in
        connection  with  amounts  paid or  owing to any  employee,  independent
        contractor, creditor, stockholder, or other third party.

(c)   No director or officer (or employee responsible for Tax matters) of any
        of the Company and its subsidiaries expects any authority to assess
        any additional Taxes for any period for which Tax Returns have been
        filed.  There is no dispute or claim concerning any Tax Liability of
        any of the Company and its subsidiaries either (A) claimed or raised
        by any authority in writing or (B) as to which any of the directors
        and officers (and employees responsible for Tax matters) of the
        Company and its subsidiaries has knowledge based upon personal contact
        with any agent of such authority.  Section 4.14(c) of the Disclosure
        Schedule lists all jurisdictions in which the Company and its
        subsidiaries filed Tax Returns relating to federal, state, local, and
        foreign income tax for taxable periods ended on or after March 31,
        1998, and indicates those Tax Returns that have been audited, and
        indicates those Tax Returns that currently are the subject of audit.
        The Company has made available to the Purchaser correct and complete
        copies of all federal, state, local and foreign income Tax Returns,
        examination reports, and statements of deficiencies assessed against
        or agreed to by any of the Company and its subsidiaries since December
        31, 1997.

(d)     None of the  Company  and 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,  which waiver or agreement is
        currently in effect.

(e)   None of the Company and its subsidiaries has filed a consent under
        Section 341(f) of the Internal Revenue Code of 1986 (the "Code")
        concerning collapsible corporations.  None of the Company and its
        subsidiaries has made

<PAGE>

             any payments,  is obligated to make any payments,  or is a party to
        any agreement that under certain circumstances could obligate it to make
        any payments that will not be deductible under Section 280G of the Code.
        None of the Company and its  subsidiaries has been a "United States real
        property holding  corporation"  (as defined in Section  897(c)(2) of the
        Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
        of the Code. Each of the Company and its  subsidiaries  has disclosed on
        its federal  income Tax Returns all  positions  taken therein that could
        give rise to a substantial  understatement  of federal income Tax within
        the meaning of Section 6662 of the Code  including  disclosure of listed
        transactions  under  Temporary  Regulation  ss.  1.6601-4T.  None of the
        Company and its subsidiaries is a party to any Tax allocation or sharing
        agreement.  None of the  Company  and its  subsidiaries  (A) has  been a
        member of an  "affiliated  group" (as defined in Section  1504(a) of the
        Code, or any similar  group defined under a similar  provision of state,
        local or foreign law) filing a  consolidated  federal  income Tax Return
        (other than a group the common  parent of which was the  Company) or (B)
        has any  liability  for the Taxes of any person  (other  than any of the
        Company and its subsidiaries) under Treasury Regulation  ss.1.1502-6 (or
        any similar provision of state,  local, or foreign law), as a transferee
        or successor, by contract, or otherwise.

             (f)  Section  4.14(f)  of the  Disclosure  Schedule  sets forth the
        following  information  with  respect  to  each of the  Company  and its
        subsidiaries  (or, in the case of clause (B) below, with respect to each
        of the subsidiaries) as of the most recent practicable date: (A) summary
        deferred tax analysis for the year ended March 31, 2000; (B) the amount,
        for federal income tax purposes,  of any net operating loss, net capital
        loss, unused  investment or other credit,  unused foreign tax, or excess
        charitable contribution allocable to the Company or subsidiary;  and (C)
        the amount of any  deferred  gain or loss  allocable  to the  Company or
        subsidiary  arising out of any "deferred  intercompany  transaction" (as
        defined in Treasury Regulation ss.1.1502-13).

             (g) The unpaid  Taxes of the Company and its  subsidiaries  (A) did
         not, as of the most recent  fiscal  month end,  exceed in any  material
         respect  the  reserve for Tax  liability  (rather  than any reserve for
         deferred Taxes established to reflect timing  differences  between book
         and Tax income) set forth on the face of the most recent  balance sheet
         (rather  than  in any  notes  thereto)  and  (B) do not  exceed  in any
         material  respect  that  reserve as  adjusted  for the  passage of time
         through the earlier of the Board  Transition Date or the Effective Time
         in accordance  with the past custom and practice of the Company and its
         subsidiaries in filing their Tax Returns.

             (h) For  purposes of this  Agreement,  (i) "Tax" means any federal,
        state,  local, or foreign  income,  gross  receipts,  license,  payroll,
        employment,  excise,  severance,  stamp, occupation,  premium,  windfall
        profits,  environmental (including taxes under Section 59A of the Code),
        customs duties, capital stock, franchise, profits,  withholding,  social
        security (or similar), unemployment, disability, real property, personal
        property, sales, use, transfer,  registration,  value added, alternative
        or add-on minimum,

<PAGE>

        estimated, or other tax of any kind whatsoever,  including any interest,
        penalty,  or addition  thereto,  whether  disputed or not, and (ii) "Tax
        Return" shall mean any report, return, document,  declaration, claim for
        refund,  information  return, or other information or filing relating to
        Taxes,  including any schedule or attachment thereto,  and including any
        amendment thereof.

      SECTION 4.15 Insurance  Policies.  The Company and all of its subsidiaries
have obtained and maintained in full force and effect the insurance policies set
forth and summarized on Section 4.15 of the Disclosure Schedule.

      SECTION 4.16 Required Vote of Company Stockholders.  Unless the Merger may
be consummated in accordance  with Section 253 of the DGCL, the only vote of the
stockholders  of the Company  required  for adoption of this  Agreement  and the
transactions  contemplated  hereby,  is the affirmative vote of the holders of a
majority of the outstanding Shares.

      SECTION 4.17 Material  Contracts.  (a) The Disclosure  Schedule contains a
list of the following  types of contracts and agreements to which the Company or
any of its subsidiaries is a party (such contracts,  agreements and arrangements
as are required to be set forth in the  Disclosure  Schedule being the "Material
Contracts"):

           (i) each  contract  and  agreement  which (A) is  likely  to  involve
      consideration of more than $25,000, in the aggregate,  during the calendar
      year ending December 31, 2000, (B) is likely to involve  consideration  of
      more than  $50,000,  in the  aggregate,  over the  remaining  term of such
      contract,  and which, in either case, cannot be canceled by the Company or
      any of its  subsidiaries  without  penalty or further  payment and without
      more than 90 days' notice;

           (ii)  all  material  broker,  distributor,   dealer,   manufacturer's
      representative,  franchise,  agency,  sales  promotion,  market  research,
      marketing,  consulting and  advertising  contracts and agreements to which
      the Company or, to the knowledge of the Company,  any of its  subsidiaries
      is a party;

           (iii)all management  contracts  (excluding  contracts for employment)
      and contracts with other  consultants,  including any contracts  involving
      the  payment  of  royalties  or other  amounts  calculated  based upon the
      revenues or income of the Company or any of its  subsidiaries or income or
      revenues  related to any product of the Company or any of its subsidiaries
      to which the Company or any of its subsidiaries is a party;

           (iv) all contracts and agreements evidencing indebtedness for
      borrowed money;

           (v)  all material contracts and agreements with any Governmental
      Authority to which the Company or to the knowledge of the Company, any
      of its subsidiaries is a party;

<PAGE>

           (vi) all contracts and  agreements  that limit,  or purport to limit,
      the  ability of the Company or any of its  subsidiaries  to compete in any
      line of business or with any person or entity or in any geographic area or
      during any period of time;

           (vii)all material contracts or arrangements that result in any person
      or  entity  holding  a power of  attorney  from  the  Company  or,  to the
      knowledge  of the  Company,  any of its  subsidiaries  that relates to the
      Company, any of its subsidiaries or their respective businesses; and

           (viii) all other contracts and agreements, whether or not made in the
      ordinary  course of  business,  the absence of which would have a Material
      Adverse Effect.

      (b) Except as would not be  reasonably  likely to have a Material  Adverse
Effect, (i) each Material Contract is a legal, valid and binding agreement,  and
the Company is not in default of any of the Material Contracts;  and none of the
Material  Contracts has been canceled by the other party;  (ii) to the Company's
knowledge,  no other party is in breach or violation of, or default  under,  any
Material Contract;  (iii) the Company and its subsidiaries are not in receipt of
any claim of default under any such agreement; and (iv) neither the execution of
this Agreement nor the  consummation  of any  transactions  contemplated  hereby
shall  constitute  default,  give  rise to  cancellation  rights,  or  otherwise
adversely  affect any of the Company's rights under any Material  Contract.  The
Company has  furnished or made  available to Parent true and complete  copies of
all Material Contracts, including any amendments thereto.

