Document:

LEASE AGREEMENT

 

EXHIBIT 10.7

LEASE AGREEMENT

     LEASE AGREEMENT, made this 26th day of September, 2002 between SITTERLY
ASSOCIATES II, LLC, a New York limited liability company with offices c/o Abele
Builders, Inc., 14 Corporate Drive, Clifton Park, New York 12065 (the
“Landlord”), and On2 Technologies, Inc., Inc., a Delaware corporation with an
office 58 Clifton Country Road, Suite 200, Clifton Park, New York 12065 (the
“Tenant”).

     Recitals. This Lease Agreement (also sometimes called “this Lease”) is
made with reference to the following facts:

A.     Landlord currently owns a 2-story building containing ±51,200 square feet
located on a certain parcel of land at 21 Corporate Drive, Halfmoon, New York
(the “Building”). Such parcel of land and the Building are hereinafter
sometimes referred to collectively as the “Property”. A drawing of the
Building and Tenant’s space in the Building (exclusive of its share of common
area) is attached hereto as Exhibit A.

B.     The Landlord desires to rent to Tenant ±5,540 square feet of the Building
inclusive of Tenant’s proportionate share of common area (“Leased Property” or
“Leased Premises”), and the Tenant desires to lease the same, upon the terms
and conditions set forth herein.

     NOW, THEREFORE, the Landlord and Tenant agree as follows:

1.     Leasing. The Landlord hereby leases to Tenant for a term of three (3) years
and three (3) months beginning on the Lease Commencement Date as defined in
Subparagraph 3(B) below, the Leased Property.

2.     Construction by Landlord and Tenant and Contingencies.

     (A)  Construction by Landlord. The Landlord shall, at its own cost and
expense, remove the existing shelving in the storage room and construct a
partition wall in the storage room to create a new conference room and a new
server room. The new conference room shall have new carpet and vinyl base
installed from Landlord’s standard selection, 2 additional duplex outlets
installed and the existing door relocated. The new server room shall have one
new door installed, 4 additional duplex outlets installed and the existing
vinyl floor cleaned and waxed. The Landlord shall also patch and paint the
walls throughout the space, paint the doors and door frames, replace the carpet
and vinyl base in the private offices and open area with carpet and vinyl base
from Landlord’s standard selection, install the missing interior doors, install
2 power poles in the open area, install 12 additional duplex outlets and
relocate existing lights as necessary,

     (B)  Construction by Tenant and Tenant’s Access During Construction. The
Tenant, its agents, employees and contractors at Tenant’s own cost and expense
may enter upon the Leased Premises at all reasonable times after the date
hereof for the purpose of installing improvements, fixtures and other
equipment, upon the express condition that prior to such entry,

 

 

Tenant or Tenant’s contractors obtain and thereafter maintain comprehensive
general liability insurance including Landlord as an additional insured.

     (C)  Intentionally Deleted.

     (D)  Intentionally Deleted.

     (E)  Contingencies. The obligations of Landlord and Tenant under this
Lease are contingent upon the completion, or waiver, of Landlord obtaining to
its sole satisfaction and discretion (a) all necessary governmental approvals
for leasing of space in the Building to Tenant and (b) the approval by
Landlord’s mortgagee of this Lease and a Subordination, Non-Disturbance and
Attornment Agreement reasonably agreeable to the Tenant. Each party will
cooperate with the other in pursuit of the satisfaction of these conditions.

3.     Lease Term.

     (A)  Intentionally Deleted.

     (B)  Lease Commencement Date. The commencement date for the lease term
(the “Lease Commencement Date”) shall be November 1, 2002, subject to the
satisfaction of the contingencies in Paragraph 2(E).

     (C)  Intentionally Deleted.

     (D)  Intentionally Deleted.

     (E)  Intentionally Deleted.

     (F)  Intentionally Deleted.

     (G)  Duration of Term. The lease term shall expire three (3) years and
three (3) months from the Lease Commencement Date (the “Initial Term” or
“Term”).

4.     Rentals.

     (A)  Definitions. The term “Rent” or “Rents” shall mean all Base Rents
(see subparagraph 4(B)), and all items denominated as Additional Rent
(hereinafter defined) pursuant to various provisions of this Lease.

     (B)  Base Rent. The Tenant shall pay to the Landlord the annual Base Rent
of $13.00 per square foot during the Term, which is agreed to be annual Base
Rent of $72,020.00. Notwithstanding any provision of this Lease to the
contrary, no Base Rent shall be due from Tenant to Landlord for the first three
(3) months of the term.

