Document:

Donaldson Company, Inc. Form 10-K dated July 31, 2004, Exhibit 10-R

Exhibit 10-R  

Execution Copy  

DONALDSON COMPANY, INC. 

$30,000,000

4.85% Senior Notes, Series 2004-A

Due December 17, 2011 

_________________ 

SECOND SUPPLEMENT AND

FIRST AMENDMENT TO

NOTE PURCHASE AGREEMENT 

_________________ 

Dated as of September 30, 2004 

PPN: 

SECOND SUPPLEMENT AND

FIRST AMENDMENT TO

NOTE PURCHASE AGREEMENT 

                THIS
SECOND SUPPLEMENT AND FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (this “Second Supplement”) is entered into as of
September 30, 2004 between Donaldson Company, Inc., a Delaware corporation (the “Company”), each Purchaser listed in the
attached Schedule A (individually a “Purchaser” and collectively, the “Purchasers”) and the other holders of
outstanding Notes executing the signature pages hereto for the purpose of agreeing to Section 1(c) hereof and the amendments to
the Note Purchase Agreement (the “other noteholders”) contained herein. 

R E C I T A L S 

                A.            
The Company has previously entered into a Note Purchase Agreement dated as of July 15, 1998 with the institutions listed in
Schedule A thereto and a First Supplement to Note Purchase Agreement dated as of August 1, 1998 with the institutions named in
Schedule A thereto (as so supplemented, the “Note Purchase Agreement”); 

                B.            
The Purchasers and other noteholders own all of the Notes outstanding as set forth in the attached Schedule B; 

                C.            
The Company has entered into an amended and restated credit agreement with its banks that provides, among other things, for the
obligations of the Company thereunder to be guarantied by certain Subsidiaries of the Company; and 

                D.            
The Company desires to issue and sell, and the Purchasers desire to purchase, an additional series of Notes (as defined in the
Note Purchase Agreement) pursuant to the Note Purchase Agreement and in accordance with the terms set forth below; 

                NOW,
THEREFORE, the Company, the Purchasers and the other noteholders agree as follows: 

	  	  1.  	  	     Authorization of the New Series of Notes; Subsidiary Guaranty; Release. 

	  	                     (a)        Description of Series 2004-A
Notes.   The Company has authorized the issue and sale of $30,000,000 aggregate principal amount of Notes to be
designated as its 4.85% Senior Notes, Series 2004-A, due December 17, 2011 (the “Series 2004-A Notes,” such term to
include any such Notes issued in substitution therefor pursuant to Section 13 of the Note Purchase Agreement). The Series 2004-A
Notes shall be substantially in the form set out in Exhibit 1(a), with such changes therefrom, if any, as may be approved by the
Purchasers and the Company. 

	  	                (b)        Subsidiary
Guaranties.   All of the outstanding Notes and the Series 2004-A Notes, will be guarantied by the
Subsidiary Guarantors pursuant to a guaranty substantially in the form set out in Exhibit 1(b) (the “Subsidiary
Guaranty”). 

	  	                (c)        Release
of Subsidiary Guaranty.   Each holder of a Note agrees to release and discharge a Subsidiary Guarantor from the
Subsidiary Guaranty upon written request of the Company, provided that (i) such Subsidiary has been, or concurrently with the
release by the holders of Notes, will be released and discharged as guarantor under and in respect of the Credit Agreement and any
other Indebtedness of the Company; (ii) such release and discharge is not part of a plan of financing that contemplates such
Subsidiary Guarantor guaranteeing any other Indebtedness of the Company or becoming a borrower under the Credit Agreement; (iii)
no Default or Event of Default exists or will exist immediately following such release and discharge; (iv) if any fee or other
consideration is paid or given to any holder of Indebtedness in connection with such release, other than the repayment of all or a
portion of such Indebtedness, each holder of a Note receives equivalent consideration on a pro rata basis; and (v) at the time of
such written request, the Company delivers to each holder of Notes a certificate of a Responsible Officer certifying the matters
set forth in clauses (i) through (iv). 

                2.            Sale
and Purchase of Series 2004-A Notes.   Subject to the terms and conditions of this Second Supplement and the
Note Purchase Agreement, the Company will issue and sell to the Purchasers, and the Purchasers will purchase from the Company, at
the Closing provided for in Section 3, Series 2004-A Notes in the principal amount specified opposite their names in the
attached Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of the Purchasers hereunder are
several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance
by any other Purchaser hereunder. 

                3.            Closing.   The
sale and purchase of the Series 2004-A Notes to be purchased by the Purchasers shall occur at the offices of Gardner Carton &
Douglas LLP, Suite 3700, 191 North Wacker Drive, Chicago, Illinois 60606 at 9:00 a.m., Chicago time, at a closing on December 17,
2004 (the “Closing”) or on such other Business Day thereafter, not later than December 31, 2004, as may be agreed upon
by the Company and the Purchasers. At the Closing the Company will deliver to each Purchaser the Series 2004-A Notes to be
purchased by it in the form of a single Note (or such greater number of Series 2004-A Notes in denominations of at least $500,000
as the Purchasers may request) dated the date of the Closing and registered in its name (or in the name of its nominee), against
delivery by the Purchasers to the Company or its order of immediately available funds in the amount of the purchase price therefor
by wire transfer of immediately available funds for the account of the Company to account number [redacted]. If at the Closing the
Company shall fail to tender such Series 2004 Notes to a Purchaser as provided above in this Section 3, or any of the conditions
specified in Section 4 of the Note Purchase Agreement, as modified or expanded by Section 4 hereof, shall not have been fulfilled
to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights it may have by reason of such failure or such nonfulfillment. 

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                4.            Conditions
to Closing.   Each Purchaser’s obligation to purchase and pay for the Series 2004-A Notes to be sold to it
at the Closing is subject to the fulfillment to its satisfaction, prior to or at the Closing, of the conditions set forth in
Section 4 of the Note Purchase Agreement, as hereafter modified, and to the following additional conditions: 

	  	                (a)        References
in Section 4 of the Note Purchase Agreement to “Series 1998-A Notes” shall be deemed to be references to the Series
2004-A Notes and references to the “Closing” shall be deemed to refer to the Closing as such term is defined in this
Second Supplement; 

	  	                (b)        The
legal opinions, and forms thereof, called for by Section 4.4 of the Note Purchase Agreement shall be appropriately modified to
reflect this Second Supplement and the transactions contemplated herein, including the authorization, execution and enforceability
of the Subsidiary Guaranty and other matters related thereto; 

	  	                (c)        At
least three Business Days prior to the date of the Closing, each Purchaser shall have received a copy of written instructions
signed by a Responsible Officer on letterhead of the Company confirming the information specified in Section 3 including (i) the
name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into
which the purchase price for the Notes is to be deposited; 

	  	                (d)        Each
Subsidiary Guarantor shall have executed and delivered the Subsidiary Guaranty and each Purchaser and each other holder of Notes
shall have received an executed counterpart thereof; and 

	  	                (e)        The
Purchasers and their special counsel shall have been provided with a copy of the executed Credit Agreement. 

                5.            Representations
and Warranties of the Company.   The Company represents and warrants to the Purchasers that each of the
representations and warranties contained in Section 5 of the Note Purchase Agreement is true and correct as of the date
hereof (a) except that all references to “Purchasers” and “you” therein shall be deemed to refer to the
Purchasers and each Purchaser hereunder, all references to “this Agreement” shall be deemed to refer to the Note
Purchase Agreement as supplemented and amended by this Second Supplement, all references to “Notes” therein shall be
deemed to include the Series 2004-A Notes, and (b) except for changes to such representations and warranties or the Schedules
referred to therein, which changes are set forth in the attached Schedule 5. Section 5 of the Note Purchase Agreement also is
amended to modify or add the following representations and warranties: 

	  	                (a)        Section 5.3 is amended to read in its entirety as follows:  

	  	                5.3        Disclosure. 

	  	                            Except
as disclosed in Schedule 5.3, and except for projections, as to which no representation or warranty is made other than as stated
in the next 

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	  	sentence, this Agreement, the documents, certificates or other
writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby, including the
financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they
were made. The projections included in the materials delivered to you by or on behalf of the Company are based on good faith
estimates and assumptions that the Company believes are reasonable. Except as expressly described in Schedule 5.3, or in one of
the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5,
since July 31, 2003, there has been no change in the financial condition, operations, business, properties or prospects of the
Company or any Subsidiary, except changes that individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect
that has not been set forth herein or in the other documents, certificates and other writings delivered to you by or on behalf of
the Company specifically for use in connection with the transactions contemplated hereby. 

	  	                (b)            Section 5.14
is amended to read in its entirety as follows (and all references therein to the 1998-A Notes shall be deemed to refer to the
Series 2004-A Notes): 

	  	                5.14.        Use of Proceeds; Margin Regulations. 

	  	                        The
Company will apply the proceeds of the sale of the Series 1998-A Notes to the repayment of Indebtedness to banks. No part of the
proceeds from the sale of the Series 1998-A Notes hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221),
other than repurchases of stock of the Company that are in compliance with Regulation U, or for the purpose of buying or carrying
or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12
CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 10% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have
any present intention that margin stock will constitute 25% or more of the value of such assets. As used in this Section, the
terms “margin stock” and “purpose of  buying or carrying” shall have the meanings assigned to
them in said Regulation U. 

	  	                (c)            Section 5.16 is amended to read in its entirety as follows:  

	  	                5.16.        Foreign
Assets Control Regulations, Anti-Terrorism Order, etc. 

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	  	                Neither
the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate (a) the Trading with the Enemy
Act, as amended, (b) any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating thereto, (c) the Anti-Terrorism Order or (d)
the United States Foreign Corrupt Practices Act of 1977, as amended. Without limiting the foregoing, neither the Company nor any
Subsidiary (i) is a blocked person described in the Specially Designated Nationals and Blocked Persons List of the Office of
Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (ii) to the knowledge of the Company, engages in
any dealings or transactions, or is otherwise associated, with any such person. The Company and its Subsidiaries are in
compliance, in all material respects, with all applicable provisions of the USA Patriot Act. 

	  	                    (d)        A
new Section 5.19 is added to read in its entirety as follows: 

	  	                5.19.        Solvency
of Subsidiary Guarantors. 

	  	                         After
giving effect to the transactions contemplated herein and after giving due consideration to any rights of contribution (i) the
fair value of the assets of each Subsidiary Guarantor (both at fair valuation and at present fair saleable value) exceeds its
liabilities, (ii) each Subsidiary Guarantor is able to and expects to be able to pay its debts as they mature, and (iii) each
Subsidiary Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. 

                6.            Representations
of the Purchasers.   Each Purchaser confirms to the Company that the representations set forth in
Section 6.1 of the Note Purchase Agreement are true and correct as to it, except that all references therein to
“you” therein shall be deemed to refer to each Purchaser hereunder, and all references to “Series 1998-A
Notes” therein shall be deemed to include the Series 2004-A Notes. Each Purchaser also represents to the Company that it is
an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. Section 6.2 of
the Note Purchase Agreement is amended to read in its entirety, which is confirmed by each Purchaser: 

	  	                6.2.        Source of Funds. 

	  	                                Each
Purchaser represents that that at least one of the following statements is an accurate representation as to each source of funds
(a “Source”) to be used by it to pay the purchase price of the Notes to be purchased by it hereunder: 

	  	                (a)        the
Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s
Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the reserves and liabilities (as defined by the
annual statement for life insurance companies approved by the National Association of Insurance 

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	  	Commissioners (the “NAIC Annual Statement”)) for the
general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and
liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same
employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed
10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set
forth in the NAIC Annual Statement filed with its state of domicile; or 

	  	                (b)        the
Source is a separate account that is maintained solely in connection with its fixed contractual obligations under which the
amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account
(or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment
performance of the separate account; or 

	  	                (c)        the
Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued August 12, 1991) and, except as it has disclosed
to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or
collective investment fund; or 

	  	                (d)        the
Source constitutes assets of an “investment fund” (within the meaning of Part V of PTE 84-14 (the “QPAM
Exemption”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V
of the QPAM Exemption), no employee benefit plan’s assets that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning
of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed
20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in Section
V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to
this clause (d); or 

	  	                (e)        the
Source constitutes assets of a “plan(s)” (within the meaning of Section IV of PTE 96-23 (the “INHAM
Exemption”))

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	  	managed by an “in-house asset manager” or
“INHAM” (within the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of the INHAM
Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of
“control” in Section IV(h) of the INHAM Exemption) owns a 5% or more interest in any Obligor and (i) the identity of
such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the
Company in writing pursuant to this clause (e); or 

	  	                (f)        the
Source is a governmental plan; or  

	  	                (g)        the
Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to this paragraph (g); or 

	  	                (h)        the
Source does not include assets of any employee benefit plan, individual retirement account or other arrangement subject to the
prohibited transaction rules under ERISA or the Code. 