      SECTION 4.18 No  Interference.  Since March 31, 2000, none of the officers
or directors of the Company or any of its  subsidiaries  have  contacted (i) any
vendor or supplier of the Company or its subsidiaries,  or any other entity with
whom  the  Company  or  any  of  its  subsidiaries  has  a  material  commercial
relationship concerning the transfer of such person's existing relationship with
the Company to another  business  entity which would compete with the Company or
the  Surviving   Corporation  or  (ii)  any  employee  of  the  Company  or  its
subsidiaries  concerning the termination of such employee's  employment with the
Company and their  employment  with another  business entity which would compete
with the Company or the Surviving Corporation.

      SECTION 4.19 Opinion of Financial  Adviser.  The Board of Directors of the
Company has received a written  opinion of ING Barings to the effect that, as of
the date of this Agreement,  the proposed  consideration to be received,  in the
Offer and the Merger, taken together,  by the holders of Shares in the Offer and
the Merger is fair to such holders of Shares from a financial point of view (the
"Opinion").  The Company hereby  represents  that it has been  authorized by ING
Barings to permit the inclusion of the Opinion and references  thereto,  subject
to customary prior review and consent by ING Barings, in the Offering Documents.

      SECTION  4.20  State  Takeover  Statutes.  The Board of  Directors  of the
Company has taken all  necessary  action so that the  restrictions  contained in
Section 203 of the DGCL  applicable to a "business  combination"  (as defined in
Section 203) will not apply to the  execution,  delivery or  performance of this
Agreement, the Tender and Voting

<PAGE>

      Agreement,  or to the Offer, the Merger or the  transactions  contemplated
hereby and thereby.

      SECTION  4.21  Environmental.  Except as  described in Section 4.21 of the
Disclosure  Schedule,  (a) the  Company  is in  compliance  with all  applicable
Environmental  Laws (as defined in Section  9.11) except where the failure to be
in  compliance  would not be  reasonably  expected  to have a  Material  Adverse
Effect,  (b) to the knowledge of the Company,  none of the properties  currently
owned,  leased or operated by the Company are  contaminated  with any  Hazardous
Substance  (as defined in Section 9.11 hereof)  that require  remediation  under
applicable  Environmental  Laws,  (c) the Company has not  received  any written
notice that it is liable for any  contamination  by Hazardous  Substances at any
site containing Hazardous Substances generated,  transported, stored, treated or
disposed of by the Company, (d) there is not pending or, to the knowledge of the
Company, threatened any investigation, claim or lien with respect to the Company
or any of its subsidiaries  under any  Environmental  Law, (e) the Company is in
compliance with all permits,  licenses and other  authorizations  required under
any  Environmental  Law  ("Environmental  Permits") and, to the knowledge of the
Company,  all  past  non-compliance  with  Environmental  Laws or  Environmental
Permits has been  resolved  without any pending,  ongoing or future  obligation,
costs or liability, except in the case of any of the above, where the failure to
be in compliance  would not  reasonably  be expected to have a Material  Adverse
Effect;  and (f) neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will require any investigation, remediation
or other action with respect to Hazardous Substances,  or any prior notice to or
prior  consent  of  any  Governmental  Authority,  pursuant  to  any  applicable
Environmental Law or Environmental  Permit where the failure to give such notice
or obtain such consent  would  reasonably  be likely to have a Material  Adverse
Effect.

        ARTICLE VREPRESENTATIONS AND WARRANTIESOF PARENT AND PURCHASER

        Parent and Purchaser represent and warrant to the Company as follows:

        SECTION  5.01  Organization  and  Good  Standing.  Each  of  Parent  and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation.

        SECTION 5.02 Authority  Relative to this  Agreement.  Each of Parent and
Purchaser  has full  corporate  power and  authority to execute and deliver this
Agreement,   to  perform  its  obligations   hereunder  and  to  consummate  the
transactions  contemplated  hereby. The execution and delivery of this Agreement
and the consummation of the transactions  contemplated hereby have been duly and
validly  authorized by Parent and Purchaser,  and Parent as the sole stockholder
of  Purchaser,  and no other  corporate  proceedings  on the part of  Parent  or
Purchaser are necessary to authorize this Agreement, or commence the Offer or to
consummate  the  transactions  contemplated  by this  Agreement  (including  the
Offer).  This Agreement has been duly and validly executed and delivered by each
of Parent and Purchaser and,  assuming this Agreement has been duly  authorized,
executed and delivered by the Company, this Agreement constitutes a

<PAGE>

valid and binding agreement of each of Parent and Purchaser, enforceable against
each of Parent and  Purchaser  in  accordance  with its terms,  except  that (i)
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium  or  other  similar  laws,  now or  hereafter  in  effect,  affecting
creditors'  rights  generally  and (ii) the remedy of specific  performance  and
injunctive  and other  forms of  equitable  relief may be  subject to  equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

        SECTION 5.03 Consents and Approvals; No Violation. Neither the execution
and delivery of this Agreement by Parent and Purchaser nor the  consummation  of
the  transactions  contemplated  hereby will (i) conflict  with or result in any
breach of any  provision  or the  respective  Certificate  of  Incorporation  or
By-Laws  (or  other  similar  governing  documents)  of  Parent  or  any  of its
subsidiaries, (ii) require any consent, approval, authorization or permit of, or
filing with or  notification  to, any  governmental  or regulatory  authority or
body,  except (x) those set forth in clauses  (A)  through  (E) of Section  4.08
hereof or (y) where failure to obtain such consent,  approval,  authorization or
permit, or to make such filing or notification,  would not in the aggregate when
taken  together with all such other  failures have a material  adverse effect on
the financial condition, assets, liabilities,  business or results of operations
of Parent and its  subsidiaries  taken as a whole or adversely  affect or impair
the  ability of Parent or  Purchaser  to perform  their  respective  obligations
hereunder;  (iii) result in a default (or give rise to any right of termination,
unilateral modification or amendment, cancellation or acceleration) under any of
the terms,  conditions or provisions  of any note,  license,  agreement or other
instrument  or obligation  to which the Parent or any of its  subsidiaries  is a
party,   except  for  such  defaults  (or  rights  of  termination,   unilateral
modification or amendment,  cancellation or acceleration) which in the aggregate
would not have a material  adverse  effect on the financial  condition,  assets,
liabilities,  business or results of operations  of Parent and its  subsidiaries
taken as a whole or  adversely  affect  or  impair  the  ability  of  Parent  or
Purchaser to perform their respective obligations hereunder; or (iv) violate any
order,  writ,  injunction,   decree,  judgment,   ordinance,  statute,  rule  or
regulation  applicable  to  Parent,  any of  its  subsidiaries  or any of  their
respective  properties  or  businesses,  except for  violations  (other  than of
orders,  writs,  injunctions or decrees) which would not have a material adverse
effect on the financial condition,  assets, liabilities,  business or results of
operations of Parent and its  subsidiaries  taken as a whole or adversely affect
or impair  the  ability  of Parent or  Purchaser  to  perform  their  respective
obligations hereunder.

        SECTION 5.04 Offer Documents;  Proxy Statement.  The Offer Documents and
any amendments or supplements thereto, and the Offer will comply in all material
respects with the Exchange Act. None of the  information  contained in the Offer
Documents,  including  any  amendments  or  supplements  thereto,  will  at  the
respective  times the Offer Documents or any amendments or supplements  thereto,
are filed with the SEC 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  therein,  in light of the circumstances under which they
were made, not misleading,  except that no representation is made by Parent with
respect to information supplied by the Company specifically for inclusion in the
Offer Documents.  None of the information  supplied by Parent and its affiliates
specifically  for inclusion in the Proxy  Statement  will, at the time the Proxy
Statement is mailed,  or, at the time of the Special Meeting or at the Effective
Time,  contain  any untrue  statement  of a  material  fact or omit to state any
material fact

<PAGE>

required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.

        SECTION 5.05 Financing.  Parent has the funds, either from its available
cash  and  cash  equivalents  or  from  borrowings  under  its  existing  credit
facilities,   necessary  to  consummate   the  Offer  and  the  Merger  and  the
transactions contemplated thereby.