     Base Rent shall be computed on the basis of the actual square feet
encompassed within the Leased Premises (±4,699 sq. ft.) plus the square feet
representing the proportionate share of common area within the Building (±841
sq. ft.). Each payment of Base Rent is net to Landlord and to that end all
costs, expenses and obligations of every kind and nature whatsoever relating to

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the Leased Property which may arise during the term hereof (and extended term
if any) shall be paid by Tenant, unless otherwise specifically set forth
herein. Tenant shall pay the annual Base Rent in twelve (12) equal monthly
installments of $6,001.67 due on the 1st day of each calendar month during the
Term.

     (C)  Place and Manner of Payment. All payments of Rent shall be made by
the Tenant to the Landlord without notice or demand. All Rents shall be
payable at the Landlord’s address as specified above, or at such other place as
Landlord may from time to time designate in writing. All Rent shall be payable
by Tenant’s check or, if requested by Landlord, by certified or bank cashier’s
check or by wire transfer. Payment of Rent shall commence on the Lease
Commencement Date except for the first three (3) months of the term as herein
specifically provided in Subparagraph 4 (B). Rents for any partial month at
the beginning or end of the lease term shall be prorated, on a daily basis.
The extension of the time for payment of any installment of Rent, or the
acceptance by the Landlord of any payment of any installment of Rent, or the
acceptance by the Landlord of any payment other than of the kind or within the
time herein specified, shall not be deemed a waiver of Landlord’s right to
insist upon having all other payments of Rent made in the manner and at the
time herein specified. All Rent shall be paid to the Landlord without any
abatement, deduction or set-off of any kind or nature whatever, except as
herein specifically provided otherwise.

     (D)  Late Charge. Tenant acknowledges that Landlord intends to utilize the
Rent payments to pay Landlord’s mortgage lender and fund Landlord’s tax and
insurance escrow and that any delay by Tenant in making its Rent payments may
cause the Landlord to incur late payment penalties and additional charges under
the terms of its mortgage loan. Accordingly, Tenant shall pay Landlord a late
charge of five (5%) percent of any payment of Base Rent or Additional Rent not
received by Landlord within five (5) days of its due date.

5.     Operating Expenses and Other Charges.

     (A)  Intentionally deleted.

     (B)  Intentionally deleted.

     (C)  Intentionally deleted.

     (D)  Intentionally deleted.

6.     Tenant’s Operating Expenses. At such time, if any, as Landlord determines
to separately meter utilities, Tenant shall arrange for all utility meters for
the Leased Premises to be placed in its name for its account. Prior thereto,
Tenant shall pay its pro-rata share of electrical and other utility usage,
based upon the square footage of the Leased Premises divided by the square
footage of the Building, provided that all other tenants in the Building
operate similar businesses in terms of utility usage. Otherwise Landlord and
Tenant shall determine a mutually acceptable usage share for Tenant to pay.
The Tenant shall be solely and separately responsible for payment of all
separately metered electrical, gas and heating oil charges, and Tenant shall
also be responsible for janitorial services for the Leased Premises. Normal
office trash only shall be placed in the dumpster provided by Landlord. Large
packaging and similar materials shall be Tenant’s

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obligation to remove and shall not be placed in the dumpster. Tenant shall
maintain the thermostat setting in the Leased Premises at a minimum
of 55E to
prevent water lines located inside the Building from freezing and to prevent
other temperature related damages.

7.     All Sums Denominated Additional Rent. All charges, costs and expenses which
the Tenant is required to pay or reimburse the Landlord (in whole or in part)
under this Lease, together with all interest and penalties that may accrue
thereon, and all damages, costs and expenses which Landlord may incur by reason
of any default or other failure on Tenant’s part to comply with the terms of
this Lease, shall be deemed to be Additional Rent and, in the event of
non-payment by Tenant, Landlord shall have all the rights and remedies with
respect thereto as the Landlord has for the non-payment of base rent. Landlord
represents and warrants that the HVAC and electrical services for the Leased
Premises are in good working order and that to the best of Landlord’s
knowledge, the Building is in compliance with the New York State Uniform Fire
Protection and Building Code.

8.     Tenant’s Acceptance of Property. Tenant has inspected and shall accept the
Leased Premises in “as is” condition as of the date of this Lease, excepting,
however, latent defects.

9.     Access To and Use of Leased Property.

     (A)  Permitted Use. The Tenant shall use the Leased Property for office
purposes only.

     (B)  Hours of Access. Tenant shall have free access to the Building 24
hours per day, 7 days per week, 365 days per year.