	  	As used in this Section 6, the terms “employee benefit
plan”, “governmental plan” and “separate account” shall have the respective meanings assigned to such
terms in Section 3 of ERISA. 

                7.            Scheduled
Prepayments of the Series 2004-A Notes.   No regularly scheduled prepayments are due on the Series 2004-A Notes
prior to their stated maturity. 

                8.            Section
10 of Note Purchase Agreement.   Section 10 of the Note Purchase Agreement is amended as follows: 

	  	                (a)            Schedule
10.2.   Schedule 10.2 is replaced by Schedule 10.2 to this Second Supplement.  

	  	                (b)            New
Section 10.9.   A new Section 10.9 is added to read in its entirety as follows:  

	  	                10.9.        Additional
Subsidiary Guarantors. 

	  	                            The
Company will cause any Subsidiary that is organized under the laws of any state or other jurisdiction of the United States and
that (whether or not required by the terms of the Credit Agreement) is to guarantee, Indebtedness in respect of the Credit
Agreement, to enter into the Subsidiary Guaranty concurrently therewith and as a part thereof to deliver to each of holder of the
Notes: 

	  	        (a)        a
copy of an executed Joinder to the Subsidiary Guaranty;  

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	  	        (b)        a
certificate signed by a Responsible Officer of the Company or of such Subsidiary
confirming the accuracy of the representations and warranties in paragraphs (a) through
(g) of the Joinder to the Subsidiary Guaranty, with respect to such Subsidiary and the
Subsidiary Guaranty as it relates to such Subsidiary, as applicable; and  

	  	        (c)         an
opinion of counsel (who may be counsel for the Company) reasonably satisfactory to the
Required Holders addressed to each holder of the Notes to the effect that the Subsidiary
Guaranty of such Subsidiary has been duly authorized, executed and delivered and that the
Subsidiary Guaranty constitutes the legal, valid and binding contract and agreement of
such Subsidiary enforceable against such Subsidiary in accordance with its terms, except
as enforcement of such terms may be limited by bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting the enforcement of creditors’ rights generally
and by general equitable principles.  

                9.            Section
11 of the Note Purchase Agreement.   Section 11 of the Note Purchase Agreement is amended as follows: 

	  	                (a)        Section
11(c).   Section 11(c) is amended to read in its entirety as follows:  

	  	                (c)        the
Company defaults in the performance of or compliance with any term contained in Section
7.1(e) or Sections 10.1 through 10.9; or  

	  	                (b)        Section
11(e).   Section 11(e) is amended to read in its entirety as follows:  

	  	                (e)        any
representation or warranty made in writing by or on behalf of the Company or any Subsidiary Guarantor or by any officer of the
Company or any Subsidiary Guarantor in this Agreement or in the Subsidiary Guaranty or in any writing furnished in connection with
the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made;
or 

	  	                (c)        New
Section 11(k).   A new Section 11(k) is added to read in its entirety as follows:  

	  	                (k)        any
Subsidiary Guarantor defaults in the performance of or compliance with any term contained in the Subsidiary Guaranty or the
Subsidiary Guaranty ceases to be in full force and effect, except as provided in Section 1(c) of the Second Supplement, or is
declared to be null and void in whole or in material part by a court or other governmental or regulatory authority having
jurisdiction or the validity or enforceability thereof shall be contested by the Company or any Subsidiary Guarantor or any of
them renounces any of the same or denies that it has any or further liability thereunder. 

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                10.        Section
15.1 of the Note Purchase Agreement.   Section 15.1 of the Note Purchase Agreement is amended to read in its
entirety as follows: 

	  	                15.1.        Transaction Expenses.  

	  	                    Whether
or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable
attorneys’ fees of one special counsel for you and the Other Purchasers collectively and, if reasonably required, local or
other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection
with any amendments, waivers or consents under or in respect of this Agreement, the Notes or the Subsidiary Guaranty (whether or
not such amendment, waiver or consent becomes effective), including: (a) the costs and expenses incurred in enforcing or defending
(or determining whether or how to enforce or defend) any rights under this Agreement, the Notes or the Subsidiary Guaranty or in
responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the
Notes or the Subsidiary Guaranty, or by reason of being a holder of any Note and (b) the costs and expenses, including financial
advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection
with any work-out or restructuring of the transactions contemplated hereby and by the Notes and the Subsidiary Guaranty. The
Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or
expenses if any, of brokers and finders (other than those retained by you). 

                11.        Definitions;
Schedule B.   The following definitions in Schedule B are amended in their entirety or the following new definitions are added
to Schedule B, in the appropriate alphabetical order: 

	  	                “Anti-Terrorism
Order” means Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)). 

	  	                “Credit
Agreement” means the Amended and Restated Credit Agreement dated as of September 2, 2004 among the Company, various
subsidiaries of the Company, The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, Lloyds TSB Bank plc, and U.S. Bank National
Association, as Co-Syndication Agents, Bank of America, N.A., as Administrative Agent and L/C Issuer and the other Lenders party
thereto and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager, as such agreement may be hereafter
amended, modified, restated, supplemented, refinanced, increased or reduced from time to time, and any successor credit agreement
or similar facilities. 

	  	                “INHAM
Exemption” is defined in Section 6.2(e) of the Second Supplement.  

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	  	                “Material
Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, financial condition,
assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform
its obligations under this Agreement and the Notes, or (c) the ability of any Subsidiary Guarantor to perform its obligations
under the Subsidiary Guaranty, or (d) the validity or enforceability of this Agreement, the Notes or the Subsidiary Guaranty.

	  	                “NAIC
Annual Statement”is defined in Section 6.2(a) of the Second Supplement. 

	  	                “Priority
Debt” means, as of any date, the sum (without duplication) of (a) unsecured Indebtedness of Domestic Restricted
Subsidiaries on such date (other than (i) Indebtedness owed to the Company or another Restricted Subsidiary (ii) Indebtedness of a
Person outstanding at the time such Person is merged or consolidated with, or becomes, a Restricted Subsidiary) and
(iii) Guaranties by a Subsidiary Guarantor of the Notes and of Indebtedness in respect of the Credit Agreement and (b)
Indebtedness of the Company and its Domestic Restricted Subsidiaries secured by Liens permitted by Section 10.2(j) on such date.

	  	                “QPAM
Exemption” is defined in Section 6.2(d) of the Second Supplement. 

	  	                “Second
Supplement” means the Second Supplement and First Amendment to Note Purchase Agreement dated as of September 30, 2004
between the Company and the Purchasers and other holders of Notes named in Schedules A and B thereto. 

	  	                “Significant
Subsidiary” means, as of the date of determination, (a) any Subsidiary Guarantor and (b) any other Restricted Subsidiary
the assets or revenues of which account for more than 10% of the Consolidated Total Assets of the Company and its Restricted
Subsidiaries at the end of the most recently ended fiscal period or more than 10% of the consolidated revenues of the Company and
its Restricted Subsidiaries for the most recently completed four fiscal quarters. 

	  	                “Subsidiary
Guarantor” means Donaldson Capital, Inc., a Minnesota corporation and a Subsidiary, and any other Subsidiary that is
organized under the laws of any state or other jurisdiction of the United States and that hereafter becomes a party to the
Subsidiary Guaranty. 

	  	                “Subsidiary
Guaranty” is defined in Section 1(a) of the Second Supplement. 

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	  	                “USA
Patriot Act” means Public Law 107-56 of the United States of America, United and Strengthening America by Providing Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. 

In addition, the reference to “the date of this Agreement” in
clause (d) of the definition of “Restricted Investments” is amended to refer to “the date of the Second
Supplement” and Schedule B-1 is amended by substituting therefor Schedule B-1 to this Second Supplement. 

                12.            Applicability
of Note Purchase Agreement. Except as otherwise expressly provided herein (and expressly permitted by the Note Purchase
Agreement), all of the provisions of the Note Purchase Agreement are incorporated by reference herein and shall apply to the
Series 2004-A Notes as if expressly set forth in this Supplement and, except as so provided or where the context otherwise
requires, references in the Note Purchase Agreement to “Series 1998-A Notes” and to the “Notes” shall be
deemed to refer to the Series 2004-A Notes and to include the Series 2004-A Notes. 

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                IN
WITNESS WHEREOF, the Company, the Purchasers and the other noteholders have caused this Second Supplement to be executed and
delivered as of the date set forth above. 

	 	 	DONALDSON COMPANY, INC. 
	

   	 	

By:	  	

/s/   William M. Cook 	  
	 	

	   		Name:   	  	William M. Cook 	 
	   		Title: 	  	President & CEO  	 

	 	 	METROPOLITAN LIFE INSURANCE COMPANY 
	

   	 	

By:	  	

/s/   Timothy Powell 	  
	 	

	   		Name:   	  	Timothy Powell 	 
	   		Title: 	  	Director 	 

S-2 

	 	 	STATE FARM LIFE INSURANCE COMPANY 
	

   	 	

By:	  	

/s/   Jeff Attwood 	  
	 	

	   		Name:   	  	Jeff Attwood 	 
	   		Title: 	  	Investment Officer 	 
	

   	 	

By:	  	

/s/   Larry Rottunda 	  
	 	

	   		Name:   	  	Larry Rottunda 	 
	   		Title: 	  	Assistant Secretary 	 

S-3 

        The
undersigned holders of Series 1998-A Notes have caused this Second Supplement to be
executed solely for the purpose of agreeing to the provisions of Section 1(c) and
consenting to the amendments to the Note Purchase Agreement provided for in this Second
Supplement. 

	 	 	PRINCIPAL LIFE INSURANCE COMPANY, 
ON BEHALF OF ONE OR MORE 
SEPARATE ACCOUNTS 
	

   	  	

By:   	  	

Principal Global Investors, LLC, 
a Delaware limited liability company, 
its authorized signatory 
	

   	 	

 	  	

By: 	  	

/s/   Douglas A. Drees	  
	 	

	   		Its:   	  	Counsel	 
	

   	 	

By:   	  	

/s/   Joellen J. Watts 	  
	 	

	   		Its:   	  	Counsel	 

S-4 

	 	MIDLAND NATIONAL LIFE 
     INSURANCE COMPANY 
	

   	 	

By:	  	

Midland Advisors Company,
as agent	  
	

   	 	

By:	  	

/s/   Tyson Rehfeld 	  
	 	

	   		Name:   	  	Tyson Rehfeld 	 
	   		Title: 	  	Vice President 	 

S-5 

	 	 	AMERITAS LIFE INSURANCE CORP. 
	