                               ARTICLE VICOVENANTS

           SECTION  6.01   Conduct  of  Business  of  the  Company.   Except  as
contemplated  by  this  Agreement,  during  the  period  from  the  date of this
Agreement  to such time at which  directors  of the Company  affiliated  with or
designated by Parent or Purchaser shall constitute a majority of the Board (such
time, the "Board Transition  Date"),  the Company and its subsidiaries will each
conduct its operations according to its ordinary course of business, in a manner
consistent with past practice. Without limiting the generality of the foregoing,
and except as otherwise contemplated by this Agreement,  neither the Company nor
any of its subsidiaries  will,  prior to the Board Transition Date,  without the
prior  written  consent of Parent (i) issue,  sell or pledge,  or  authorize  or
propose the issuance,  sale or pledge of (A) additional  shares of capital stock
of any class of the  Company  (other  than  shares of Common  Stock  that may be
issued pursuant to the Company's Employee Stock Purchase Plan in connection with
amounts withheld on or before August 4, 2000) or its subsidiaries, or securities
convertible into or exchangeable for any such shares, or any options,  warrants,
calls,  subscriptions  or other  rights  to  acquire  any such  shares  or other
convertible  or  exchangeable  securities,  other than such  issuance  of Shares
pursuant to the exercise of Options  outstanding on the date hereof,  or (B) any
other  securities  in  respect  of, in lieu of or in  substitution  for,  Shares
outstanding on the date hereof, (ii) purchase,  repurchase,  redeem or otherwise
acquire, or propose to purchase,  repurchase,  redeem or otherwise acquire,  any
outstanding shares of capital stock of the Company,  (iii) declare, set aside or
pay any dividend or distribution on any Shares,  or redeem or otherwise  acquire
any shares of capital stock of the Company, (iv) propose or adopt any amendments
to its Restated Certificate of Incorporation or By-Laws (v) issue, sell, pledge,
dispose  of,  grant,   encumber,  or  authorize  the  issuance,   sale,  pledge,
disposition,  grant or encumbrance of any material  assets of the Company or any
subsidiary, except in the ordinary course of business and in a manner consistent
with past  practice;  (vi)  reclassify,  combine,  split,  subdivide  any of its
capital  stock;  (vii)  acquire  (including,   without  limitation,  by  merger,
consolidation,  or  acquisition  of  stock  or  assets  or  any  other  business
combination) any corporation,  partnership,  other business  organization or any
division  thereof  or  any  material  amount  of  assets,   other  than  pending
acquisitions or minority  investments,  in each case publicly announced prior to
the date hereof,  or, with respect to the acquisition of assets, in the ordinary
course of business consistent with past practice,  (viii) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse,
or otherwise become  responsible for, the obligations of any person, or make any
loans or  advances,  except in the  ordinary  course of business and in a manner
consistent  with past practice;  (ix)  authorize,  or make any  commitment  with
respect to (A) any capital  expenditures  in excess of $250,000 in the aggregate
per month, (B) any single capital expenditure which is in excess of $50,000 or

<PAGE>

      (C) any single capital  project that is reasonably  likely to cost $75,000
or more in the aggregate for the Company and the subsidiaries  taken as a whole,
(D) make or direct to be made any capital  investments or equity  investments in
any entity, other than investments in any wholly owned subsidiary,  or (E) enter
into or amend any contract, agreement, commitment or arrangement with respect to
any matter set forth in this Section  6.01(ix);  (x)  increase the  compensation
payable or to become payable or the benefits provided to its directors, officers
or  employees,  except for  increases  in the  ordinary  course of business  and
consistent  with past  practice in salaries or wages of employees of the Company
or any subsidiary who are not directors or Executive Officers of the Company, or
grant any  severance  or  termination  pay to, or enter into any  employment  or
severance agreement with, any director, officer or other employee of the Company
or of any subsidiary,  or establish,  adopt,  enter into or amend any collective
bargaining,  plan or  agreement  or Company  Benefit Plan for the benefit of any
director,  officer or employee;  (xi) take any action, other than actions in the
ordinary  course of business and consistent with past practice or as required by
law,  with  respect to  accounting  policies or  procedures;  (xii) make any tax
election or settle or compromise  any United  States  federal,  state,  local or
other non-United  States income tax liability,  except in the ordinary course of
business and in a manner consistent with past practice; (xiii) pay, discharge or
satisfy any claim,  liability  or  obligation  (absolute,  accrued,  asserted or
unasserted,  contingent  or  otherwise),  other than the  payment,  discharge or
satisfaction, in the ordinary course of business and in a manner consistent with
past  practice,  of liabilities  reflected or reserved  against in the Company's
balance sheet for the year ended March 31, 2000 or subsequently  incurred in the
ordinary  course of business and  consistent  with past  practice;  (xiv) amend,
modify or consent to the termination of any Material Contract of the Company, or
amend,  waive,  modify or consent to the  termination  of the  Company's  or any
subsidiary's  rights  thereunder,  other than in the ordinary course of business
and  consistent  with  past  practice;  (xv)  commence  or settle  any  material
litigation,  suit, claim, action, proceeding or investigation;  (xvi) (A) grant,
confer or award any option, warrant,  securities convertible into or exercisable
for securities having the right to vote or any call, subscription or other right
or  agreement  to acquire any shares of its capital  stock or take any action to
cause to be  exercisable  any otherwise  unexercisable  option under any Company
Benefit  Plan (except as  otherwise  specifically  required by the terms of such
unexercisable  options  or as  otherwise  set  forth  in  this  Agreement),  (B)
accelerate or waive any or all of the goals,  restrictions or conditions imposed
under,  or (C) issue,  sell,  grant or award any shares of capital  stock or any
right to acquire  shares of capital  stock under any Company  Benefit Plan other
than pursuant to the exercise of outstanding options; or (xvii) agree in writing
or otherwise to take any of the foregoing actions.

        SECTION 6.02 No Solicitation, etc.

             (a)  From the  date of this  Agreement  until  the  earlier  of the
        Effective Time or the  termination of this Agreement (and payment by the
        Company of amounts,  if any, due and payable prior to the termination of
        this Agreement in connection with such  termination  pursuant to Section
        8.01(e)(iii)),  the  Company and its  subsidiaries  shall not (and shall
        direct  all  of  their  respective   officers,   directors,   agents  or
        affiliates,   including  without   limitation  any  investment   banker,
        attorney,  or accountant retained by the Company or its subsidiaries not
        to) directly or indirectly (i) solicit, engage in

<PAGE>

discussions  or  negotiate  with  any  person   (whether  such   discussions  or
        negotiations  are  initiated  by the Company or  otherwise)  or take any
        other  action  intended  or designed  to  facilitate  the efforts of any
        person  (other  than  Parent)   including   initiating,   soliciting  or
        encouraging  any  inquiries  or  the  making  or  implementation  of any
        proposal or offer  relating to the possible  acquisition  of the Company
        (including,   without   limitation,   any   proposal  or  offer  to  the
        stockholders  of the Company  and whether by way of merger,  purchase of
        capital stock,  purchase of assets or otherwise) or any material portion
        of its  capital  stock or  assets  (with  any such  efforts  by any such
        person,  including a firm  proposal to make such an  acquisition,  to be
        referred  to  as  an  "Alternative   Acquisition"),   (ii)  provide  any
        information  with  respect  to  the  Company  or  afford  access  to the
        properties,  books or records of the Company to any  person,  other than
        Parent,  relating to a possible  Alternative  Acquisition by any person,
        other than Parent,  or otherwise  facilitate or assist the making of any
        proposal or offer relating to an Alternate Acquisition, (iii) enter into
        an  agreement  with any  person,  other than  Parent,  contemplating  or
        providing  for a  possible  Alternative  Acquisition,  or  (iv)  make or
        authorize any statement,  recommendation  or  solicitation in support of
        any  possible  Alternative  Acquisition  by any  person,  other  than by
        Parent.  Notwithstanding  the  foregoing,  prior to the  acceptance  for
        payment of Shares  pursuant to the Offer the Company  may, to the extent
        required by the  fiduciary  obligations  of the Board,  as determined in
        good faith by a majority  of the  disinterested  members  thereof  after
        consultation  with outside  counsel,  in response to an unsolicited bona
        fide  written  proposal  for an  Alternative  Acquisition  ("Alternative
        Acquisition  Proposal")  that  was  made  by a  person  whom  the  Board
        determines, in good faith after consultation with outside counsel and an
        independent  financial advisor, to be reasonably capable of consummating
        a Superior  Company Proposal (as defined in Section  6.02(e)),  that did
        not  result  from  a  breach  of  this  Section  6.02(a),   (x)  furnish
        information  with  respect to the Company to the person or group  making
        such Alternative  Acquisition Proposal and its representatives  pursuant
        to a confidentiality agreement no less restrictive than the terms of the
        Mutual  Nondisclosure  Agreement and (y)  participate in discussions and
        negotiations with such person or group and its representatives regarding
        such Alternative Acquisition Proposal;  provided, that, at least one (1)
        business  day prior to taking the  actions  contemplated  in (x) and (y)
        above  (except that the Company  shall have the right during such period
        to negotiate a confidentiality agreement with the person or group making
        such Alternative Acquisition Proposal and its representatives that is no
        less favorable to the Company than the Mutual Nondisclosure  Agreement),
        the Company  shall  provide  Parent with written  notice of its right to
        take such action and the identity of the person making such  Alternative
        Acquisition  Proposal.  Subject  to the  foregoing  provisions  of  this
        Section  6.02,  the  Company  shall,  and  shall  cause  its  directors,
        officers,  employees,  agents and  representatives to, cease immediately
        and cause to be terminated all  discussions and  negotiations  regarding
        any proposal that constitutes, or may reasonably be expected to lead to,
        an Alternative Acquisition Proposal.