10.     Certain Prohibitions.

     (A)  Prohibited Uses. Tenant shall not use or occupy, and shall not permit
or suffer the Leased Property or any part thereof to be used or occupied, for
any business, use or purpose which in any manner:

          (1) is in violation of any present or future laws, rules, regulations or
ordinances, applicable to Tenant or to the Leased Property;

          (2) would violate the Certificate of Occupancy affecting the Leased
Property;

          (3) would make void or voidable any insurance then in force with respect
to the Leased Property or which will make it impossible to obtain fire or any
other insurance on the Leased Property;

          (4) would be likely to cause structural damage to the Building or any part
thereof; or

          (5) would constitute a public or private nuisance.

          The Tenant shall promptly after the discovery of any such prohibited use
take all necessary steps to discontinue such use or compel its discontinuance.

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     (B)  Obstructions. Tenant shall not obstruct or encumber the common areas,
or stairways adjacent hereto, nor shall Tenant use such places for any purposes
other than ingress and egress and loading and unloading of materials to and
from the Leased Property.

     (C)  Floor Load. Tenant shall not place, or permit any Subtenant to place,
a load upon any floor of the Leased Property which exceeds the load of 100
pounds per square foot live load.

11.     Services Provided by Landlord. Landlord shall provide to the Leased
Property and the
Common Area on a twenty-four (24) hour per day, seven (7) day a week basis
elevator service, heating, ventilation, air-conditioning, electricity, water
and sewage service for the use of Tenant. Tenant shall, at its sole cost and
expense, pay or cause to be paid all charges (including any deposits) for
telephone or other services or utilities furnished to the Premises.

12.     Quiet Enjoyment. The Tenant, upon payment of all rents reserved and upon
the performance of all the terms and conditions of this Lease, shall, during
the lease term and any extended terms, peacefully and quietly enjoy the Leased
Property without any disturbance from Landlord or from any other person
claiming from or through Landlord.

13.     Rights of Mortgagee. Landlord shall cause the mortgage(s) or other lending
documents to provide that the lender shall not have any right to terminate this
Lease, provided that the Tenant is not in default beyond any applicable notice
and cure period under the terms of this Lease and enters into an attornment
agreement satisfactory to such lender. Landlord shall obtain from each current
mortgagee a Subordination, Non-Disturbance and Attornment Agreement reasonably
agreeable to the Tenant.

14.     Repairs and Maintenance. The Tenant shall during the term of this Lease
(and any renewals or extensions thereof), at Tenant’s sole cost and expense, maintain,
repair and keep the Leased Property in as good condition as it was at the date
of commencement of this Lease, reasonable use, wear and tear excepted. It is
recognized by both Landlord and Tenant that the roof previously leaked and
Landlord has previously repaired the roof and the Landlord agrees to further
maintain in good order and repair the roof, roof covering, exterior walls,
plumbing, electrical, HVAC, and other major building systems and other
structural components of the Building, and to repair the Tenant’s rentable
space as necessary, at the sole expense of Landlord, to the reasonable
satisfaction of Tenant, if the need for repair to Tenant’s rentable space is
due to Landlord’s failure to maintain the roof or other structural components
of the Building. Landlord further agrees to maintain and repair the common
areas of the Building in a first class condition at the sole expense of
Landlord.

15.     Compliance With Laws and Regulations.

     (A)  Tenant, at Tenant’s sole cost and expense, shall comply with all laws,
orders, rules and regulations of any governmental unit and with any direction
of any public officer, which shall impose any duties or obligations concerning
Tenant’s use or occupancy of the Leased Property, including but not limited to
all environmental laws, rules and regulations relating to the generation,
storage and disposal of waste which are applicable to Tenant’s use of the
Leased Property. The Tenant, at its sole expense, shall obtain all licenses or
permits which may be

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required for the conduct of its business within the Leased Property, or for the
making of repairs, permitted alterations or improvements, or additions.
Landlord, where necessary and at Tenant’s sole cost and expense, agrees to join
with Tenant in applying for all such licenses or permits.

     (B)  The Tenant shall comply with any and all requirements of all policies
of fire, public liability and other types of insurance at any time in force
with respect to the Leased Property issued by the Board of Fire Underwriters,
or by any other body exercising similar functions.

     (C)  Tenant shall promptly give notice to the Landlord of any notice of
violation received by Tenant. Without diminishing any obligation of the
Tenant, if Tenant shall at any time fail to pay any fine and/or correct with
reasonable promptness any such notice of violation, Landlord, after ten (10)
days’ prior written notice to the Tenant, may pay such fine and/or correct such
violation and the amount of such fine and the reasonable costs and expenses of
Landlord in correcting such violation shall be paid by the Tenant. All such
payments, costs and expenses shall be deemed Additional Rent.