   	  	

By:    	  	

Ameritas Investment Advisors, Inc.,
as agent 
	

   	 	

 	  	

By: 	  	

/s/   Andrew S. White 	  
	 	

	   		Name:   	  	Andrew S. White 	 
	   		Title:   	  	Vice President 	 
	 	 	

AMERITAS VARIABLE LIFE 
    INSURANCE COMPANY 
	

   	  	

By:    	  	

Ameritas Investment Advisors, Inc.,
as agent 
	

   	 	

 	  	

By: 	  	

/s/   Andrew S. White  	  
	 	

	   		Name:   	  	Andrew S. White 	 
	   		Title:   	  	Vice President 	 

S-6 

Schedule A to

Second Supplement  

INFORMATION RELATING TO PURCHASERS 

	Name of Purchaser 
			Principal Amount of Series
2004-A Notes to be Purchased 

	Metropolitan Life Insurance Company	 	 	$15,000,000	 	 

METROPOLITAN LIFE INSURANCE COMPANY

1 MetLife Plaza

27-01 Queens Plaza North

Long Island City, New York 11101 

(Securities to be registered in the name of Metropolitan Life Insurance Company) 

	(1) 	  	All scheduled payments of principal and interest by wire transfer
of immediately available funds to: 

	 	Bank Name:	 	[redacted]	 	 
	 	ABA Routing #:	 	[redacted]	 	 
	 	Account No.:	 	[redacted]	 	 
	 	Account Name:	 	[redacted]	 	 
	 	Ref:	 	[redacted]	 	 

	  	with sufficient information to identify the source and application
of such funds, including issuer, PPN#, interest rate, maturity and whether payment is of principal, interest, make whole amount or
otherwise. 

	  	For all payments other than scheduled payments of principal and
interest, the Company shall seek instructions from the holder, and in the absence of instructions to the contrary, will make such
payments to the account and in the manner set forth above. 

	(2) 	  	All notices and communications: 

	  	Metropolitan Life Insurance Company

Investments, Private Placements

10 Park Avenue Morristown, New Jersey 07962-1902

Attention: Director

Facsimile (973) 355-4250 

Schedule A 

	  	With a copy OTHER than with respect to deliveries of
financial statements to: 

	  	Metropolitan Life Insurance Company

10 Park Avenue

Morristown, New Jersey 07962-1902

Attention: Chief Counsel-Securities Investments (PRIV)

Facsimile (973) 355-4338 

	(3) 	  	Original notes delivered to: 

	  	
Metropolitan Life Insurance Company

Securities Investments, Law Department

10 Park AvenueMorristown, New Jersey 07962-1902

Attention: Sandip Khosla, Esq. 

	(4) 	  	Taxpayer I.D. Number: [redacted] 

-2-

Schedule A 

Schedule A to

Second Supplement  

INFORMATION RELATING TO PURCHASERS 

STATE FARM LIFE INSURANCE COMPANY

TAX ID #37-0533090 

Participation/Series:                      $15,000,000/2004-A 

Wire Transfer Instructions: 

	 	[redacted]	 	 
	 	ABA#:	 	[redacted]	 	 
	 	Attn:	 	[redacted]	 	 
	 	A/C#:	 	[redacted]	 	 
	 	For further credit to:	 	[redacted]	 	 
	 	  	 	[redacted]	 	 
	 	RE:	 	[redacted]	 	 

Send notices, financial statements, officer’s certificates and other
correspondence to: 

	  	State Farm Life Insurance Company

Investment Dept. E-8

One State Farm Plaza

Bloomington, IL 61710 

Send confirms to: 

	  	State Farm Life Insurance Company

Investment Accounting Dept. D-3

One State Farm Plaza

Bloomington, IL 61710 

Send the original security (via registered mail) to: 

	  	JPMorganChase

Attn: Barbara Walsh

(North America Insurance)

3 Chase Metrotech Center-5th Floor

Brooklyn, New York 11245 

Send an additional copy of the
original security plus an original set of closing documents and two conformed copies of
the Note Purchase Agreement to: 

	  	State Farm Insurance Companies

One State Farm Plaza

Bloomington, Illinois 61710

Attn: Investment Legal E-3

      Larry Rottunda, Investment Counsel 

-3-

Schedule A 

Schedule B to

Second Supplement  

	Holder
			Principal Amount

		6.20% Senior Notes,
Series-1998-A,
Tranche 1 
		6.31% Senior Notes,
Series-1998-A,
Tranche 2 
		6.39% Senior Notes,
Series 1998-B 

	Metropolitan Life Insurance Company	 	 	 		 	$	 22,000,000	 	$	 25,000,000	 
	Principal Life Insurance Company	 	 	$	 10,000,000	 
	Midland National Life Insurance Company*	 	 	 	5,000,000	 
	State Farm Life Insurance Company	 	 	 	5,000,000	 	 	5,000,000	 
	Ameritas Life Insurance Company	 	 	 	2,000,000	 
	Ameritas Variable Life Insurance Company	 	 	 	1,000,000	 
	 	
	 	
	 	
	 
	                               Total	 	 	$	 23,000,000	 	$	 27,000,000	 	$	 25,000,000	 
	 	
	 	
	 	
	 
	

_________________
*   Beneficial owner.  Registered in the name of Hare & Co. 

Schedule B 

Schedule B-1 to

Second Supplement  

EXISTING INVESTMENTS 

	Investment in Advanced Filtration Systems Inc.	 	 	$	 9,594,000	 
	 
	Investment in PT Panata Jaya Mandiri	 	 	$	 4,186,000	 
	 
	Investment in Rashed al-Rashed & Sons-Donaldson Ltd.	 	 	$	   761,000	 
	 
	Investment in Onboard Technologies	 	 	$	   200,000	 
	 
	Loan to Jay Ward in the amount of	 	 	$	    10,000	 
	 
	Loan to Mys-Tec Sales, Inc. in the amount of	 	 	$	   292,000	 

Schedule B-1 

Schedule 5 to

Second Supplement  

EXCEPTIONS TO REPRESENTATIONS

AND WARRANTIES 

        Section 5.4.       Schedule
5.4 is replaced by Schedule 5.4 to this Second Supplement.  

        Section 5.5.       Schedule
5.5 is replaced by Schedule 5.5 to this Second Supplement.  

        Section 5.8.       Schedule
5.8 is replaced by Schedule 5.8 to this Second Supplement.  

        Section 5.9.       Reference
to December 31, 1990 shall be deemed to refer to July 31, 2000.  

        Section 5.11.     Schedule
5.11 is replaced by Schedule 5.11 to this Second Supplement.  

        Section 5.13.     Reference
to the number 42 shall be deemed to refer to 4.  

        Section 5.15.     Reference
to April 20, 1998 shall be deemed to refer to July 31, 2004 and Schedule 5.15 is replaced with Schedule 5.15 to this Second
Supplement. 

Schedule 5 

Schedule 5.3 to

Second Supplement  

DISCLOSURE MATERIALS 

Offering Memorandum dated July 2004
with respect to the Amended and Restated Credit Agreement dated September 2, 2004. 

Schedule 5.3 

Schedule 5.4 to

Second Supplement  

SUBSIDIARIES AND OWNERSHIP OF SUBSIDIARY STOCK 

	(i)  	  	Subsidiaries  

*Unless otherwise noted, all listed
subsidiaries are owned 100% by Donaldson Company, Inc. or a Subsidiary of the Donaldson
Company, Inc. 

Donaldson Capital, Inc. (Minnesota, U.S.A.)

Nippon Donaldson, Ltd. (Japan)

Donaldson Korea Company, Ltd. (Republic of South Korea)

Donaldson Filtration (Asia Pacific) Pte. Ltd. (Singapore)

Donaldson Australasia Pty, Ltd. (Australia)

Donaldson India Filter Systems Private Limited (India)

P.T. Donaldson Systems Indonesia (Indonesia) (96.5% net ownership by the Donaldson Company, Inc.) 

ASHC, Inc (U.S.A.)

          Prestadora de Servicios Aquas S. de R.L. de C.V. (Mexico)

Donaldson Filtration Industrial S. de R.L. de C.V. (Mexico)

Donaldson S.A. de C.V. (Mexico)

          DIEMO S.A. de C.V. (Mexico) 

Donaldson Sales, Inc. (Barbados)

Donaldson do Brazil M&E Limitida (Brazil)

Donaldson Filtration Systems Pty, Ltd. (South Africa)

Donaldson Canada, Inc. (Canada)

ultrafilter Pty, Ltd (Australia)

ultrafilter Co Ltd. (Thailand)

Donaldson Filtration Inc. (Phillipines)

Donaldson Filtration sdn hdn (Malaysia)

PT ultrafilter (Indonesia)

ultrafilter Pte Ltd.

—Donaldson Luxembourg S.a.r.l. (Luxembourg)

          Donaldson Coordination Center, B.V.B.A. (Belgium)

          Donaldson Torit, B.V. (Netherlands)

                    Donaldson Nederland B.V. (Netherlands)

                    ultrafilter B.V. (Netherlands)

                    Donaldson Schweiz GmbH (Switzerland)

                    ultrafilter AG (Switzerland)

                    Donaldson Filtre Sistemleri Ticaret Ltd Sirketi (Turkey)

                    ultrafilter s.r.o. (Slovakia)

                    ultrafilter sp. zoo (Poland) 

Schedule 5.4 

                    Donaldson Polska sp. zoo (Poland)

                    ultrafilter AS (Norway)

                    Donaldson Italia Srl (Italy)

                    Donaldson Filtration Österreich GmbH (Austria)

                    ultrafilter s.l. (Spain)

                    ultrafilter s.r.o (Czech Republic)

                    Donaldson Czech Republic (Czech Republic) 

                    Donaldson France, S.A.S. (France)

                              Tecnov Donaldson, S.A.S. (France)

                              ultrafilter S.A.S. (France)

                              Donaldson Filtros Iberica S.L. (Spain)

                    Donaldson Scandinavia APS (Denmark)

                              ultrafilter APS (Denmark)

                    Donaldson Far East Limited (Hong Kong)

                              Donaldson (Wuxi) Filters Co., Ltd. (China)

                                        Shanghai Donaldson Filtration Co., Ltd. (China)

                              Donaldson Ltd. (Thailand)

                    Donaldson Europe, B.V.B.A. (Belgium)

                              Donaldson Belgie B.V.B.A. (Belgium)

                    Donaldson UK Holding Ltd. (UK)

                              ultrafilter Ltd. (UK)

                                        DCE Donaldson Ltd. (UK)

                              DFCH Ltd. (UK)

                                        Donaldson Filter Components Ltd. (UK)

                                                  Tetratec Europe Ltd. (UK)

                                                  DCE Ltd. (UK)

                                                  DCE Group Ltd. (UK)

                                                            Donaldson Iberica, Soluciones en Filtracion, S.L. (Spain)

                                                            DCE Donaldson (Pty) Ltd. (South Africa)

                    Donaldson Deutschland Holding GmbH (Germany)

                              Donaldson GmbH (Germany)

                              Torit DCE GmbH (Germany)

                              ultrafilter kft (Hungary)

                    Donaldson Filtration Deutschland GmbH (Germany)

                              ultratroc GmbH (Germany)

                              ultra air GmbH (Germany)

                              Quality Air GmbH (Germany)

                              ultrafilter s.r.l. (Romania)

                              ultrafilter International AG (Switzerland)  

Schedule 5.4 

	(ii)  	  	Other Affiliates  

	  	
Advanced Filtration Systems Inc. (Illinois, USA) 50%

PT Panata Jaya Mandiri (Jakarta, Indonesia) 30%

Rashed al-Rashed & Sons-Donaldson Ltd. (Dammam, Saudi Arabia) 49%  

	(iii)  	   	Directors and Officers  

	  	
Directors:

F. Guillaume Bastiaens, Vice Chairman, Cargill, Inc.

William M. Cook, President and Chief Executive Officer, Donaldson Company, Inc.

Janet M. Dolan, President and Chief Executive Officer, Tennant Company

Jack W. Eugster, Non-Executive Chairman, ShopKo Stores, Inc.