             (b)  Neither the Board nor any committee thereof shall (i)
        withdraw or modify, or propose to withdraw or modify, in a manner
        adverse to Parent or

<PAGE>

        Purchaser,  the  approval  or  recommendation  by the  Board or any such
        committee of this Agreement,  the Offer or the Merger,  (ii) approve any
        letter of intent,  agreement  in  principle,  acquisition  agreement  or
        similar agreement  relating to any Alternative  Acquisition  Proposal or
        (iii)  approve or  recommend,  or propose to approve or  recommend,  any
        Alternative  Acquisition  Proposal.  Notwithstanding the foregoing,  if,
        prior to the acceptance for payment of Shares pursuant to the Offer, the
        Board  receives  a  Superior  Company  Proposal  and a  majority  of the
        disinterested  directors of the Company  determine in good faith,  after
        consultation with outside counsel, that it is required to do so in order
        to comply with their fiduciary  obligations,  the Board may withdraw its
        approval or  recommendation  of the Offer, the Merger and this Agreement
        and, in connection therewith, approve or recommend such Superior Company
        Proposal.

             (c) The Company shall advise Parent orally and in writing  promptly
        (in no event  more  than 24 hours  after  the  receipt  thereof)  of any
        Alternative  Acquisition Proposal or any inquiry with respect to or that
        would  be  reasonably  likely  to  lead to any  Alternative  Acquisition
        Proposal,   the  identity  of  the  person  or  group  making  any  such
        Alternative  Acquisition  Proposal or inquiry and the material  terms of
        any such Alternative  Acquisition Proposal or inquiry. The Company shall
        (i) keep Parent fully  informed of the status,  including  any change to
        the details, of any such Alternative Acquisition Proposal or inquiry and
        (ii) provide to Parent  promptly after receipt or delivery  thereof with
        copies of all material correspondence and other written material sent or
        provided to the  Company  from any third  party in  connection  with any
        Alternative  Acquisition  Proposal or sent or provided by the Company to
        any third party in connection with any Alternative Acquisition Proposal.

             (d) Nothing  contained  in this  Section  6.02 shall  prohibit  the
        Company  from  taking  and  disclosing  to its  stockholders  a position
        contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
        making any required disclosure to the Company's  stockholders if, in the
        good  faith  judgment  of the Board,  after  consultation  with  outside
        counsel,   failure  so  to  disclose  could  be  inconsistent  with  its
        obligations under applicable Law.

             (e) For purposes of this  Agreement,  "Superior  Company  Proposal"
        means any bona  fide,  written  proposal  not  solicited,  initiated  or
        encouraged  in  violation  of this Section 6.02 made by a third party to
        acquire all or substantially  all the equity securities or assets of the
        Company,   pursuant  to  a  tender  or  exchange  offer,  a  merger,   a
        consolidation,  a liquidation or dissolution,  a  recapitalization  or a
        sale  of all or  substantially  all its  assets,  (i) on  terms  which a
        majority of the disinterested directors of the Company determines, after
        consultation  with its  outside  counsel  and an  independent  financial
        advisor,  in its good faith judgment to represent superior value, from a
        financial point of view for the holders of Shares than the Offer and the
        Merger,  taking into account at the time of such  determination  all the
        terms and conditions of such proposal and this Agreement  (including any
        proposal by Parent to amend the terms of this  Agreement,  the Offer and
        the Merger) and

<PAGE>

        (ii) that is reasonably  likely to be  consummated  without undue delay,
        taking into account all financial,  regulatory,  legal and other aspects
        of such proposal.

        SECTION 6.03 Access to Information.

             (a) Upon reasonable  prior notice to the Company,  the Company will
        give Parent and its authorized  representatives reasonable access during
        normal  business  hours to the  plants,  offices,  warehouses  and other
        facilities and to the books and records of it and its subsidiaries, will
        permit Parent to make such reasonable inspections during normal business
        hours as it may reasonably request and will cause its officers and those
        of its  subsidiaries to furnish Parent with such financial and operating
        data and other  information  with respect to the business and properties
        of the  Company  and its  subsidiaries  as Parent  may from time to time
        reasonably  request;  provided,   however,  that  all  such  access  and
        inspections  shall be  coordinated  by  Parent  with a  designee  of the
        Company  and  shall be  conducted  in such  manner  so as not to  unduly
        interfere with the normal  business  operations of the Company or any of
        its   subsidiaries.   The  Company   shall  use  best  efforts  to  make
        representatives of its independent accountants available for discussions
        with Parent's  authorized  representatives as they may from time to time
        reasonably request.

             (b) All  information  received  by Parent  and its  representatives
        pursuant   to  this   Section   6.03  will  be  subject  to  the  Mutual
        Non-Disclosure  Agreement  dated as of March 28, 2000 between Parent and
        the Company.

             (c) No investigation pursuant to this Section 6.03 (c) shall affect
        any  representation or warranty in this Agreement of any party hereto or
        any condition to the  obligations of the parties hereto or any condition
        to the Offer.

        SECTION  6.04  Reasonable  Best  Efforts.   Subject  to  the  terms  and
conditions herein provided, each of the parties hereto agrees to promptly effect
all necessary  filings under the HSR Act and use its reasonable  best efforts to
secure all government  clearances  (including by taking all reasonable  steps to
avoid or set aside any preliminary or permanent injunction or other order of any
federal  or  state  court  of  competent   jurisdiction  or  other  governmental
authority).  Each of the parties  hereto  further  agrees to use its  reasonable
efforts to take,  or cause to be taken,  all  action,  and to do, or cause to be
done, all other things necessary,  proper or advisable under applicable laws and
regulations to consummate and make effective the  transactions  contemplated  by
this Agreement. In particular,  Parent and the Company will use their respective
reasonable  efforts to obtain  all other  consents,  authorizations,  orders and
approvals  required in connection with, and waivers of any violations,  breaches
and defaults that may be caused by, the  consummation of the Merger or the other
transactions   contemplated   by   this   Agreement,    other   than   consents,
authorizations,  orders, approvals and waivers the failure to obtain which would
not (A) be material to the consummation of the Merger or the other  transactions
contemplated by this Agreement or (B) have a Material Adverse Effect. In case at
any time after the Effective  Time any further  action is necessary or desirable
to carry out the purposes of this  Agreement,  the proper officers and directors
of each party to this Agreement shall take all such necessary action, including,
without  limitation,  providing for the sale or other disposition or the holding
separate (through the

<PAGE>

establishment  of a trust or otherwise)  of  particular  assets or categories of
assets, or businesses, of the Company or any of its subsidiaries.

        SECTION 6.05 Public  Announcements.  Parent and the Company will consult
with each other before issuing any press release or otherwise  making any public
statements  with respect to the Offer or the Merger and shall not issue any such
press release or make any such public statement without the prior consent of the
other party, except as may be required by law or by obligations  pursuant to any
listing  agreement  with  any  national  securities  exchanges  or the  National
Association of Securities Dealers, Inc., in which case Parent or Company, as the
case may be, will use its  reasonable  efforts to provide the other party with a
reasonable  time to  comment  on such  release  or  statement  in advance of its
issuance.

        SECTION 6.06 Indemnification; Insurance.