     (D)  Tenant shall have the right to contest by appropriate legal action or
proceeding in the name of the Tenant or Landlord or both, the validity or
application of any such law, and Landlord shall cooperate with Tenant and will
execute and deliver any appropriate papers which may be necessary to permit
Tenant to contest the validity or application thereof, provided that Tenant
shall be solely responsible for all legal work and other professional costs and
expenses incurred in connection therewith.

16.     Surrender. At the expiration of the lease term, Tenant shall surrender the
Leased Property in as good condition as it was at the beginning of the term,
reasonable use, wear and tear and damage by casualty or condemnation which
results in termination of the lease excepted. The Tenant shall surrender the
Leased Property broom clean, and shall remove any furniture, furnishings,
fixtures, and equipment which were contained in or installed by Tenant upon the
Leased Property. In the event any such removal causes damage to the Building’s
components, Tenant shall promptly correct the same by restoration to the
condition that existed prior to installation of any such property. Any of
Tenant’s property not removed within thirty (30) days after the expiration of
the lease term shall, at the option of Landlord, become the property of
Landlord. In removing such property after expiration of the lease term, Tenant
shall not interfere with use of the Leased Property by any replacement tenant.

17.     Alterations and Improvements.

     (A)  Landlord’s Consent. Tenant shall have the right to make changes and
non-structural alterations, additions or improvements in or to the Leased
Property so long as the same do not affect the electrical or mechanical systems
of the Building. Tenant shall not make, or cause or permit the making of, any
structural alterations, additions or improvements, (or otherwise affect the
electrical or mechanical systems) including demolition and rebuilding in or to
the Leased Property without obtaining Landlord’s prior written consent thereto
in each instance. Plans and Specifications showing the proposed structural
alterations, additions and improvements shall be submitted to Landlord for
approval as part of the application for Landlord’s consent. Landlord’s consent
shall not be unreasonably withheld

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     (B)  Compliance with Laws. In making, or causing to be made, any
alteration, addition or improvement, Tenant shall comply with all applicable
laws, regulations, ordinances and orders and shall at its sole cost and expense
procure all requisite governmental approvals, authorizations and permits.
Landlord will, on written request from Tenant, execute any documents necessary
to be signed on its part to obtain any such permits.

     (C)  Performance of the Work. All alterations, additions and improvements
made by Tenant shall be made in a good and workmanlike manner and shall be
completed promptly. At all times when any such work is in progress, Tenant
shall maintain or cause to be maintained adequate Worker’s Compensation
insurance covering all persons employed in connection with the work, and
comprehensive general public liability insurance for the mutual benefit of
Landlord and Tenant for the purposes and in the amounts as Landlord may

reasonably require.

     (D)  Permits. No alteration or improvement shall be undertaken until the
Tenant has procured and paid for all required permits and authorizations from
the appropriate governmental unit(s).

     (E)  Improvements Become Landlord’s Property. As to any alteration or
improvement which Landlord does not require to be removed by Tenant at the
expiration of the lease term, (Landlord shall notify Tenant of any obligation
to so remove in writing no later than 120 days prior to the expiration of the
term) the components of such alteration or improvement shall become the
absolute property of Landlord at the expiration of the lease without payment of
any consideration herefore unless such alteration or improvement is readily
portable and Tenant desires to remove same, in which case Tenant may do so.
Tenant shall have the option to remove any improvements and restore the Leased
Property to its original condition at Tenant’s sole cost, provided such removal
is completed in the time and manner required under Paragraph 16.

     (F)  Additional Conditions to Alterations. Before making final payment
with respect to any permitted work, the Tenant shall deliver to Landlord
written waivers of lien by any architect, engineer, contractor, materialman,
laborer or other persons supplying materials or labor in connection with the
improvement or alteration whereby such person waives any lien upon or against
the Leased Property, or the Building, or the interest of the Landlord therein.