John F. Grundhofer, Chairman Emeritus, U.S. Bancorp

Kendrick B. Melrose, Chairman and Chief Executive Officer, The Toro Company

Paul David Miller, Chairman, Alliant Techsystems Inc.

Jeffrey Noddle, Chairman, President and Chief Executive Officer, SUPERVALU INC.

William G. Van Dyke, Chairman, Donaldson Company, Inc.

John P. Wiehoff, Chief Executive Officer and President, C.H. Robinson Worldwide, Inc.  

	  	
Officers:

William G. Van Dyke, Chairman, Donaldson Company, Inc.

William M. Cook, President and Chief Executive Officer, Donaldson Company, Inc.

James R. Giertz, Senior Vice President, Commercial and Industrial

Nickolas Priadka, Senior Vice President, International

Lowell F. Schwab, Senior Vice President, Engine Systems and Parts

Dale M. Couch, Vice President and General Manager, Asia Pacific

Norman C. Linnell, Vice President, General Counsel and Secretary

Charles J. McMurray, Vice President, Human Resources

Geert Henk Touw, Vice President and General Manager, Europe/Middle East/Africa

William I. Vann, Vice President, Operations

Thomas R. VerHage, Vice President and Chief Financial Officer  

Schedule 5.4 

Schedule 5.5 to

Second Supplement  

FINANCIAL STATEMENTS 

The only financial statements provided by Donaldson Company, Inc. (other than
financial statements delivered to the Purchasers in their capacity as holders of Notes pursuant to Section 7.1(a) and (b)) are the
following financial summaries included in the Offering Memorandum described in Schedule 5.3: 

Summary of Historical Financial Information (Fiscal 2001-2003) 

Summary of Projected Financial Information (Fiscal 2004-2009) 

Schedule 5.5 

Schedule 5.8 to

Second Supplement  

LITIGATION  

The Company is appealing a judgment entered against it in the Engineering
Products Company v. Donaldson patent infringement case, which case is discussed in the Company’s press release dated
August 13, 2004, the text of which appears below: 

	Press Release	 	Source: Donaldson Company, Inc.

Donaldson Company to Appeal Judgment

Friday August 13, 6:00 am ET 

MINNEAPOLIS, Aug. 13 /PRNewswire-FirstCall/ — Donaldson Company, Inc.
(NYSE: DCI — News) announced today the outcome of post trial motions in the jury trial between Donaldson and
Engineered Products Company, Inc. (“EPC”). In 1998, EPC filed a patent infringement lawsuit against Donaldson in the
U.S. Federal District Court for the Northern District of Iowa. On May 11, 2004, the jury found in favor of EPC on its willful
infringement claims against Donaldson. On August 12, 2004, the Court ruled that damages should be approximately $16.0 million.
Donaldson intends to vigorously challenge the judgment and will appeal the decision to the Federal Circuit Court of Appeals. This
appeal could take up to two years or longer. EPC’s patent expired on May 1, 2001 and will not impact Donaldson’s ongoing
business operations. Donaldson confirms previous guidance of delivering its 15th consecutive year of double-digit earnings growth
when it issues its fourth quarter earnings release on August 31. 

About Donaldson Company, Inc. 

Donaldson Company, Inc., headquartered in Minneapolis, is a leading worldwide
provider of filtration systems and replacement parts. Founded in 1915, Donaldson is a technology-driven company committed to
satisfying customer needs for filtration solutions through innovative research and development. Donaldson serves customers in the
industrial and engine markets including dust collection, power generation, specialty filtration, compressed air purification,
off-road equipment, industrial compressors, and trucks. Our 10,000 employees contribute to the company’s success at over 30
manufacturing locations around the world. In fiscal year 2003, Donaldson reported sales of more than $1.2 billion and achieved its
14th consecutive year of double-digit earnings growth. Donaldson is a member of the S&P MidCap 400 Index and Donaldson shares
are traded on the New York Stock Exchange under the symbol DCI. Additional company information is available at
http://www.donaldson.com 

Schedule 5.8 

Schedule 5.11 to

Second Supplement  

LICENSES, PERMITS, ETC.  

The Company is appealing a judgment entered against it in the Engineering
Products Company v. Donaldson patent infringement case, which case is discussed in the Company’s press release dated
August 13, 2004 (see Schedule 5.8). 

The Company also has various ongoing legal assessments and actions relating
to violation of certain intellectual property rights of the Company, none of which, however, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. 

Schedule 5.11 

Schedule 5.15 to

Second Supplement  

INDEBTEDNESS 

	Amounts in $ Millions:	 	 	 		 	 		 
	
Short-term debt:	 	 
	          Multi-currency revolving facility	 	 	$	  0.0	 
	          Uncommitted credit facilities	 	 	 	12.4	 
	          Credit facilities of international subsidiaries	 	 	 	7.3	 	$	 19.7	 
	 	
	 	
	 
	Current maturities of long-term debt	 	 
	          6.20% Unsecured senior notes due July 15, 2005	 	 	$	 23.0	 
	          1.9475% Guaranteed senior notes due Jan 29, 2005	 	 	 	10.7	 
	          Aggregated current capital leases	 	 	 	0.6	 	$	 34.3	 
	 	
	 	
	 
	

Long-term debt:	 	 
	 6.31% Unsecured senior notes due July 15, 2008	 	 	$	 28.6	 
	 6.39% Unsecured senior notes due August 15, 2010	 	 	 	24.5	 
	 1.51% Guaranteed note due March 28, 2006	 	 	 	7.1	 
	 9.4% Secured installment note due January 31, 2007	 	 	 	0.1	 
	 Aggregated  Long-term Capital Leases	 	 	 	2.6	 
	 Variable rate industrial development revenue bonds	 	 
	          due September 1, 2024	 	 	 	8.0	 	$	 70.9	 
	 	
	 	
	 

NOTE:   Since the close of F'04 (7-31-04), the Donaldson Company, Inc. engaged
in the following material transactions. 

	  	•  	  	The Donaldson Company, Inc. has amended and restated its
existing $150 million three year credit agreement that was to mature on September 27, 2005. The amendment extends the maturity
date of the facility to September 2, 2009. 

	  	•  	  	The Donaldson Company, Inc. has drawn $75 Million under its
amended and restated credit agreement. 

	  	•  	  	The Company has repurchased three million shares, or approximately
3.5 percent, of its outstanding  common stock after the market closed on September 3, 2004. The shares were purchased from
Banc of America Securities LLC under an overnight share repurchase program at a total cost of approximately $86.5 million.

Schedule 5.15 

Schedule 10.2 to

Second Supplement  

LIENS 

Donaldson Filtration Systems (Pty) Ltd Secured Note of 726,000 Rand 

Capitalized leases in the aggregate amount of Euro 2,657,000 

Schedule 10.2 

Exhibit 1(a) to

Second Supplement  

[FORM OF SERIES 2004-A NOTE] 

DONALDSON COMPANY, INC. 

4.85% Senior Note, Series 2004-A

due December 17, 2011 

	No. [_____]	 	[Date]
	$[_______]	 	PPN[______________]

                FOR VALUE RECEIVED, the
undersigned, DONALDSON COMPANY, INC. (herein called the “Company”), a corporation organized and existing under the laws
of the State of Delaware, promises to pay to
[                                               ],
or registered assigns, the principal sum of $[           ] on December 17,
2011, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at
the rate of 4.85% per annum from the date hereof, payable semiannually, on June 17 and December 17 in each year, commencing with
the June 17 or December 17 next succeeding the date hereof, until the principal hereof shall have become due and payable, and
(b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to
below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 6.85% or (ii) 2% over the rate of interest publicly announced by Bank of
America, NA from time to time in Chicago, Illinois as its “base” or “prime” rate. 

                Payments
of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of Bank of America, NA in Chicago, Illinois or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

                This
Note is one of a series of Notes (herein called the “Notes”) issued pursuant to a Note Purchase Agreement dated as of
July 15, 2004, as supplemented and amended by a First Supplement dated as of August 1, 1998 and a Second Supplement and First
Amendment dated as of September 30, 2004 (as so supplemented and amended and as hereafter from time to time amended and
supplemented, the “Note Purchase Agreement”), and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note
Purchase Agreement and (ii) to have made the representations set forth in Sections 6.1 (to the extent such representation is
required for such transfer) and 6.2 of the Note Purchase Agreement. The Notes have not been registered under the Securities Act of
1933, as amended. 

Schedule 5 

                This
Note is a registered Note and, as provided in Section 13 of the Note Purchase Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to,
and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the
person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes,
and the Company will not be affected by any notice to the contrary. 

                This
Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note
Purchase Agreement but not otherwise. 

                If
an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the
effect provided in the Note Purchase Agreement. 

                Payment
of the principal of, and interest and Make-Whole Amount, if any, on this Note, and all other amounts due under the Note Purchase
Agreement, is guaranteed pursuant to the terms of a Subsidiary Guaranty dated as of December 17, 2004 of certain Subsidiaries of
the Company.* 

                This
Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State
of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a
jurisdiction other than such State. 

	 	 	DONALDSON COMPANY, INC. 
	

   	 	

By:	  	

    	  
	 	

	   		Name:   	  	  	 
	 	

	   		Title: 	  	  	 
	 	

_________________

*   This paragraph must be deleted at such time as there are no Subsidiary Guarantors. 

-2-

Exhibit 1(a) 

Exhibit 1(b) to

Second Supplement  

FORM OF SUBSIDIARY GUARANTY 

        THIS GUARANTY (this
“Guaranty”) dated as of December 17, 2004 is made by the undersigned (each, a “Guarantor”), in favor of the
holders from time to time of the Notes hereinafter referred to and their respective successors and assigns (collectively, the
“Holders” and each individually, a “Holder”). 

WITNESSETH:  

        WHEREAS, Donaldson Company,
Inc. (the “Company”) entered into a Note Purchase Agreement dated as of July 15, 1998, a First Supplement to Note
Purchase Agreement dated as of August 1, 1998 and a Second Supplement and First Amendment dated as of September 30, 2004 (the Note
Purchase Agreement as so supplemented and amended and as it may hereafter be amended, supplemented, restated or otherwise modified
from time to time in accordance with its terms, the “Note Purchase Agreement”); 

        WHEREAS, the Note Purchase
Agreement provides for the issuance by the Company of up to $150,000,000 aggregate principal amount of Notes (as defined in the
Note Purchase Agreement), of which the Company has heretofore issued $50,000,000 aggregate principal amount of Series 1998-A Notes
and $25,000,000 aggregate principal amount of Series 1998-B Notes and, concurrently with the delivery by the Guarantors of this
Guaranty, is issuing $30,000,000 aggregate principal amount of Series 2004-A Notes; 

        WHEREAS, the Parent owns,
directly or indirectly, all of the issued and outstanding capital stock or partnership interests of each Guarantor and, by virtue
of such ownership and otherwise, each Guarantor will derive substantial benefits from the purchase by the Holders of the
Company’s Notes; 

        WHEREAS, it is a condition
precedent to the obligation of the Holders to purchase the Notes that each Guarantor shall have executed and delivered this
Guaranty to the Holders; and 

        WHEREAS, each Guarantor
desires to execute and deliver this Guaranty to satisfy the conditions described in the preceding paragraph; 

        NOW, THEREFORE, in
consideration of the premises and other benefits to each Guarantor, and of the purchase of the Company’s Notes by the
Holders, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, each Guarantor
makes this Guaranty as follows: 

Schedule 5 

        SECTION 1.   Definitions.   Any capitalized terms not otherwise herein defined shall have the meanings attributed to them in the Note
Purchase Agreement. 