             (a)  Notwithstanding  anything  to the  contrary  in Section  2.04,
        Parent and Purchaser agree that all rights to  indemnification  existing
        in favor, and all limitations on the personal liability of, each present
        and former director, officer, employee or agent of the Company or any of
        its subsidiaries or a director,  officer,  employee, agent or trustee of
        any  employee  benefit  plan for  employees of the Company or any of its
        subsidiaries,  and each  person  who is or was then  serving in any such
        capacity (or any person who is or was then serving any other corporation
        or  entity  in  any  such  capacity  at  the  request  of  the  Company)
        (individually, an "Indemnified Party" and collectively, the "Indemnified
        Parties")  provided  for  in  the  Company's  Restated   Certificate  of
        Incorporation  or  By-Laws or similar  organizational  documents  of any
        Company  subsidiary  as in  effect  on the date of this  Agreement  with
        respect to matters  occurring  prior to the Effective Time shall survive
        the Merger and shall  continue  in full force and effect for a period of
        not less than six (6) years from the Effective Time; provided,  however,
        that  all  rights  to  indemnification  in  respect  of  any  claim  for
        indemnification for losses, damages or liabilities of any kind or nature
        incurred  which is asserted or made  within such period  shall  continue
        until the final disposition of such claim; provided,  further,  however,
        that the Surviving  Corporation  shall not be liable for any  settlement
        effected pursuant to such indemnification provisions without its written
        consent (which consent shall not be  unreasonably  withheld or delayed);
        and provided  further,  that,  in the event that any claim or claims for
        indemnification  are asserted or made within such six-year  period,  all
        rights to  indemnification  in respect of any such claim or claims shall
        continue  until  the  disposition  of  any  and  all  such  claims.  The
        Indemnified  Parties as a group may retain only one law firm (plus local
        counsel,  if  applicable)  to represent  them with respect to any single
        action at the expense of the indemnifying  person unless there is, under
        applicable standards of professional conduct, a material conflict on any
        significant  issue between the positions of any two or more  Indemnified
        Parties,  in which case each Indemnified Party with respect to whom such
        a conflict exists (or group of such  Indemnified  Parties who among them
        have no such  conflict)  may  retain one  separate  law firm . Any legal
        counsel  referred  to in the  preceding  sentence  shall  be  reasonably
        satisfactory to the indemnifying  person,  and the  indemnifying  person
        shall pay the reasonable

<PAGE>

        fees and  expenses  of such  legal  counsel  promptly  after  statements
        therefor are received.

             (b) For a period of six (6) years after the Effective Time,  Parent
        and the  Surviving  Corporation  shall cause to be maintained in effect,
        the current directors' and officers'  liability  insurance covering each
        Indemnified Party who is currently  covered by the Company's  directors'
        and officers'  liability  insurance  with respect to claims arising from
        facts or events which occurred at or prior to the Effective Time, or may
        substitute such other  insurance as the Surviving  Corporation or Parent
        may substitute  therefor which  insurance  shall not be materially  less
        favorable than such insurance maintained in effect by the Company on the
        date hereof in terms of coverage and amounts;  provided however, that in
        no event shall the Surviving  Corporation be required to expend pursuant
        to this  Section  6.06(b)  more than an amount per year equal to 150% of
        current annual  premiums paid by the Company for such  insurance  (which
        premiums the Company represents and warrants to be $103,000 per annum in
        the aggregate).

             (c) This Section 6.06 shall survive the closing of the transactions
        contemplated  hereby, is intended to benefit the Company,  the Surviving
        Corporation and each of the  Indemnified  Parties (each of whom shall be
        entitled to enforce this Section  6.06 against  Parent or the  Surviving
        Corporation,  as the case may be) and shall be binding on all successors
        and assigns of Parent and the Surviving Corporation.

             (d) In the  event  the  Surviving  Corporation  or Parent or any of
        their respective  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
        all or  substantially  all of its  properties  and assets to any person,
        then, and in each such case,  proper provision shall be made so that the
        successors  and assigns of Parent or the Surviving  Corporation,  as the
        case may be, assume the obligations set forth in this Section 6.06.

        SECTION 6.07 Employment Contracts, Benefits, etc.

             (a) Parent agrees that following the Board  Transition Date it will
        cause the Company or the Surviving  Corporation,  as the case may be, to
        comply  with the  applicable  terms and  provisions  of the  employment,
        retirement,   termination,   severance   and  similar   agreements   and
        arrangements  with  officers or other  employees  of the Company and its
        subsidiaries  which are in effect on the Board  Transition Date, if any.
        The Company will not enter into any such agreement after the date hereof
        without Parent's prior written consent.

             (b) Parent agrees that  following  the  Effective  Time it will, or
        will cause the Surviving  Corporation and its  subsidiaries to, continue
        to maintain  the  employee  benefit  plans  (including  bonus plans) for
        employees and former employees of the Company and its subsidiaries which
        are in effect on the

<PAGE>

        Board  Transition  Date, or other plans that, in the aggregate,  provide
        benefits that are substantially the same as or no less favorable to such
        employees  than the  benefits  currently  in effect with respect to such
        employees,  or,  in the  alternative,  the  benefit  plans in place  for
        similarly  situated  employees  of  Parent;  provided  that,  subject to
        applicable law the Company's  employees  shall receive full credit under
        such plans for years of service to the  Company and shall not be subject
        to any  waiting  periods  under  such  plans.  Parent  agrees  that  the
        Company's   employees   may  be  fully   vested   under  the   Company's
        401(k)/Profit  Sharing  Plan by the  Effective  Time.  Parent  agrees to
        provide retention and severance  consistent with Parent's severance plan
        and  retention  policies  and  additional  benefits in  accordance  with
        Schedule 6.07.

        SECTION 6.08 Purchase of Shares.  Except pursuant to the Offer,  neither
Parent nor  Purchaser  nor any  subsidiary  or affiliate of Parent shall acquire
beneficial  ownership  (within the meaning of Rule 13d-3 under the Exchange Act)
of any Shares without the prior written consent of the Company.

        SECTION 6.09 Notification of Certain Matters.

             (a) The Company shall give prompt notice to Parent,  and Parent and
        Purchaser shall give prompt notice to the Company, of (i) the occurrence
        or  nonoccurrence  of any event the occurrence or nonoccurrence of which
        would be likely to cause any  representation  or warranty  contained  in
        this Agreement to be untrue or inaccurate in any material  respect at or
        prior to the Effective Time, (ii) any failure of the Company,  Parent or
        Purchaser, as the case may be, to comply with or satisfy in all material
        respects any  covenant,  condition  or agreement to be complied  with or
        satisfied by it hereunder,  (iii) any notice or other communication from
        any  third  party  alleging  that the  consent  of such  third  party is
        required  in  connection  with  the  transactions  contemplated  by this
        Agreement,  or (iv) any  Material  Adverse  Effect or  material  adverse
        effect on the  financial  condition,  assets,  liabilities,  business or
        results of operations of Parent and its subsidiaries taken as a whole.

             (b) The Company  shall confer on a regular and frequent  basis with
        Parent with respect to the Company's and its subsidiaries'  business and
        operations and other matters relevant to the Merger,  and Parent and the
        Company shall promptly advise the other,  orally and in writing,  of any
        change  or  event,   including,   without  limitation,   any  complaint,
        investigation or hearing by any Governmental Authority (or communication
        indicating the same may be contemplated) or the institution or threat of
        litigation,  having,  or which  would  reasonably  be expected to have a
        Material  Adverse  Effect or a material  adverse effect on the financial
        condition,  assets,  liabilities,  business or results of  operations of
        Parent and its subsidiaries taken as a whole.

<PAGE>

              ARTICLE VIICONDITIONS TO CONSUMMATION OF THE MERGER

        SECTION 7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver,  where  permissible,  prior to the Effective Time of the
following conditions:

             (a) This Agreement shall have been adopted by the affirmative  vote
        of  the  stockholders  of the  Company  at the  Special  Meeting  by the
        requisite  vote in  accordance  with  applicable  law,  if such  vote is
        required by applicable law;

             (b)  All   regulatory   approvals   required  to   consummate   the
        transactions  contemplated  hereby  shall have been  obtained  and shall
        remain in full  force and effect and all  statutory  waiting  periods in
        respect thereof shall have expired;

             (c) No  statute,  rule or  regulation  shall  have been  enacted or
        promulgated  by  any   governmental   authority   which   prohibits  the
        consummation of the Merger; and

             (d)  There  shall  be no  order or  injunction  of a United  States
        Federal or state court of competent  jurisdiction  in effect  precluding
        consummation of the Merger.

             (e) Purchaser shall have purchased  Shares validly tendered and not
        withdrawn pursuant to the Offer.