     (G)  Removal of Liens. Tenant shall not permit any mechanic’s lien or
other similar lien to be filed against the Leased Property or the Building or
against the Landlord’s interest in the same by reason of any work, labor,
services or material supplied for any alteration or improvement or other work
performed by or on behalf of Tenant in connection with the Building or the
Leased Property. If any such lien shall at any time be filed against the
Leased Property, Tenant shall, within thirty (30) days after written notice
from Landlord, cause such lien to be discharged of record, by payment, deposit,
bond or court order. If Tenant fails to discharge such lien within such thirty
(30) day period, then, in addition to (and not in lieu of) any other right or
remedy of the Landlord, the Landlord may, but shall not be obligated to,
discharge such lien either by payment, deposit, bond, court order or otherwise.
In such event, Landlord shall be entitled to be reimbursed by Tenant for any
payment made to satisfy or discharge such lien (including, without limitation,
legal costs and expenses and bond premiums) together with interest thereon at
the prime rate of Key Bank of New York plus three percent (3%) per annum,

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computed as to each item from the date of payment by Landlord. All such sums
shall be construed as additional rent. Nothing in this paragraph shall be
construed in any way as constituting the consent or request of the Landlord,
express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration, or repair
of or to the Leased Property, or as giving the Tenant the right, power or
authority to contract for or permit the rendering of any service for the
furnishing of any material without the Landlord’s prior written consent as
provided above.

18.     Landlord Rights Upon Tenant’s Default.

     (A)  Definition of Default. A “default” is defined as follows:

          (1) If an action or proceeding is commenced by or against the Tenant under
the federal bankruptcy laws or any other federal or state insolvency laws, and
the same is not discharged within sixty (60) days after commencement.

          (2) If any trustee, receiver, or committee for the benefit of creditors is
appointed for Tenant or Tenant’s property and the same is not discharged within
sixty (60) days after appointment.

          (3) If Tenant fails to pay any Rent and such failure is not cured within
ten (10) days after written notice of default.

          (4) If this Lease is assigned or the Leased Property or any portion
thereof is sublet, other than in accordance with the terms and conditions of
this Lease Agreement and such default is not cured within thirty (30) days
after written notice.

          (5) If Tenant ceases to conduct business in the Leased Property or allows
same to become vacant for more than thirty (30) consecutive days.

          (6) If Tenant fails to maintain the insurance policy and coverage(s)
required herein.

          (7) Intentionally Deleted.

          (8) If Tenant defaults in the performance of any other term of provision
of this Lease and such default is not cured within thirty (30) days after
written notice of default. If it is not reasonably possible to completely cure
any such default within such thirty (30) day period, a default shall be deemed
to exist if Tenant fails to commence a cure within thirty (30) days or fails to
diligently prosecute such cure after timely commencement. If such default by
Tenant also constitutes an event of default by Landlord under any mortgage
affecting the Building, and such mortgage contains shorter cure periods, the
shorter time periods shall control.

     (B)  Tenant’s Responsibilities on Default. In the event of any default by
Tenant, re-entry by Landlord, expiration or termination of this Lease or
dispossess by summary proceeding or otherwise, Tenant shall be responsible for
the following:

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          (1) Rent up to the time of such re-entry, dispossess, expiration or
termination of this Lease.

          (2) The Present Value of Rent for the balance of the full term, all of
which may, at Landlord’s option, be accelerated by Landlord and made due and
payable as of the date of re-entry by Landlord, termination of this Lease or
entry of a judgment of possession, whichever date first occurs. If Landlord
exercises such option, the Present Value (hereinafter defined) of all such sums
shall become immediately due and payable as of the date on which Landlord
notifies Tenant of Landlord’s exercises of its option to accelerate as
hereinabove provided, together with all sums past due. As used herein, the
term “Present Value” means the present value of all sums due under the terms
hereof after the date of re-entry by Landlord, termination of this Lease or
entry of a judgment by possession, whichever date first occurs, discounted at
the rate of eight (8%) percent per annum.

          (3) The payment of all reasonable sums incurred by Landlord in putting the
Premises in good order or preparing the same for re-rental, including brokerage
and advertising;

          (4) Reasonable attorney’s fees and expenses resulting from Landlord
enforcing any of the remedies described below, or in the enforcement of this
Lease or in defending any claim brought against Lessor by Lessee against which
Lessor successfully defends; and

     (C)  Landlord’s Remedies on Default. Upon the occurrence of any default,
Landlord shall have the right to declare the lease term to have come to an end,
and the Landlord shall have the following rights and remedies, in addition to
(and not in lieu of any other rights or remedies Landlord may have at law):

          (1) Re-Entry. To reenter or repossess the Leased Property, either by
force, eviction proceedings, summary proceedings, surrender or otherwise, and
to dispossess and remove the Tenant and other occupants, and their property and
effects.

          (2) Injunctive Relief. Landlord shall be entitled to enjoin breach by the
Tenant of any of the terms and conditions in this Lease and in such event shall
also be entitled to a preliminary injunction, temporary restraining order, or
similar provisional relief.