        SECTION 2.   Guaranty.   Each
Guarantor, jointly and severally with each other Guarantor, unconditionally and irrevocably guarantees to the Holders the due,
prompt and complete payment by the Company of the principal of, Make-Whole Amount, if any, and interest on, and each other amount
due under, the Notes or the Note Purchase Agreement, when and as the same shall become due and payable (whether at stated maturity
or by required or optional prepayment or by declaration or otherwise) in accordance with the terms of the Notes and the Note
Purchase Agreement (the Notes and the Note Purchase Agreement being sometimes hereinafter collectively referred to as the
“Note Documents” and the amounts payable by the Company under the Note Documents, and all other monetary obligations of
the Company thereunder (including reasonable attorneys’ fees and expenses), being sometimes collectively hereinafter referred
to as the “Obligations”). This Guaranty is a guaranty of payment and not just of collectibility and is in no way
conditioned or contingent upon any attempt to collect from the Company or upon any other event, contingency or circumstance
whatsoever. If for any reason whatsoever the Company shall fail or be unable duly, punctually and fully to pay such amounts as and
when the same shall become due and payable, each Guarantor, without demand, presentment, protest or notice of any kind, will
forthwith pay or cause to be paid such amounts to the Holders under the terms of such Note Documents, in lawful money of the
United States, at the place specified in the Note Purchase Agreement, or perform or comply with the same or cause the same to be
performed or complied with, together with interest (to the extent provided for under such Note Documents) on any amount due and
owing from the Company. Each Guarantor, promptly after demand, will pay to the Holders the reasonable costs and expenses of
collecting such amounts or otherwise enforcing this Guaranty, including, without limitation, the reasonable fees and expenses of
counsel. Notwithstanding the foregoing, the right of recovery against each Guarantor under this Guaranty is limited to the extent
it is judicially determined with respect to any Guarantor that entering into this Guaranty would violate Section 548 of the United
States Bankruptcy Code or any comparable provisions of any state law, in which case such Guarantor shall be liable under this
Guaranty only for amounts aggregating up to the largest amount that would not render such Guarantor’s obligations hereunder
subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any state law.

        SECTION 3.   Guarantor’s Obligations Unconditional.   The
obligations of each Guarantor under this Guaranty shall be primary, absolute and unconditional obligations of each Guarantor,
shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction
or defense based upon any claim each Guarantor or any other person may have against the Company or any other person, and to the
full extent permitted by applicable law shall remain in full force and effect without regard to, and shall not be released,
discharged or in any way affected by, any circumstance or condition whatsoever (whether or not each Guarantor or the Company shall
have any knowledge or notice thereof), including: 

-2-

Exhibit 1(b) 

	  	        (a)       any
termination, amendment or modification of or deletion from or addition or supplement to or other change in any of the Note
Documents or any other instrument or agreement applicable to any of the parties to any of the Note Documents; 

	  	        (b)       any
furnishing or acceptance of any security, or any release of any security, for the Obligations, or the failure of any security or
the failure of any person to perfect any interest in any collateral; 

	  	        (c)       any
failure, omission or delay on the part of the Company or the Parent to conform or comply with any term of any of the Note
Documents or any other instrument or agreement referred to in paragraph (a) above, including, without limitation, failure to give
notice to any Guarantor of the occurrence of a “Default” or an “Event of Default” under any Note Document;

	  	        (d)       any
waiver of the payment, performance or observance of any of the obligations, conditions, covenants or agreements contained in any
Note Document, or any other waiver, consent, extension, indulgence, compromise, settlement, release or other action or inaction
under or in respect of any of the Note Documents or any other instrument or agreement referred to in paragraph (a) above or any
obligation or liability of the Company or the Parent, or any exercise or non-exercise of any right, remedy, power or privilege
under or in respect of any such instrument or agreement or any such obligation or liability; 

	  	        (e)       any
failure, omission or delay on the part of any of the Holders to enforce, assert or exercise any right, power or remedy conferred
on such Holder in this Guaranty, or any such failure, omission or delay on the part of such Holder in connection with any Note
Document, or any other action on the part of such Holder; 

	  	        (f)       any
voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, assignment for the benefit of
creditors, composition, receivership, conservatorship, custodianship, liquidation, marshaling of assets and liabilities or similar
proceedings with respect to the Company, the Parent, any Guarantor or to any other person or any of their respective properties or
creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; 

	  	        (g)       any
discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any of
the Note Documents or any other agreement or instrument referred to in paragraph (a) above or any term hereof; 

	  	        (h)       any
merger or consolidation of the Company or the Parent or any Guarantor into or with any other corporation, or any sale, lease or
transfer of any of the assets of the Company or the Parent or any Guarantor to any other person; 

-3-

Exhibit 1(b) 

	  	        (i)       any
change in the ownership of any shares of capital stock of the Company or the Parent or any change in the corporate relationship
between the Company or the Parent and any Guarantor, or any termination of such relationship; 

	  	        (j)       any
release or discharge, by operation of law, of any other Guarantor from the performance or observance of any obligation, covenant
or agreement contained in this Guaranty; or 

	  	        (k)       any
other occurrence, circumstance, happening or event whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or
unforeseen, and any other circumstance which might otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or which might otherwise limit recourse against any Guarantor. 

        SECTION 4.   Full Recourse Obligations.   The
obligations of each Guarantor set forth herein constitute the full recourse obligations of such Guarantor enforceable against it
to the full extent of all its assets and properties. 

        SECTION 5.   Waiver.   Each
Guarantor unconditionally waives, to the extent permitted by applicable law, (a) notice of any of the matters referred to in
Section 3, (b) notice to such Guarantor of the incurrence of any of the Obligations, notice to such Guarantor or the Company
of any breach or default by such Company with respect to any of the Obligations or any other notice that may be required, by
statute, rule of law or otherwise, to preserve any rights of the Holders against such Guarantor, (c) presentment to or demand
of payment from the Company or the Guarantor with respect to any amount due under any Note Document or protest for nonpayment or
dishonor, (d) any right to the enforcement, assertion or exercise by any of the Holders of any right, power, privilege or
remedy conferred in the Note Purchase Agreement or any other Note Document or otherwise, (e) any requirement of diligence on
the part of any of the Holders, (f) any requirement to exhaust any remedies or to mitigate the damages resulting from any
default under any Note Document, (g) any notice of any sale, transfer or other disposition by any of the Holders of any
right, title to or interest in the Note Purchase Agreement or in any other Note Document and (h) any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety or which
might otherwise limit recourse against such Guarantor. 

        SECTION 6.   Subrogation,
Contribution, Reimbursement or Indemnity.   Until one year and one day after all Obligations have been paid in
full, each Guarantor agrees not to take any action pursuant to any rights which may have arisen in connection with this Guaranty
to be subrogated to any of the rights (whether contractual, under the United States Bankruptcy Code, as amended, including Section
509 thereof, under common law or otherwise) of any of the Holders against the Company or against any collateral security or
guaranty or right of offset held by the Holders for the payment of the Obligations. Until one year and one day after all
Obligations have been paid in full, each Guarantor agrees not to take any action pursuant to any contractual, common law,
statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against the
Company which may have arisen in 

-4-

Exhibit 1(b) 

connection with this Guaranty. So long as the Obligations remain, if any
amount shall be paid by or on behalf of the Company to any Guarantor on account of any of the rights waived in this paragraph,
such amount shall be held by such Guarantor in trust, segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to the Holders (duly endorsed by such Guarantor to the Holders, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as the Holders may determine. The provisions of this
paragraph shall survive the term of this Guaranty and the payment in full of the Obligations. 

        SECTION 7.   Effect
of Bankruptcy Proceedings, etc.   This Guaranty shall continue to be effective or be automatically reinstated,
as the case may be, if at any time payment, in whole or in part, of any of the sums due to any of the Holders pursuant to the
terms of the Note Purchase Agreement or any other Note Document is rescinded or must otherwise be restored or returned by such
Holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any other person, or upon or
as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company
or other person or any substantial part of its property, or otherwise, all as though such payment had not been made. If an event
permitting the acceleration of the maturity of the principal amount of the Notes shall at any time have occurred and be
continuing, and such acceleration shall at such time be prevented by reason of the pendency against the Company or any other
person of a case or proceeding under a bankruptcy or insolvency law, each Guarantor agrees that, for purposes of this Guaranty and
its obligations hereunder, the maturity of the principal amount of the Notes and all other Obligations shall be deemed to have
been accelerated with the same effect as if any Holder had accelerated the same in accordance with the terms of the Note Purchase
Agreement or other applicable Note Document, and such Guarantor shall forthwith pay such principal amount, Make-Whole Amount, if
any, and interest thereon and any other amounts guaranteed hereunder without further notice or demand. 

        SECTION 8.   Term
of Agreement.   This Guaranty and all guaranties, covenants and agreements of each Guarantor contained herein
shall continue in full force and effect and shall not be discharged until the earlier to occur of (i) such time as all of the
Obligations shall be paid and performed in full and all of the agreements of such Guarantor hereunder shall be duly paid and
performed in full and (ii) such Guarantor is released by the Holders pursuant to Section 1(c) of the Second Supplement.

        SECTION 9.   Representations
and Warranties.   Each Guarantor represents and warrants to each Holder that: 

	  	        (a)       such
Guarantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the
power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact; 

-5-

Exhibit 1(b) 

	  	        (b)       such
Guarantor has the power and authority to execute and deliver this Guaranty and to perform the provisions hereof, and this Guaranty
has been duly authorized by all necessary action on the part of such Guarantor; 

	  	        (c)       this
Guaranty constitutes the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); 

	  	        (d)                      the
execution, delivery and performance of this Guaranty will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property of such Guarantor under, any agreement, or
corporate charter or by-laws to which such Guarantor is bound or by which such Guarantor or any of its properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree,
or ruling of any court, arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or (iii) violate any
provision of any statute or other rule or regulation of any Governmental Authority applicable to such Guarantor; 

	  	        (e)       no
consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by such Guarantor of this Guaranty; 

	  	        (f)       there
are no actions, suits or proceedings pending or, to the knowledge of such Guarantor, threatened against or affecting such
Guarantor, or any property of such Guarantor, in any court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; 

	  	        (g)       after
giving effect to the transactions contemplated in the Note Purchase Agreement and after giving due consideration to any rights of
contribution (i) the fair value of the assets of such Guarantor (both at fair valuation and at present fair saleable value)
exceeds its liabilities, (ii) such Guarantor is able to and expects to be able to pay its debts as they mature, and
(iii) such Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. 

        SECTION 10.   Notices.   All
notices and communications provided for hereunder shall be in writing and sent by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or by registered or certified mail
with return receipt requested (postage prepaid), or by a recognized overnight delivery service (with charges prepaid) (a) if
to the Company or any Holder at the address set forth in the Note Purchase Agreement or (b) if to a Guarantor, in care of the
Company at the Company’s address set forth in the Note Purchase Agreement, or in each case at such other address as the

-6-

Exhibit 1(b) 

Company, any Holder or such Guarantor shall from time to time designate in
writing to the other parties. Any notice so addressed shall be deemed to be given when actually received. 

        SECTION 11.   Survival.   All
warranties, representations and covenants made by each Guarantor herein or in any certificate or other instrument delivered by it
or on its behalf hereunder shall be considered to have been relied upon by the Holders and shall survive the execution and
delivery of this Guaranty, regardless of any investigation made by any of the Holders. All statements in any such certificate or
other instrument shall constitute warranties and representations by such Guarantor hereunder. 

        SECTION 12.   Submission
to Jurisdiction.   Each Guarantor irrevocably submits to the jurisdiction of the courts of the State of
Illinois and of the courts of the United States of America having jurisdiction in the State of Illinois for the purpose of any
legal action or proceeding in any such court with respect to, or arising out of, this Guaranty, the Note Purchase Agreement or the
Notes. Each Guarantor consents to process being served in any suit, action or proceeding by mailing a copy thereof by registered
or certified mail, postage prepaid, return receipt requested. Each Guarantor agrees that such service upon receipt (i) shall be
deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such Guarantor. 