                  ARTICLE VIIITERMINATION; AMENDMENTS; WAIVER

        SECTION 8.01  Termination.  This  Agreement  may be  terminated  and the
Merger contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:

             (a)  by mutual written consent of Parent and the Company;

             (b) by  Parent  if an  occurrence  or  circumstance  (except  where
        Parent's  or  Purchaser's  failure  to fulfill  any of their  respective
        obligations  under this  Agreement  is the cause of or  resulted in such
        occurrence  or  circumstance  or except  where there has been a material
        breach of any material  representation or warranty on the part of Parent
        or Purchaser  which has not been cured) has rendered the  conditions set
        forth in Annex A hereto incapable of being satisfied,  and (i) Purchaser
        shall have failed to commence the Offer after the date of this Agreement
        or (ii) the Offer  shall  have been  terminated  or shall  have  expired
        without Purchaser having purchased any Shares pursuant to the Offer;

<PAGE>

        (c)  by  either  Parent  or  the  Company  if  any  court  of  competent
        jurisdiction or other  Governmental  Authority  within the United States
        shall have issued an order,  decree or ruling or taken any other  action
        permanently  restraining,  enjoining or otherwise prohibiting the Merger
        and such order,  decree,  ruling or other action shall have become final
        and nonappealable;

             (d) by  Parent  prior to the  purchase  of Shares  pursuant  to the
        Offer,  if (i)  Purchaser  shall  discover  that any  representation  or
        warranty  made by the  Company in this  Agreement  is untrue at the time
        such   representation   or  warranty  was  made  or  (except  for  those
        representations  and warranties  made as of a particular date which need
        only be true and  correct as of such date) shall not be true and correct
        as of the date of consummation of the Offer, except where the failure to
        be so true  and  correct  would  not  have a  Material  Adverse  Effect,
        provided  that if any such  failure to be so true and correct is capable
        of being cured prior to the Final Date as defined in Section 9.11,  then
        Parent  and  Purchaser  may not  terminate  this  Agreement  under  this
        paragraph (d) until the Final Date,  (ii) there shall have been a breach
        of any  covenant  or  agreement  on the part of the  Company  under this
        Agreement  resulting  in a Material  Adverse  Effect  which shall not be
        capable  of being  cured  prior to the  Final  Date,  (iii) the Board of
        Directors or any committee  thereof (x) fails to recommend  approval and
        adoption of this  Agreement  and the Merger by the  stockholders  of the
        Company or withdraws or amends or modifies in a manner adverse to Parent
        and  Purchaser  its  recommendation  or  approval  in  respect  of  this
        Agreement,  the Offer or the Merger or (y) makes any recommendation with
        respect to an Alternative  Acquisition  other than a  recommendation  to
        reject such Alternative  Acquisition or shall have resolved to do any of
        the foregoing or (iv) there shall not have been validly tendered and not
        withdrawn  prior to the  expiration  of the Offer at least a majority of
        the Shares,  on a fully  diluted  basis,  and on or prior to such date a
        person shall have made a written Alternative Acquisition Proposal to the
        Company and not withdrawn such proposal;

<PAGE>

        (e)  by  the  Company,  if (i)  the  Company  shall  discover  that  any
        representation or warranty made by Parent or Purchaser in this Agreement
        is  untrue  at the time  such  representation  or  warranty  was made or
        (except for those representations and warranties made as of a particular
        date which need only be true and  correct as of such date)  shall not be
        true and  correct as of the date of  consummation  of the Offer,  except
        where  the  failure  to be so true  and  correct  would  not  materially
        adversely affect (or materially  delay) the consummation of the Offer or
        the Merger,  provided that if any such failure to be so true and correct
        is capable of being cured prior to the Final Date,  then the Company may
        not terminate  this  Agreement  under this paragraph (e) until the Final
        Date and unless at such time the matter has not been cured or (ii) there
        shall have been a material  breach of any  covenant or agreement in this
        Agreement on the part of Parent or Purchaser which materially  adversely
        affects  (or  materially  delays) the  consummation  of the Offer or the
        Merger  which  shall not be  capable of being  cured  prior to the Final
        Date,  or (iii) such  termination  is  necessary to allow the Company to
        enter  into an  agreement  with  respect to an  Alternative  Acquisition
        Proposal  in  compliance  with  Section   6.02(b)   (provided  that  the
        termination described in this clause (iii) shall not be effective unless
        and  until  the  Company  shall  have paid to Parent in full the fee and
        expense reimbursement described in Section 8.02(b)); or

             (f) by the Company if there  shall not have been a material  breach
        of any  representation,  warranty,  covenant or agreement on the part of
        the Company which has not been cured and (i) Purchaser shall have failed
        to  commence  the Offer  within the time  required  by  Section  1.01(a)
        hereof,  (ii) the Offer shall have been terminated or shall have expired
        without the Purchaser  having purchased any Shares pursuant to the Offer
        or (iii)  Purchaser  shall have failed to pay for Shares pursuant to the
        Offer prior to the Final Date.

      SECTION 8.02 Effect of Termination.

           (a) In the event of the termination and abandonment of this Agreement
      pursuant to Section 8.01 hereof,  this Agreement  shall  forthwith  become
      void, without liability on the part of any party hereto except as provided
      in this Section 8.02 and Sections  6.03(b) and 9.09 and the last  sentence
      of Section  1.02,  and except that nothing  herein shall relieve any party
      from  liability  for any  breach of this  Agreement.  Notwithstanding  the
      foregoing,  neither Parent or Purchaser, on the one hand, nor the Company,
      on the other hand,  shall have any rights with  respect to the recovery of
      expenses,  except as provided for in Sections  8.02(b)(i) and 8.02(b)(ii),
      respectively.

           (b)(i) If Parent or Purchaser  shall have  terminated  this Agreement
      pursuant  to  Section  8.01(d)(i)  or  8.01(d)(ii),  8.01(d)(iii),  or the
      Company  shall  have  terminated   this  Agreement   pursuant  to  Section
      8.01(e)(iii),  then the Company shall  promptly  reimburse  Parent for all
      documented out-of-pocket expenses of Parent and its subsidiaries, up to an
      amount  of  $1,000,000,  incurred  in  connection  with  the  transactions
      contemplated hereby.

<PAGE>

      (ii) If the  Company  shall have  terminated  this  Agreement  pursuant to
      Section 8.01(e)(i),  8.01(e)(ii) or 8.01(f)(i), then Parent shall promptly
      reimburse the Company for all documented out-of-pocket expenses of Company
      and  its  subsidiaries,  up  to  an  amount  of  $1,000,000,  incurred  in
      connection with the transactions contemplated hereby.

           (iii)If  Parent or Purchaser  shall have  terminated  this  Agreement
      pursuant to Section 8.01(d)(iii) or the Company shall have terminated this
      Agreement  pursuant  to  Section  8.01(e)(iii),  then in any such case the
      Company  shall,  (i) in the  event of any such  termination  by  Parent or
      Purchaser within one business day after the date of such  termination,  or
      (ii) in the event of any such  termination  by the Company,  prior to such
      termination and as a condition to the  effectiveness of such  termination,
      pay Parent a termination  fee of $5,000,000.  In no event will the amounts
      received  by Parent  pursuant  to this  Section  8.02(b)(iii)  and Section
      8.02(b)(i) exceed, in the aggregate, $6,000,000.

           (iv)  Notwithstanding  any other provision  hereof, no fee or expense
      reimbursement  shall be paid pursuant to this Section 8.02(b) to any party
      who shall be in material breach of its obligations hereunder. For purposes
      of this clause (iv), Parent and Purchaser shall be deemed a single party.

      SECTION 8.03  Amendment.  This Agreement may be amended by action taken by
or on  behalf  of  the  Boards  of  Directors  of  the  Company  (excluding  any
representative  of Parent or any subsidiary of Parent),  Parent and Purchaser at
any time before or after adoption of this Agreement by the  stockholders  of the
Company but, after any such approval, no amendment shall be made which decreases
the Transaction  Consideration or otherwise adversely affects such stockholders.
This  Agreement may not be amended  except by an instrument in writing signed on
behalf of all the parties.

      SECTION 8.04  Extension;  Waiver.  Subject to Section 1.01 hereof,  at any
time prior to the Effective Time, the parties  hereto,  by action taken by or on
behalf of the  respective  Boards of  Directors  of the Company  (excluding  any
representative of Parent or any subsidiary of Parent), Parent and Purchaser, may
(i) extend the time for the  performance of any of the obligations or other acts
of any  other  applicable  party  hereto,  (ii)  waive any  inaccuracies  in the
representations and warranties contained herein by any other applicable party or
in any document,  certificate or writing delivered  pursuant hereto by any other
applicable  party or (iii) waive  compliance  with any of the  agreements of any
other  applicable  party  or with any  conditions  to its own  obligations.  Any
agreement  on the part of any other  applicable  party to any such  extension or
waiver shall be valid only if set forth in an  instrument  in writing  signed on
behalf of such party.