          (3) Damages. Landlord may seek monetary damages in any re-entry action or
summary proceeding, or commence a separate action or special proceeding against
Tenant and any other responsible parties, to recover monetary damages accruing
by reason of any default, together with interest, plus all reasonable
attorney’s fees, disbursements, court costs and other reasonable expenses
incurred in connection therewith. Monetary damages shall include, without
limitation, Base Rent and all Additional Rent due at the time proceedings are
commenced, rent shortages accruing thereafter as set forth in subparagraph (D)
below, plus all costs associated with any reletting of the Leased Property.
Landlord is under no obligation to mitigate its damages.

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          (4) Remedies Not Exclusive. Mention in this Lease of any particular
remedy shall not preclude Landlord from any other reasonable remedy, at law or
in equity, it being agreed that the rights and remedies of Landlord are
cumulative.

     (D)  Reletting. Landlord may attempt to re-let the Leased Property, for a
term or terms which may, at Landlord’s option, be less than or exceed the
period which would otherwise have constituted the balance of the term of this
Lease. The Landlord may grant concessions in connection with such re-letting.
Tenant shall also pay Landlord, as liquidated damages, the deficiency between
the rents and additional rents reserved under this Lease and the rents
collected or to be collected on account of the lease or leases of the Leased
Property for the remaining period which would otherwise have constituted the
balance of the term of this Lease. In computing such damages there shall be
added to the deficiency such expenses as Landlord may reasonably incur in
connection with re-letting. Any such damages shall be paid from time to time
upon demand after transmittal by Landlord of its calculations of the amount
then due. Landlord, at Landlord’s option may make such alterations, repairs,
replacements and/or decorations in the Leased Property as Landlord, in
Landlord’s sole judgment, considers advisable and necessary for the purpose of
re-letting the Leased Property.

     (E)  Waiver of Redemption. Tenant hereby expressly waives any statutory
notice of intention to re-enter or of institution of legal proceedings for
purposes of re-entry. Tenant further waives any and all rights to redeem under
Section 761 of the New York Real Property actions and Proceedings Law, and
under any other present or future law creating any right of redemption or
similar rights in favor of tenants.

19.     Aggrieved Party’s Right to Perform Other’s Obligations.

     (A)  Right to Cure. If either party defaults, and the default is not
timely cured, after notice, the other party shall have the option to cure such
default on the other’s behalf, in which event such defaulting party shall
reimburse the aggrieved party for all sums paid to effect such cure, plus
interest at a rate equal to the highest prevailing prime rate charged by Key
Bank of New York plus three percent (3%), calculated from the date of such
payment, together with all reasonable professional fees, costs, and other
expenses incurred in connection therewith. If payable by Tenant, all such sums
shall be deemed additional rent hereunder.

     (B)  Notice to Landlord. Landlord shall in no event be charged with
default in any of its obligations hereunder unless and until Landlord shall
have failed to perform such obligations within thirty (30) days (or such
additional time as is reasonably required to correct any such default) after
written notice to Landlord by Tenant, specifically describing such failure. If
Landlord commences within such thirty (30) day period and proceeds with due
diligence to remedy a defect or to make any change required under this Lease,
it shall not be in default.

     (C)  Notice to Mortgagee. If the holder of any mortgage covering the
Leased Property shall have given written notice to Tenant of the address to
which notices to such holder are to be sent, Tenant shall give such holder
written notice simultaneously with any notice given to Landlord of any default
of Landlord, and if Landlord fails to cure any default asserted in said notice
within the time provided above, Tenant shall notify such holder in writing of
the failure to

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cure, and said holder shall have thirty (30) days after receipt of such second
notice to cure such default before Tenant may take any action by reason of such
default.

     (D)  Liability of Mortgagee. No mortgagee, or its nominee, shall become
liable under the provisions of this Lease unless and until such time as it
becomes, and then only for so long as it remains, the owner of the Landlord’s
interest in this Lease, and such liability shall be limited solely to such
mortgagee’s or nominee’s interest in the Property.

     (E)  Liability of Landlord. Tenant shall look only to the Landlord for the
satisfaction of Tenant’s remedies for the collection of a judgement (or other
judicial process) regarding the payment of money by Landlord in the event of
any default by Landlord hereunder. The Landlord’s partners or principals
(disclosed or undisclosed) shall not be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant’s remedies under or with
respect to this Lease, the relationship of Tenant and Landlord or Tenant’s use
and occupancy of the Leased Property.