        SECTION 13.   Miscellaneous.   Any
provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, each Guarantor hereby waives any provision of law that renders any
provisions hereof prohibited or unenforceable in any respect. The terms of this Guaranty shall be binding upon, and inure to the
benefit of, each Guarantor and the Holders and their respective successors and assigns. No term or provision of this Guaranty may
be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by each Guarantor and the
Required Holders. The section and paragraph headings in this Guaranty are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof, and all references herein to numbered sections, unless otherwise
indicated, are to sections in this Guaranty. This Guaranty shall in all respects be governed by, and construed in accordance with,
the laws of the State of Illinois, excluding choice-of-law principles of the law of such State that would require the application
of the laws of a jurisdiction other than such State. 

-7-

Exhibit 1(b) 

        IN
WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed as of the day
and year first above written. 

	 	 	[Name of Guarantor]
	

   	 	

By:	  	

    	  
	 	

	   		Name:   	  	  	 
	 	

	   		Title: 	  	  	 
	 	

	 	 	

[Name of Guarantor]
	

   	 	

By:	  	

    	  
	 	

	   		Name:   	  	  	 
	 	

	   		Title: 	  	  	 
	 	

	 	 	

[Name of Guarantor]
	

   	 	

By:	  	

    	  
	 	

	   		Name:   	  	  	 
	 	

	   		Title: 	  	  	 
	 	

-8-

Exhibit 1(b) 

FORM OF JOINDER TO SUBSIDIARY GUARANTY 

                The
undersigned (the “Guarantor”), joins in the Subsidiary Guaranty dated as of December 17, 2004 from the Guarantors named
therein in favor of the Holders, as defined therein, and agrees to be bound by all of the terms thereof and represents and
warrants to the Holders that: 

	  	                (a)       such
Guarantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the
power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact; 

	  	                (b)                      such
Guarantor has the power and authority to execute and deliver this Guaranty and to perform the provisions hereof, and this Guaranty
has been duly authorized by all necessary action on the part of such Guarantor; 

	  	                (c)                      this
Guaranty constitutes the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); 

	  	                (d)                      the
execution, delivery and performance of this Guaranty will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property of such Guarantor under, any agreement, or
corporate charter or by-laws to which such Guarantor is bound or by which such Guarantor or any of its properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree,
or ruling of any court, arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or (iii) violate any
provision of any statute or other rule or regulation of any Governmental Authority applicable to such Guarantor; 

	  	                (e)                      no
consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by such Guarantor of this Guaranty; 

	  	                (f)                      there
are no actions, suits or proceedings pending or, to the knowledge of such Guarantor, threatened against or affecting such
Guarantor, or any property of such Guarantor, in any court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; 

-9-

Exhibit 1(b) 

	  	                (g)       after
giving effect to the transactions contemplated by the giving of this Joinder and giving due consideration to any rights of
contribution (i) the fair value of the assets of such Guarantor (both at fair valuation and at present fair saleable value)
exceeds its liabilities, (ii) such Guarantor is able to and expects to be able to pay its debts as they mature, and
(iii) such Guarantor has capital sufficient to carry on its business as conducted and as proposed to be conducted. 

Capitalized Terms used but not defined herein have the meanings ascribed in
the Subsidiary Guaranty. 

                IN
WITNESS WHEREOF, the undersigned has caused this Joinder to Subsidiary Guaranty to be duly executed as of __________, ____.

	 	 	[Name of Guarantor]
	

   	 	

By:	  	

    	  
	 	

	   		Name:   	  	  	 
	 	

	   		Title: 	  	  	 
	 	

-10-

Exhibit 1(b)<PAGE>

                                                                    EXHIBIT 10.1

                      ASSIGNMENT AND DISTRIBUTION AGREEMENT

      THIS ASSIGNMENT AND DISTRIBUTORSHIP AGREEMENT (the "Agreement") is entered
into as of March 22, 2000, by and among RheoLogix, L.L.C., a Delaware limited
liability company ("RheoLogix"), Apheresis Technologies, Inc., a Florida
corporation ("ATI") ("RheoLogix and ATI are sometimes collectively referred to
as the "Assignor") and CytaLogix Corporation, a Delaware corporation
("Assignee").

                                    RECITALS

      A. Assignor is the holder, owner and possessor of certain rights,
technologies, devices, know-how, proprietary information, clinical data,
intellectual property, and other unique and valuable assets, tangible and
intangible, which are useful in providing extracorporeal blood
separation/filtering procedures, including, without limitation, rights under the
Asahi Distributorship Agreement (as defined herein) and certain rights granted
by the Unites States Food and Drug Administration and the United States Patent
Office (the foregoing and any and all anticipated an unanticipated future rights
of Assignor relating to the Foregoing are, collectively, the "Proprietary Rights
and Technologies").

      B. Contemporaneously with the assignment of the Assigned rights and
Technologies (as defined herein) hereunder, Assignor will assign certain of the
Proprietary Rights and Technologies similar to the Assigned Rights and
Technologies to certain of its affiliates, including, without limitation, (i)
OccuLogix Corporation, a Florida corporation ("OccuLogix"); (ii) VascuLogix
Corporation, a Delaware corporation ("VascuLogix"); and (iii) NephroLogix
Corporation, a Delaware corporation ("NephroLogix"); provided that, Assignor may
assign rights similar to the Assigned Rights and Technologies to other
companies, entities, and individuals.

      C. Assignor desires to assign, and Assignee desires to accept, in
accordance with and pursuant to the terms herein, the Assigned Rights and
Technologies.

                                    COVENANTS

      In consideration of the mutual covenants and promises hereinafter set
forth, and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

1. ASSIGNMENT. Assignor hereby assigns to Assignee, its successors and assigns,
and Assignee, its successors and assigns, hereby accepts, an exclusive right to
use, sell, market, develop or distribute the Assigned Rights and Technologies
specifically for use within the Market (as defined herein).

      1.1 ASSIGNED RIGHTS AND TECHNOLOGIES. Whenever used herein, "Assigned
Rights and Technologies" shall mean the Proprietary Rights and Technologies, and
any and all anticipated and unanticipated future rights, including, without
limitation, certain rights granted by the United States Food and Drug
Administration, Assignor may acquire, purchase, procure,

<PAGE>

develop, receive, accept or otherwise obtain in connection with the Proprietary
Rights and Technologies.

      1.2 MARKET. Whenever used herein, "Market" shall mean any and all
treatment and/or research relating to the Disease (as defined herein) performed
and/or conducted in the Territory (as defined herein).

      1.3 DISEASE. Whenever used herein, "Disease" shall mean any and all
cell-mediated chronic inflammatory diseases, specifically, without limitation,
Ulcerative Colitis, Crohn's Disease, Rheumatoid Arthritis and Multiple
Sclerosis.

      1.4 TERRITORY. Whenever used herein, "Territory" shall mean and any and
all present and future territories held, owned or possessed by Assignor relating
to the Assigned Rights and Technologies (currently the United States, Canada,
and Mexico).

2. LIMITATION OF CERTAIN OF THE ASSIGNED RIGHTS AND TECHNOLOGIES. In addition to
the limitations upon the commercial application, scope an utility of the
Assigned rights and Technologies contained herein, Assignee acknowledges and
understands that certain of the Assigned Rights and Technologies are now and may
continue to be effectively limited in their commercial application, scope and
utility by certain agreements, licenses and other obligations, including,
without limitation, (i) the limitations upon the use, sale, marketing,
development and distribution of the Device (as defined herein) contained in that
certain 1997 Distributorship Agreement, by and between Asahi Medical Co., Ltd.,
a corporation organized and existing under the laws of Japan ("Asahi") and ATI,
dated February 1, 1997, as amended by that certain Amendment to 1997
Distributorship Agreement and Plasmaflo Agreement, by and between Asahi and ATI,
dated January 1, 1999, as amended (collectively, the "Asahi Distributorship
Agreement"), and (ii) any and all other instruments, assignments, documents
and/or agreements pursuant to which Assignor obtains the right to distribute
some or all of the Assigned rights and Technologies.

3. MARKET. Assignee acknowledges, accepts and understands that Assignor,
contemporaneously herewith will, and in the future may, assign rights in the
Proprietary rights and Technologies for use outside of the Market to third
parties or other assignees, including, without limitation, OccuLogix,
VascuLogix, and NephroLogix, which are similar to the rights in the Assigned
Rights and Technologies assigned hereunder (provided that Assignor shall not
assign rights in the Proprietary Rights and Technologies for use within the
Market which are similar to the rights in the Assignor Rights and Technologies
assigned hereunder). Assignee agrees that it will not, directly or indirectly,
whether through or by one of its affiliates or otherwise, use, sell, market,
develop or distribute the Assigned Rights and Technologies outside of the
Market. In the event a dispute arises among Assignee and any or all of
OccuLogix, VascuLogix and NephroLogix as to the ownership and/or commercial
application of the Proprietary Rights and Technologies, including, without
limitation, the scope of a specific Market, Disease, or Territory (as such terms
are defined in the individual assignments from Assignor to each of Assignee,
OccuLogix, VascuLogix and NephroLogix), then Assignor shall act as the sole
arbiter and shall provide an equitable determination of the ownership and/or
commercial application of the Proprietary Rights and Technologies among the
parties. Assignee

                                       -2-
<PAGE>

hereby agrees to be bound by such determination(s) made by Assignor and to fully
comply with the terms of such determination(s).

4. RIGHT OF ASSIGNEE TO ASSIGN THE ASSIGNED RIGHTS AND TECHNOLOGIES. Assignee
shall have the right to assign any or all of its right and interest in the
Assigned Rights and Technologies to third parties or its affiliates, provided,
that, the terms and provisions of any such assignment shall (i) be substantially
similar to, and no less favorable to Assignor than, the terms and provisions of
this Agreement, including, without limitation, the restrictions on the use,
sale, marketing, development and distribution of the Assigned Rights and
Technologies and (ii) not conflict with the Asahi Distributorship Agreement.

5. AGREEMENT TO SUPPLY CERTAIN OF THE ASSIGNED RIGHTS AND TECHNOLOGIES.

      5.1 EXCLUSIVE DISTRIBUTORSHIP. As a part of the assignment of the Assigned
Rights and Technologies hereunder, ATI shall grant to Assignee (i) the exclusive
right to use, sell, market, develop or distribute the products set forth in
Exhibit A attached hereto for use within the Market ("Product I") and (ii) the
non-exclusive right to use, sell, market, develop or distribute the products set
forth on Exhibit B attached hereto for use within the Market ("Product II")
(Product I and Product II are collectively, the "Device"), and Assignee (y)
agrees to give Assignor the first opportunity to fill any orders for the Device
pursuant to his Agreement, and (z) subject to Section 5.6.2, agrees not to
purchase, use, sell, market, develop or distribute any apheresis devices or
similar devices other than the Device, without the prior written consent of
Assignor.

      5.2 SALE OF DEVICE AT COST; PAYMENT TERMS.

            5.2.1 ATI shall sell the Device to Assignee at Cost. Whenever used
      herein, "Cost" shall mean the aggregate price paid by ATI for the Device,
      including all transfer costs, shipping, import duties, royalties and the
      price paid to Asahi for the Device, less any discounts or allowances.

            5.2.2 Unless otherwise agreed in writing by Assignor and Assignee,
      upon Assignee's receipt of ATI's acceptance of an order by Assignee,
      Assignee (i) shall open an irrevocable letter of credit ("L/C") within
      thirty (30) days after bill of lading date in favor of ATI for the Cost of
      such order or (ii) shall make the advanced payment for the Cost of such
      order by money transfer in favor of ATI to ATI's designated account. Any
      bank charges related to the opening or amendment of the L/C or advanced
      payment shall be borne by Assignee.