                             ARTICLE IXMISCELLANEOUS

      SECTION   9.01   Survival   of   Representations   and   Warranties.   The
representations  and warranties  made in this Agreement shall not survive beyond
the Effective  Time. This Section 9.01 shall not limit any covenant or agreement
of the parties hereto,  which by its terms  contemplates  performance  after the
Effective Time.

<PAGE>

SECTION 9.02 Brokerage Fees and Commissions. Except for ING Barings, the Company
hereby  represents  and warrants to Parent with  respect to the Company,  Parent
hereby  represents  and  warrants  to the  Company  with  respect  to Parent and
Purchaser,  that no person is  entitled  to receive  from the Company or Parent,
respectively,  or  any of  their  respective  subsidiaries  or  affiliates,  any
investment banking,  brokerage or finder's fee or fees for financial  consulting
or advisory  services in  connection  with this  Agreement  or the  transactions
contemplated hereby.

      SECTION 9.03 Entire Agreement;  Assignment. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and  understandings,  both written and
oral (other than the agreement referred to in Section 6.03(b) hereof), among the
parties or any of them with respect to the subject matter  hereof,  (b) shall be
binding upon the parties hereto and their  successors and permitted  assigns and
(c) shall not be assigned by operation of law or otherwise, provided that Parent
or Purchaser  may assign its  respective  rights and  obligations  to any wholly
owned,  direct or indirect,  subsidiary of Parent,  but no such assignment shall
relieve Parent of its  obligations  hereunder.  It is understood and agreed that
either Parent,  Purchaser or any other direct wholly owned  subsidiary of Parent
may commence the Offer or purchase Shares thereunder (in which event, references
herein  to  (and  similar  to)  Purchaser  purchasing  Shares  shall  be  deemed
appropriately modified).

      SECTION 9.04 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or  enforceability  of any other
provisions  of this  Agreement,  each of which  shall  remain in full  force and
effect.

      SECTION 9.05 Notices.  All notices,  requests,  claims,  demands and other
communications  hereunder  shall be in writing  and shall be deemed to have been
duly given when  delivered  in person or by next-day  courier,  or by  facsimile
transmission with confirmation of receipt to the respective parties as follows:

           If to Parent or Purchaser:

           Zale Corporation
           961 West Walnut Hill Lane
           Irving, TX 75038-1003
           Attention:  Alan Shor
           Facsimile No.: (972) 580-5336

<PAGE>

           with a copy to:

           Zale Corporation
           901 West Walnut Hill Lane
           Irving, TX 75038-1003
           Attention:  Susan Lanigan
           Facsimile No.:  (972) 580-5336

           and a copy to:

           Troutman Sanders LLP
           600 Peachtree Street, NE
           Suite 5200
           Atlanta, GA 30308-2216
           Attention:  W. Brinkley Dickerson, Jr.
           Facsimile No.: (404) 885-3900

           If to the Company:

           Piercing Pagoda, Inc.
           3910 Adler Place
           Lehigh Valley, PA 18002-5007
           Attention: President
           Facsimile No.: (610) 694-9077

           with a copy to:

           Wolf, Block, Schorr and Solis-Cohen LLP
           1650 Arch Street, 22nd Floor
           Philadelphia, PA 19103
           Attention:  Jason M. Shargel
           Facsimile No.:  (215) 977-2334

or to such  other  address  as the  person  to whom  notice  is  given  may have
previously  furnished  to the others in  writing  in the manner set forth  above
(provided  that  notice of any change of address  shall be  effective  only upon
receipt thereof). Any such notice shall be effective upon receipt, if personally
delivered  or sent by  facsimile  transmission,  or one day after  delivery to a
courier for next-day  delivery.  Nothing in this Section 9.05 shall be deemed to
constitute  consent  to the  manner  and  address  for  service  of  process  in
connection with any legal proceeding  (including litigation arising out of or in
connection with this Agreement),  which service shall be effected as required by
applicable law.

      SECTION  9.06  Governing  Law.  This  Agreement  shall be  governed by and
construed in  accordance  with the laws of the State of Delaware,  regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.

      SECTION 9.07  Descriptive  Headings.  The descriptive  headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning of interpretation of this Agreement.

<PAGE>

      SECTION 9.08  Counterparts.  This Agreement may be executed in two or more
counterparts,  each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

      SECTION 9.09 Expenses.  Subject to Section 8.02(b), all costs and expenses
incurred in connection  with the  transactions  contemplated  by this  Agreement
shall be paid by the party incurring such expenses.

      SECTION 9.10 Third Party Beneficiaries. Except for Sections 2.08, 6.06 and
6.07 which are intended to confer third party beneficiary  rights on the persons
referred to therein, this Agreement is not intended to, and does not, create any
rights or benefits of any person other than the parties hereto.

      SECTION 9.11 Certain Definitions.

           (a) "Governmental  Authority" means any United States federal, state,
      county  or local  or  other  governmental,  regulatory  or  administrative
      authority, agency, instrumentality or commission or any court, tribunal or
      judicial or arbitral body.

           (b)  "subsidiary"  shall mean, when used with reference to an entity,
      any  corporation  or other entity,  a majority of the  outstanding  voting
      securities of which are owned directly or indirectly by such entity.

           (c) "Material  Adverse  Effect" shall mean any adverse  change in the
      financial  condition,   assets,   liabilities,   business  or  results  of
      operations  of the Company and its  subsidiaries  which is material to the
      Company  and its  subsidiaries  taken  as a whole  or the  ability  of the
      Company to perform its  obligations  under this Agreement or to consummate
      the transactions  contemplated  hereby,  excluding any changes relating to
      general economic or conditions affecting at any time the Company or any of
      its  subsidiaries  or the  industry  or  industries  in which  any of them
      operate.  Notwithstanding  the foregoing,  the Company may, at its option,
      include in the Disclosure  Schedules items which would not have a Material
      Adverse  Effect  within the  meaning of the  previous  sentence,  and such
      inclusion shall not be deemed to be an  acknowledgment by the Company that
      such  items  would have a Material  Adverse  Effect or further  define the
      meaning of such term for purposes of this Agreement.

           (d) "person" shall include individuals,  corporations,  partnerships,
      limited liability companies, trusts, other entities and groups.

           (e)  "knowledge  of the Company"  shall be deemed to include only the
      actual knowledge after  reasonable  inquiry of the directors and Executive
      Officers of the Company.

           (f) "Executive  Officer" shall mean these individuals listed in Annex
      B to this Agreement.

<PAGE>

           (g)  "Final Date" shall mean December 31, 2000.

           (h) "Environmental Law" shall mean any United States federal,  state,
      local or  non-United  States laws  relating to (i) releases or  threatened
      releases  of  Hazardous   Substances  or  material  containing   Hazardous
      Substances,  (ii) the manufacture,  handling,  transport,  use, treatment,
      storage or  disposal  of  Hazardous  Substances  or  materials  containing
      Hazardous Substances, or (iii) pollution or protection of the environment,
      health or natural resources.

           (i) "Hazardous Substances" shall mean (i) those substances defined in
      or regulated as  hazardous or toxic  substances,  material or wastes under
      the following United States federal statutes and their state counterparts,
      as each may be amended from time to time, and all regulations  thereunder:
      the Hazardous Materials  Transportation Act, the Resource Conservation and
      Recovery Act, the Comprehensive  Environmental Response,  Compensation and
      Liability  Act,  the Clean Water Act,  the Safe  Drinking  Water Act,  the
      Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act
      and the Clean Air Act, (ii)  petroleum and petroleum  products,  including
      crude oil and any fractions thereof, (iii) natural gas, synthetic gas, and
      any mixtures thereof, (iv) polychlorinated biphenyls,  asbestos and radon,
      (v) any  other  contaminant,  and (vi) any  substance,  material  or waste
      regulated  as a  hazardous  or toxic  substance,  material or waste by any
      Governmental Authority pursuant to any Environmental Law.

      SECTION 9.12 Consent to  Jurisdiction.  Each of Parent,  Purchaser and the
Company irrevocably  submits to the exclusive  jurisdiction of (a) the courts of
the State of Delaware, and (b) the United States District Court for the District
of Delaware for the purposes of any suit, action or other proceeding arising out
of this Agreement or any transaction  contemplated hereby.  Parent and Purchaser
irrevocably designate,  appoint and empower Troutman Sanders LLP (Attention:  W.
Brinkley  Dickerson,  Jr., Esquire) Bank of America Plaza, 600 Peachtree Street,
N.E. - Suite 5200,  Atlanta,  Georgia 30308, and the Company hereby  irrevocably
designates,  appoints and  empowers  Wolf,  Block,  Schorr and  Solis-Cohen  LLP
(Attention:   Jason  M.  Shargel,   Esquire)  1650  Arch  Street,   22nd  Floor,
Philadelphia,  PA  19103,  in  each  case  as its  true  and  lawful  agent  and
attorney-in-fact  in its  name,  place and stead to  receive  and  accept on its
behalf service of process in any action, suit or proceeding in Pennsylvania with
respect to any matters as to which it has submitted to jurisdiction as set forth
in the immediately preceding sentence.