20.     Landlord’s Right of Access and Use.

     (A)  Landlord and Landlord’s agents, employees, and representatives may
enter upon the Leased Property upon reasonable prior notice at all reasonable
times, to inspect it, to perform any work which Landlord elects or is required
to undertake, or to perform any work made necessary by reason of the Tenant’s
default under the Lease, and may also exhibit the Leased Property in connection
with efforts to sell, lease (within the last six (6) months of the Term), or
obtain financing for the Building, provided that such access does not
unreasonably interfere with Tenant’s use of the Leased Property. Landlord’s
right of entry shall not be deemed to impose upon Landlord any obligation or
liability for the care, supervision or repair of the Leased Property other than
expressly provided in this Lease.

     (B)  Landlord shall provide Tenant with keys for all door locks providing
entry to the Building. Tenant shall provide Landlord with keys for all
interior lockable doors, providing access to or within the Leased Premises upon
request by Landlord. Tenant shall not change such locks without Landlord’s
written consent.

     (C)  The making of any repairs which Landlord is required or permitted to
make under this Lease shall not constitute an eviction of Tenant in whole or in
part and the rent reserved shall in no way abate, while such repairs or

alterations are being made, but such repairs shall be made as expeditiously as
reasonably possible, and be conducted so as to minimize any unreasonable
interference with Tenant’s business.

21.     Condemnation, Damage and Destruction.

     (A)  Restoration Time.

          (1) Within fifteen (15) days from the date of any fire or casualty, the
Landlord shall obtain from any reputable A.I.A. architect, a certification
certifying in his/her opinion the time within which the Leased Property and the
reasonable access thereto can be restored and reconstructed under standard
building conditions (hereinafter called the “Restoration
Time”).

11

 

Landlord shall deliver such certification to the Tenant, and in the event the
damages be so substantial the Leased Property cannot be restored within one
hundred twenty (120) days from the date of Landlord’s receipt of the insurance
proceeds, from such fire or casualty, based on the certified Restoration Time
hereinabove referred to, then, in that event, either the Landlord or the Tenant
shall have the right (a) within thirty (30) days after receipt of such notice
to advise the other that it elects to terminate the Lease; or (b) that it
requires Landlord to prosecute restoration of the Leased Property in the manner
hereinafter provided. In the event the Landlord or Tenant shall elect to
terminate the Lease, Tenant shall surrender the Leased Property forthwith
provided that it shall continue to pay pro rata net annual Base Rent and
additional rent for any portion of the Leased Property which it continues to
occupy and conduct business from pending such surrender of the Leased Property.

          (2) Restoration. In the event this Lease is not terminated in accordance
with Section 21 (A) (1) above, the Landlord shall undertake to restore the
Leased Property substantially to the condition prior to the fire or casualty
subject to then applicable law, with reasonable speed and dispatch, and
Landlord shall diligently prosecute reconstruction in order to restore the
Leased Property for Tenant’s use as expeditiously as possible.

          (3) Rent Abatement. To the extent the Leased Property is unusable for the
conduct of business by Tenant after the casualty, Tenant’s obligation to pay
rent shall abate and Landlord shall look to the rent insurance provided by
Tenant as required hereunder.

     (B)  Condemnation or Taking. If there shall be a taking of all or a
material portion of the Leased Property or the reasonable access thereto by
federal, state, county, city or other authority for public use, or under any
statute, or by right of eminent domain (a “Taking”), then this Lease shall
terminate as of the date of the Taking and the rent shall be adjusted as of the
date of such termination of this Lease. A Taking of a material portion of the
Leased Property shall be deemed to mean a taking of such scope that the untaken
portion of the Leased Property is insufficient to permit the restoration of the
then existing improvements thereof so as to constitute a complete operating
facility of sufficient size to permit Tenant to conduct its business in
substantially the same manner as prior to the Taking.

     (C)  Partial Taking. If there shall be a partial Taking of the Leased
Property which shall not result in a termination of this Lease as provided in
Section 21 (B), then Landlord shall, at its own cost and expense, restore the
remaining portion of the Leased Property within ninety (90) days from such
partial Taking and the rent shall be equitably apportioned according to the
space taken.

     (D)  Awards. All compensation awarded or paid upon such a total or partial
Taking of the Leased Property shall belong to and be the property of the
Landlord without any participation by the Tenant; provided, however, that
Tenant shall not be precluded from prosecuting any claims directly against the
condemning authority for moving expenses or other awards specifically set aside
for tenants of the Building, including damages for the taking of the Tenant’s
leasehold interest, provided that Landlord’s award for damages in the Taking is
not reduced or diminished.