      5.3 SCHEDULE OF ORDERS FOR THE DEVICE. For the purpose of sales planning
by ATI, Assignee shall submit to ATI, in writing, before the tenth (10th) day of
each calendar quarter, a report of Assignee's sales and inventory of the Device,
including the level of inventory of the Device by article. Assignee also shall
submit to ATI, upon request from time to time, information in its possession
with respect to competitors' state of marketing and general market information,
relevant economic, political and business conditions in the Territory, and texts
and summaries of governmental statutes, rules and regulations established or
revised from time to time, affecting the marketing or sale of the Device in the
Territory.

                                      -3-
<PAGE>

      5.4 MONTHLY FORECASTS. Assignee shall submit to ATI a monthly rolling
order forecast before the fifteenth (15th) day of each calendar month for the
six (6) calendar month period immediately following such calendar month. The
rolling order forecasts for the first two (2) months of each such six (6) month
period shall be deemed a firm order for the Device, and each monthly forecast
shall be consistent with previous forecasts with respect to such firm orders.

      5.5 ACCEPTANCE OF ORDERS. Assignee's order shall be deemed accepted when
it is acknowledged and accepted by ATI in writing which shall include, without
limitation, transmission via facsimile or email. Assignee may not cancel any
order after it is accepted by ATI without the written consent of ATI.

      5.6 BEST EFFORTS FOR DELIVERY; DELAY IN DELIVERY; APPORTIONMENT.

            5.6.1 ATI shall use its best efforts to deliver the Device in
      accordance with the delivery schedules set forth in the accepted orders.
      ATI shall promptly notify Assignee if it anticipates any potential delay.

            5.6.2 If Assignee has given Assignor reasonable time to fill an
      order of the Device and if ATI, in the reasonable judgment of Assignee,
      has not or will not be able to completely or partially fill orders
      accepted by ATI in accordance with Section 5.5, then (i) Assignee, at its
      discretion and upon the giving of written notice to Assignor, may agree to
      accept a delayed or partial shipment of the Device or (ii) Assignee, at
      its discretion and upon the giving of written notice to Assignor, may fill
      all or a portion of its unfilled order for the Device directly from Asahi
      and/or any other distributor. Notwithstanding the foregoing, the rights of
      Assignee provided for in this Section 5.6.2 shall not relieve Assignee of
      its obligation to give Assignor the first opportunity to fill any
      subsequent orders for the Device.

            5.6.3 In the event that Assignee, after first attempting to fill an
      order of the Device with Assignor, fills all or a portion of an order of
      the Device directly from Asahi and/or another distributor in accordance
      with Section 5.6.2, then, upon written notice from Assignee of Assignee's
      intention to seek other distributors to fill all or a portion of its
      order, Assignor shall immediately refund to Assignee any and all portions
      of an advanced payment for which Assignee has not or will not receive
      Devices. The portion of such order relating to Devices for which Assignee
      will seek delivery from a distributor other than Assignor will be deemed
      canceled in all respects and neither Assignor nor Assignee shall have any
      further obligation relating to such canceled portion of the order, other
      than Assignor's obligation to immediately refund to Assignee any advance
      payment by Assignee.

            5.6.4 In the event that ATI is unable to fill all of the orders
      placed at a specific time by each of Assignee, OccuLogix, VascuLogix and
      NephroLogix (for purposes of this Section 5.6.4, collectively, the
      "Orderers"), then ATI agrees to equitably and reasonably apportion its
      Devices on-hand among the Orderers; provided, that, any or all of the
      Orders may seek to fill the unfilled portion of its order through Asahi
      directly or any other distributor in accordance with Section 5.6.2

                                      -4-
<PAGE>

      5.7 TERMS OF DELIVERY. The delivery of the Device shall be at the office
of Assignee or such other place as reasonably requested by Assignee. ATI shall
have the sole responsibility for the delivery of the Device to such destination.
Assignee, in accordance with Section 5.2.1, shall be responsible for all
expenses in connection with the delivery and shipment of the Device, including,
without limitation, all expenses incurred in the storage, cartage and
transportation of the Device, as well as all insurance, fees, charges, taxes
(whether sales, use, value added or other), and governmental charges or levies
and all other charges or levies relating to the delivery of the Device, whether
the same are levied upon Assignor or Assignee.

      5.8 RISK OF LOSS AND TITLE. The title to and risk of loss of the Device
shall pass from ATI to Assignee at the time when the purchased Device have been
delivered to Assignee, to another person acting on Assignee's behalf or to such
other place as reasonably requested by Assignee. All risks of loss in connection
with the Device thereafter shall rest upon Assignee, including, without
limitation, all risks incurred in the storage, cartage and transportation of the
Device. ATI shall not be deemed in anyway responsible for obtaining freight
and/or insurance, and shall not in any way be liable for the transportation,
cartage, insurance or other aspects of the storage or shipment of the Device,
after passage of title thereto to Assignee as set forth above.

      5.9 WARRANTY.

            5.9.1 If any Device is in a damaged condition upon its delivery to
      Assignee, or the amount delivered is less than that provided for in the
      order accepted by ATI, Assignee shall advise ATI in writing of any such
      circumstance within six (6) months of delivery of such Device and shall
      fully describe the nature of the shortage or damage. ATI shall replace
      such damaged Device and/or remedy such shortages, without additional
      charge; provided, that, ATI is given the notice referred to above and the
      opportunity promptly to inspect the claimed damaged or incompletely
      delivered Device, and provided further that ATI is reasonably satisfied
      that such damage and/or shortage was not caused by mishandling or misuse
      by the parties other than ATI after title passed to Assignee. In the event
      that Assignee fails to notify ATI or allow such inspection as described
      above, Assignee shall be deemed to have waived all damage and shortage
      claims against ATI for said Device.

            5.9.2 Assignor warrants that the Device has been manufactured and
      distributed in compliance with the United States Food and Drug
      Administration "good manufacturing practices." Other than the foregoing
      warranty, Assignor makes no warranty as to the manufacture or distribution
      of the Device. The Device shall be subject only to the applicable warranty
      provided by the manufacturer and Assignor will have no responsibility
      therefor; and provided further that all warranties described above in this
      Section 5.9.2 shall be ineffective, and Assignor shall have no
      responsibility whatsoever, in the event any Device has been subjected to
      misuse, mishandling, misapplication, neglect, contamination, accident,
      improper repair, damage by circumstances beyond Assignor's reasonable
      control or unauthorized modification by Assignee or its immediate
      customers, including, without limitation, any damage, contamination,
      defects or malfunctions resulting from (a) the opening of the packaging of
      the Device to combine the bloodline to be procured by Assignee and to be
      used for the Device, (b) the repackaging of the Device with the bloodline
      for delivery to customers, or (c) the failure

                                      -5-
<PAGE>

      to adhere to instructions for use and other documentation included in
      shipments of the Device. The responsibility of Assignor under all
      warranties is limited solely to the repair or replacement of the Device,
      as the case may be, pursuant to the foregoing warranties. All warranty
      claims are subject to verification by Assignor.

            5.9.3 THE WARRANTIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU OF,
      AND ASSIGNOR EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESS OR
      IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABLITY OR
      FITNESS FOR A PARTICULAR USE OR PURPOSE AND THOSE ARISING BY STATUTE OR
      OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE. ASSIGNOR
      SHALL NOT HAVE ANY LIABILITY TO ASSIGNEE, ITS CUSTOMERS, END-USERS OR ANY
      OTHER PARTY OR ANY AMOUNTS IN EXCESS OF THE ORDER PRICE OF THE DEVICE NOR
      FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
      LIMITATION, LOST PROFITS OR PROSPECTIVE PROFITS OR ANY OTHER COMMERCIAL OR
      ECONOMIC LOSS OF ANY KIND OR NATURE OF ASSIGNEE OR ANY THIRD PERSON, EVEN
      IF ASSIGNOR HAS BEEN ADVISED OF THE POSSIBILITY OF THE SAME, ARISING OUT
      OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE DEVICE.

            5.9.4 Assignee shall not represent, in relation to the Device
      purchased hereunder, to its customers any warranties of any nature
      whatsoever other than those given by Assignor or required by applicable
      law.

      5.10 TRADEMARK AND OTHER RIGHTS.

            5.10.1 Assignee shall use the trademark(s) designated by Asahi
      (hereinafter referred to as "Trademark"), including, without limitation,
      "Plasmaflo," "Hemosorba" and "Rheofilter," as instructed by Assignor in
      distributing the Device purchased hereunder and shall not use any other
      trademarks in connection with such distribution without prior written
      consent of Assignor. Assignee acknowledges that Asahi is the owner of all
      right, title and interest in and to the Trademark in the Territory in any
      form or embodiment thereof and is the owner of the goodwill attached or
      which shall become attached to the Trademark in connection with the
      business and goods in relation to which the same has been, is or shall be
      used. Sales by Assignee shall be deemed to have been made by Asahi for
      purposes of trademark registration and all uses of the Trademark by
      Assignee shall inure to the benefit of Asahi. Assignee shall not, at any
      time, do or suffer to be done any act or thing which may in any way
      adversely affect any rights of Asahi in and to the Trademark or any
      registration thereof or which, directly or indirectly, may reduce the
      value of the Trademark or detract from its reputation. At Assignor's
      request, Assignee shall execute any documents, including registered user
      agreements, reasonably required by Assignor to confirm Asahi's ownership
      of all rights in and to the Trademark in the Territory and to confirm the
      respective rights of Assignor and Assignee under this Agreement. Assignee
      shall not alter, obliterate, deface or remove any mark, marking, serial
      number or other symbol carried on the Device or on the packaging in which
      the Device are enclosed without the consent of Assignor. In the event that
      Asahi desires to

                                      -6-
<PAGE>

      change any such mark, marking, serial number of other symbol, Assignee
      will cooperate with Assignor in such manner as may be agreed upon by the
      parties. Assignee never shall challenge Asahi's ownership of or the
      validity of the Trademark or any application for registration there, or
      any trademark registrations thereof, or any rights of Asahi's therein.

            5.10.2 During the term of this Agreement and thereafter, Assignee
      shall not apply for or acquire the registration of the Trademark, not
      shall Assignee contest Asahi's right in or disturb Asahi's use of the
      trademark or goodwill. Should Assignee have the Trademark registered in
      its name or name of any other person, Assignor shall have the right to
      have the registration canceled or transferred to Asahi.

            5.10.3 In the event that Assignee learns of any infringement or
      imitation of the Trademark or of any use by any person of any trademark
      similar to the trademark, it promptly shall notify Assignor thereof. If
      requested to do so by Assignor, Assignee shall cooperate with Assignor in
      the protection of Asahi's rights in and to the Trademark. Assignee shall
      have no right to take any action with respect to the Trademark without
      Assignor's prior written approval.

            5.10.4 Upon the termination of this Agreement for any reason
      whatsoever and after Assignee has had a reasonable and sufficient time to
      liquidate its inventory of the Device, Assignee shall, except as Assignor
      may specifically authorize in writing, immediately cease and desist from
      carrying on any and all use of any trademarks, trade names, words or
      symbols of any nature indicating, explicitly or implicitly, that it is an
      authorized distributor or dealer of Assignor's and/or Asahi's products or
      other Assignor and/or Asahi goods and services.

            5.10.5 Any patent, design, copyright and other intellectual property
      rights embodied in the Device shall be the sole property of Assignor or
      the third party designated by Assignor, and Assignee shall not, either
      directly or indirectly, contest nor assist others in contesting the
      validity of such intellectual property rights. Assignor shall be entitled
      to terminate this Agreement forthwith on notice to Assignee if Assignee
      should violate said obligation. Assignee shall not acquire any right in
      the device by execution of this Agreement or performance hereunder or
      otherwise and shall not use any of them after termination of this
      Agreement resulting from expiration of its term or any other cause
      whatsoever.