      SECTION 9.13 Construction;  Interpretation.  The parties hereby agree that
any rule of law or any legal decision that would require  interpretation  of any
claimed  ambiguities in this Agreement  against the party that drafted it has no
application and is expressly waived.

<PAGE>

      IN WITNESS  WHEREOF,  each of the parties has caused this  Agreement to be
executed under seal on its behalf by its officers thereunto duly authorized, all
as of the day and year first above written.

                          ZALE CORPORATION

                          By:  /s/ Beryl Raff
                                Name: Beryl Raff
                              Title: President/CEO

                          JEWELRY EXPANSION CORP.

                              By: /s/ Alan P. Shor
                               Name: Alan P. Shor
                                Title: President

                          PIERCING PAGODA, INC.

                            By: /s/ John F. Eureyecko
                              Name:   John F. Eureyecko
                                Title: President

<PAGE>

                                     ANNEX A

                                       to

Agreement and Plan of Merger1

      Conditions of the Offer. Notwithstanding any other provisions of the Offer
or the Merger  Agreement,  Purchaser shall not be required to accept for payment
or, subject to any applicable  rules and regulations of the SEC,  including Rule
14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or
return tendered  securities promptly after the termination or withdrawal of such
bidder's  offer) to pay for any Shares tendered  pursuant to the Offer,  and may
extend,  terminate or amend the Offer, unless (i) there are validly tendered and
not withdrawn  immediately prior to the expiration date of the Offer a number of
Shares,  which  when  added to the  Shares  then  beneficially  owned by  Parent
represent  at least a majority of the total  number of Shares  outstanding  on a
fully diluted basis (the "Minimum Condition"),  (ii) the waiting period (and any
extension  thereof)  under  the HSR Act  applicable  to the  purchase  of Shares
pursuant to the Offer shall have expired or been  terminated  and all regulatory
approvals  required  to  consummate  the Offer and the  Merger  shall  have been
obtained  and shall  remain in full  force and effect or (iii) at any time on or
after the date of the Agreement and prior to the  expiration of the Offer any of
the following conditions exists:

           (a)  there  shall be  instituted  or  pending  any  suit,  action  or
        proceeding by any Governmental  Authority which seeks to (i) restrain or
        prohibit the making or  consummation  of the Offer or the Merger or (ii)
        restrain or prohibit  the  performance  of the Merger  Agreement;  (iii)
        restrain or  prohibit  Parent's  ownership  of all or any portion of the
        business  and assets of the Company and its  subsidiaries,  or to compel
        Parent or its  affiliates  to  dispose  of or hold  separate  all or any
        portion of the  business  or assets of the  Company;  or (iv)  impose or
        confirm  any  limitation  on the ability of Parent or  Purchaser  or any
        affiliate of Parent or Purchaser to exercise  effectively full rights of
        ownership of any Shares,  including,  without  limitation,  the right to
        vote any Shares acquired by Purchaser pursuant to the Offer or otherwise
        on all matters properly presented to the Company's shareholders; or

           (b) there shall have been any statute, rule, regulation,  legislation
      or  interpretation  enacted,   promulgated,   amended,  issued  or  deemed
      applicable  to (i) Parent,  the Company or any  subsidiary or affiliate of
      Parent or the Company or (ii) any of the transactions  contemplated by the
      Agreement,  by any United States or non United States  legislative body or
      Governmental  Authority  with  appropriate  jurisdiction,  other  than the
      routine application of the waiting period provisions of the HSR Act and in
      the other countries  where a merger filing was necessary or advisable,  to
      the Offer or the Merger, that is reasonably likely to result, directly or

<PAGE>

      indirectly in any of the consequences referred to in clauses (i) through
      (iv) of paragraph (a) above;

           (c) (i) any  representation  or  warranty  made by the Company in the
      Merger Agreement that is qualified as to Material Adverse Effect is untrue
      at the time such  representation or warranty was made or shall not be true
      and correct as of the date of  consummation of the Offer (except for those
      representations  and  warranties  made as of a particular  date which need
      only be true and correct as of such date) or (ii) any  representations  or
      warranties  made by the  Company in the Merger  Agreement  that are not so
      qualified  as to Material  Adverse  Effect shall not be true or correct in
      all respects as of the date of consummation of the Offer (except for those
      representations  and  warranties  made as of a particular  date which need
      only be true and correct as of such date),  unless the failure of all such
      representations and warranties in this clause (ii) to be true and correct,
      individually or in the aggregate,  has had or would reasonably be expected
      to have a Material Adverse Effect; or

           (d) there  shall  have been a breach in any  material  respect by the
      Company (which breach has not been cured in all material  respects) of any
      of its covenants or agreements  contained in the Merger Agreement,  except
      for any such  breaches  or  failures  to  perform  that  would  not have a
      Material Adverse Effect; or

           (e)  the Merger Agreement shall have been terminated in accordance
      with its terms; or

           (f) the Company's  Board of Directors or any  committee  thereof will
      have withdrawn or modified  (including by amendment of the Schedule 14D-9)
      in a manner adverse to Parent or Purchaser its approval or  recommendation
      of the Offer, the Merger Agreement or the Merger, or will have recommended
      to the Company's stockholders any Alternative Acquisition Proposal or will
      have adopted any resolution to effect any of the foregoing  which,  in the
      sole  judgment  of  Purchaser  in any such  case,  and  regardless  of the
      circumstances  (including any action or omission by Purchaser) giving rise
      to  any  such  condition,  makes  it  inadvisable  to  proceed  with  such
      acceptance or payment; or

           (g)  any  Person  (other  than  Parent  or any  of its  subsidiaries)
      acquires beneficial  ownership (as defined in Rule 13d-3 promulgated under
      the Securities  Exchange Act of 1934),  of at least 25% of the outstanding
      voting  securities  of the  Company or is  granted  by the  Company or any
      shareholder  of the  Company  that is a party  to the  Tender  and  Voting
      Agreement  any  option or right to  acquire  at least  15% of such  voting
      securities  (as used  herein,  "Person"  shall  include  any  corporation,
      individual, partnership, limited liability company, trust, other entity or
      group (as defined in the  Exchange  Act),  other than Parent or any of its
      affiliates (as defined in the Exchange Act)); or

           (h) Since the date of this Agreement,  any change shall have occurred
      which has, or could  reasonably  be expected to have,  a Material  Adverse
      Effect; or

<PAGE>

           (i) there shall be in effect a declaration of a banking moratorium or
      any suspension of payments in respect of banks in the United States.

which,  in the reasonable  judgment of Parent or Purchaser in any such case, and
regardless  of the  circumstances  giving rise to any such  condition,  makes it
inadvisable to proceed with such acceptance for payment or payment.

      The foregoing  conditions are for the sole benefit of Purchaser and Parent
and,  subject to Section  1.01(a) of the Merger  Agreement,  may be  asserted by
Purchaser  and  Parent  regardless  of the  circumstances  giving  rise  to such
condition  or may be  waived by  Purchaser  or Parent in whole or in part at any
time and from time to time in its sole  discretion,  subject in each case to the
terms of the Merger Agreement. The failure by Purchaser or Parent at any time to
exercise  any of the  foregoing  rights shall not be deemed a waiver of any such
right,  each such right shall be deemed an ongoing  right and may be asserted at
any time and from time to time and the waiver of any such right with  respect to
particular  facts and  circumstances  shall  not be  deemed to be a waiver  with
respect to any other facts and circumstances.

<PAGE>

                                     ANNEX B

                          Agreement and Plan of Merger

                               EXECUTIVE OFFICERS

Richard H. Penske...............Chief Executive Officer
John F. EureyeckoPresident, Chief Operating Officer and Secretary
Sharon J. ZondagSenior Vice President - Store Operations
Barry R. ClauserSenior Vice President - Merchandise Operations
Gilbert P. HollanderSenior Vice President of Merchandise Purchasing
Brandon R. Lehman.............................Treasurer
Lisa E. Sankovsky..........Vice President - Real Estate
Richard J. McKeonDirector of Management Information Systems
Christopher J. Barone..............Corporate Controller

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