            5.10.6 Nothing in this Agreement shall be construed as a warranty or
      representation that the Device of the use thereof will be free from
      infringement of any patent or other intellectual property rights of any
      third party. Assignor shall not be under any obligation to defend, or to
      participate in the defense of, Assignee against any claim or suit alleging
      such infringement; provided, however, that Assignor shall, at Assignee's
      costs, cooperate and assist Assignee in the defense of any such claim or
      suit.

      5.11 INDEMNIFICATION AND PRODUCT LIABILITY INSURANCE.

                                      -7-
<PAGE>

            5.11.1 Assignee shall defend and indemnify Assignor against, and
      hold Assignor harmless from, any loss, cost, liability or expense
      (including court costs and reasonable fees of attorneys and other
      professionals) arising or alleged to arise out of the conduct of Assignee
      in connection with Assignee's use, distribution, promotion, technical and
      in-service training, and sale of the Assigned Rights and Technologies;
      provided, however, that (i) Assignee shall have sole control of such
      defense; and (ii) Assignor shall provide notice promptly to Assignee of
      any actual or threatened claim of which Assignor becomes aware.

            5.11.2 Assignor shall defend and indemnify Assignee against, and
      hold Assignee harmless from, any loss, cost, liability or expense
      (including court costs and reasonable fees of attorneys and other
      professionals) arising or alleged to arise out of the conduct of Assignor
      in connection with the distribution of the Assigned rights and
      Technologies; provided, however, that (i) Assignor shall have sole control
      of such defense, and (ii) Assignee shall provide notice promptly to
      Assignor of any actual or threatened claim of which Assignee becomes
      aware.

            5.11.3 Each party shall be responsible for maintaining reasonable
      product liability insurance coverage with respect to the Assigned Rights
      and Technologies in the Territory at all times during the term of this
      Agreement and thereafter until the time when both parties agree upon. Such
      insurance policy shall be written for the benefit of both Assignee and
      Assignor. Assignee shall deliver a certificate of such insurance to
      Assignor promptly upon issuance of said insurance policy.

      5.12 DISTRIBUTION OF OTHER ASSIGNED RIGHTS AND TECHNOLOGIES. Assignor
agrees to enter into distributorship agreements with Assignee or Assignee's
affiliate for the distribution by Assignor to Assignee of any of the Assigned
Right and Technologies, other than the Device (the distribution of which is
provided for herein), for which Assignor holds or owns or will hold or own
distribution and/or marketing rights. Such distributorship agreements shall
provide for the distribution by Assignor of the subject Assigned Rights and
Technologies on terms that are substantially similar to those terms upon which
Assignor receives the subject Assigned rights and Technologies; provided, that,
if commercially viable, such distributorship agreements shall contain terms and
provisions substantially similar to the terms and provisions contained in
Section 5.6 hereof.

      5.13 USE OF THE DEVICE. Assignee hereby agrees to use the Device only for
lawful purposes and uses in accordance with any and all local, state or federal
laws, rules or regulations, including, without limitation, rules and regulations
relating to "good manufacturing practices" promulgated by the United States Food
and Drug Administration.

6. ROYALTY.

      6.1 PAYMENT OF ROYALTY. In consideration of the assignment of the Assigned
Rights and Technologies to the Assignee, Assignee agrees to pay to Assignor a
royalty in an amount equal to five percent (5%) of the Gross Revenues (as
defined herein) (collectively, the "Royalty"). Whenever used herein, "Gross
Revenues" shall mean all revenues of Assignee and an Affiliate of Assignee (as
defined herein) derived from, attributable to, or earned with the use,

                                      -8-
<PAGE>

sale, marketing, development or distribution of the Assigned Rights and
Technologies, including, without limitation, the sale, lease, assignment, or
license of the Assigned Rights and Technologies, less (i) all sales and use
taxes relating to the foregoing; (ii) all paid reserves for returns related to
the foregoing; (iii) all customer rebates related to the foregoing; (iv) all
warranty reserves related to the foregoing; and (v) all charges for freight and
shipping relating to the foregoing.

      When used in this Section 6, "Affiliate of Assignee" shall mean any
individual, sole proprietorship, partnership, joint venture, limited liability
company, trust, unincorporated organization, association, corporation,
institution, entity or party which, directly or indirectly, controls, is
controlled by, or which is under common control with Assignee. Assignee or an
Affiliate of Assignee shall be deemed to be "controlled by" the other if one of
them possesses, directly or indirectly, the power (a) to vote 10% or more of the
securities or interests (on a fully diluted basis) having ordinary voting power
for the election of directors or managers of the other or (b) to direct or cause
the direction of the management policies of the other, whether by contract or
otherwise. Notwithstanding the foregoing, a sales and marketing partner of
Assignee which would otherwise be deemed to be an Affiliate of Assignee shall
not be deemed to be an Affiliate of Assignee, if assignor in its sole
discretion, so consents.

      6.2 DELIVERY OF PAYMENT AND STATEMENTS. Within forty-five (45) days after
the end of each fiscal quarter of Assignee, Assignee shall deliver to Assignor
(i) quarterly financial statements clearly showing the Gross Revenues and (ii)
the payment of the Royalty. Assignee agrees to keep complete and correct books,
accounts and records to facilitate computation of the Royalty.

      6.3 RIGHT TO AUDIT; OVERPAYMENT; UNDERPAYMENT. For the purpose of
verifying the amount of Royalty due, Assignor shall have the right to audit (the
"Audit"), at its expense, the books of Assignee once per calendar year upon the
giving of reasonable notice to Assignee. In the even that the amount of the
aggregate quarterly payments of the Royalty for the time period contemplated by
the Audit are more than the correct amount of the payments of the royalty for
such time period, then the amount overpaid shall be credited to future sales of
the Device. In the event that he amount of the aggregate quarterly payments of
the royalty for the time period contemplated by the Audit are more than five
percent (5%) less than the correct amount of the payments of the Royalty for
such time period, then, in addition to paying to Assignor the amount of the
Royalty previously underpaid, Assignee shall reimburse Assignor for any and all
costs and expenses associated with or related to the Audit.

7. INTELLECTUAL PROPERTY. Assignor accepts, understands and acknowledges that,
for the term of this Agreement, Assignee shall be the owner and holder of, among
other things, any and all intellectual property, including, without limitation,
all present and future rights to market the Assigned Rights and Technologies
within the Market granted by the United States Food and Drug Administration, and
that Assignee shall have the sole right to, among other things, conduct clinical
trials and market the Assigned Rights and Technologies within the Market.

8. FORCE MAJEURE. Except for the prepayment by Assignor pursuant to Section 5.2
of advance payments of Assignee, neither party hereto shall be liable to the
other in any manner for failure or delay in fulfillment of all or part of this
Agreement, or any individual contract, which

                                      -9-
<PAGE>

is directly or indirectly owing to any causes or circumstances beyond that
party's control, including, but not limited to, failure of Asahi to supply the
Device to Assignor, acts of God, governmental orders or restriction, war,
war-like conditions, hostilities, sanctions, mobilization, blockade, embargo,
detention, revolution, riot, looting, strike, lockout, plague or other
epidemics, fire, earthquake, explosion, flood, and shortage of raw materials.

9. TERM. This Agreement shall come into effect as of the date first above
written and shall continue in perpetuity until terminated pursuant to Section
10.

10. TERMINATION.

      10.1 EVENTS OF TERMINATION.

            10.1.1 Assignor may terminate this Agreement and any individual
      contract for the Device hereunder if upon written notice from Assignor to
      Assignee that Assignee is in material default of the terms and provisions
      of the Agreement, Assignee fails to cure such material default within 90
      days after receipt of such notice.

            10.1.2 Assignee acknowledges that the assignment of the rights in
      the Assigned Rights and Technologies to Assignee hereunder shall
      immediately terminate when, and to the extent, Assignor's rights to such
      Assigned rights and Technologies are terminated.

      10.2 EFFECT OF TERMINATION. Termination of this Agreement and/or any
individual contracts for the Device hereunder pursuant to the preceding Section
shall be without prejudice and shall be additional to any right of Assignor
under this Agreement, such individual contracts for the Device, law, statute or
otherwise. Upon termination of this Agreement and/or such individual contracts
for the Device, all payments to be made under this Agreement, including, without
limitation, the payment of the Royalty and/or such individual contracts in
connection with the sale of the Device hereunder shall become immediately due
and payable.

11. MISCELLANEOUS.

      11.1 GOVERNING LAW; FORUM. This Agreement shall be governed by the laws of
the State of Florida. Each party agrees that any suit, action or proceeding
brought by such party in connection with or arising from this Agreement shall be
brought solely in any state or federal court located in Florida, and each party
consents to the jurisdiction and venue of each such court. Each party agrees
that a final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or equity.

      11.2 EFFECT OF WAIVER. The waiver, express or implied, by either of the
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party hereto shall not constitute or be deemed as a waiver
of any other right hereunder or of any other failure to perform or breach hereof
by the other party, whether or a similar or dissimilar nature.

      11.3 ENTIRE AGREEMENT. This Agreement and its Exhibits contain the entire
agreement of the parties with respect to the subject matter herein contained and
supersedes any prior Agreements or understandings between the parties.

                                      -10-
<PAGE>

      11.4 DISPUTE RESOLUTION. Except as provided in Section 3, all disputes,
controversies or differences which may arise between the parties, out of or in
relation to or in connection with this Agreement, or for the breach thereof,
shall be settled by mutual consultation between the parties hereto in good faith
as promptly as possible, but failing an amicable settlement, shall be finally
settled by arbitration to be held in the State of Florida.

      11.5 NOTICES. Unless otherwise provided in this Agreement, all notices to
be given hereunder shall be in writing and sent by facsimile transmission,
overnight courier or registered airmail to the respective addresses of the
parties stated above or to such other addresses as may be indicated in writing
by the parties hereto by notice pursuant to this Section. If either party has
changed its address, a written notice thereof shall be given to the other party
pursuant to this Section.

      11.6 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement shall be
construed or interpreted to provide that Assignee shall or may act as the agent
or legal representative of Assignor for any purpose whatsoever. Assignee is not
granted any right or authority to assume or to create any obligation or
responsibility, expressed or implied, on behalf of, or in the name of, Assignor
or to bind Assignor in any manner whatsoever. Notwithstanding the common
ownership of the equity holders of Assignor, Assignee, OccuLogix, VascuLogix and
NephroLogix, the parties hereto shall remain separate entities.

      11.7 RESPONSIBILITY FOR COSTS INCURRED HEREUNDER. Assignee shall be solely
responsible for all expenses and costs incurred in performing its duties
hereunder, including, without limitation, all of its own operating and sales
promotion expenses.

      11.8 CONDUCT OF ASSIGNEE. the business conducted by Assignee in connection
with the sale, use, marketing, development and distribution of the Assigned
Rights and Technologies shall at all times be conducted and maintained so as not
to detract from, interfere with or adversely reflect upon the goodwill and
reputation of Assignor, the Trademark and/or trade names and Assigned Rights and
Technologies.

                            [SIGNATURE PAGE FOLLOWS]

                                      -11-
<PAGE>

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

                                           ASSIGNOR:

                                           RheoLogix, L.L.C., a Delaware limited
                                           liability company

                                           By: /s/ Ray Gonzalez
                                               ---------------------------------
                                           Its: President & CEO

                                           Apheresis Technologies, Inc.,
                                           a Florida corporation

                                           By: /s/ John Cornish
                                               ---------------------------------
                                           Its: President & CEO

                                           ASSIGNEE:

                                           CytaLogix Corporation, a Delaware
                                           corporation

                                           By: /s/ Rick Davis
                                               ---------------------------------
                                           Its: President & CEO

<PAGE>

                                    EXHIBIT A

PRODUCT I

         First filter:     Plasmaflo OP-05W(L)

         Second filter:    Rheofilter AR-2000

Product I means the set of the above first filter and second filter which are
used together.

<PAGE>

                                   EXHIBIT B

PRODUCT II

         Plasmaflo AP-05H(L)

         Hemosorba CH-350

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