     (E) 
No Obligation. Anything in this Paragraph 21 to the contrary
notwithstanding, it is expressly understood and agreed that Landlord shall not
be obligated, in its sole discretion, to

12

 

repair or replace the Building, in the event that insurance or condemnation
proceeds are retained by the mortgagee of the first lien or such fire, casualty
or condemnation shall occur during the last year of the Initial Term or any
renewal term. In such event, at either Landlord’s or Tenant’s option this
Lease shall be terminated and deemed null and void and of no further force and
effect, and both parties shall be released of liability one to the other,
except as otherwise in the Lease provided. Landlord and Tenant agree to
execute at the request of the other a lease termination agreement in recordable
form to evidence the Lease termination.

22.     Tenant’s Insurance. Tenant shall carry Commercial General Liability
Insurance (1986 Form) written on an occurrence form for the duration of this
Lease. Such insurance shall cover the Leased Premises and the Tenant’s
contractual obligations as stipulated in this Lease. The Commercial General
Liability policy shall reflect the interests of the Landlord as an additional
insured.

     Such insurance shall be provided in amounts not less than:

	 	 	 	 	 
	Coverage	 	Limits of Liability
	
	 	

	General Aggregate Limit
	 	$	2,000,000	 
	Products/Completed Operations Aggregate Limit
	 	$	2,000,000	 
	Personal/Advertising Injury Occurrence Limit
	 	$	2,000,000	 
	Each Occurrence Limit
	 	$	2,000,000	 
	Fire Damage (any one fire)
	 	$	300,000	 
	Medical Expenses (any one person)
	 	$	5,000	 

     Prior to occupying the Leased Premises, Tenant shall provide a Certificate
of Insurance to the Landlord evidencing coverages in compliance with the above
requirements. The Certificate of Insurance shall provide thirty (30) days
advance written notice (if reasonably available) to the Landlord in the event
of the cancellation, change and/or non-renewal of the coverages certified. The
Certificate of Insurance shall be renewed and filed with the Landlord annually
for the duration of this Lease. A copy of the Certificate of Insurance shall
be provided to Landlord upon thirty (30) days written notice.

23.     Intentionally Deleted.

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24.     Assignment and Subletting, Change in Control

     (A)  In General. The Tenant may not, voluntarily or by operation of law,
assign, sublet, mortgage or encumber this Lease, for all or any portion of the
remainder of this term, or permit a change in control of Tenant or permit a
transfer of substantially all of the assets of Tenant without the express prior
written consent of the Landlord in each instance which consent shall not be
unreasonably delayed, conditioned or withheld. The Tenant shall remain
primarily liable for the rent reserved in this Lease Agreement and the
performance of all of its terms and conditions notwithstanding any such
assignment or subletting, or change in control or transfer of assets. The
collection or acceptance of any rent or additional rent by the Landlord shall
not be deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as a tenant, or release of the Tenant from the further
performance of the terms and conditions of this Lease. Landlord’s consent to
an assignment or sublease or change in control or transfer of assets shall not
be construed to relieve Tenant from obtaining Landlord’s written consent for
any further assignment or sublease. Change in control shall mean the transfer
of 51% or more of the voting stock of Tenant or any Guarantor after the date
hereof in one or more of a series of transactions, whether by sale of stock,
merger, liquidation, or other transfer, but there shall be no change in control
if the resulting entity has greater net worth than the Tenant previously had.

     (B)  Instruments of Assignment. No assignment or subletting or change in
control of Tenant or transfer of assets of Tenant shall be valid or effective
until there is delivered to Landlord a duplicate original of the written
instrument of assignment or sublease containing the name and address of the
assignee or subtenant and an express assumption by the assignee or subtenant or
new principals of Tenant or new owner of the assets of Tenant of this Lease
Agreement and of all of the obligations under this Lease to be performed by the
Tenant.

     (C)  Instruments of Subletting. Any sublease(s) consented to by Landlord
must provide that Tenant (as sublandlord) assigns all rents under the sublease
to Landlord and in the event of default by Tenant hereunder upon written notice
from Landlord all rents under such sublease(s) shall be paid by the subtenants
to Landlord.

25.     Subordination and Attornment.

     (A)  Tenant recognizes that Landlord has financed all or part of the
construction costs of the Building through financing which is secured by
mortgages or similar encumbrances upon the land and the Building. In addition,
Landlord may obtain IDA financing involving the execution and delivery of
deed(s), leases, bond(s), mortgage(s) and an installment sale agreement. This
Lease Agreement shall be subject and subordinate to any lease, sale agreement
and mortgage(s) given to secure the financing and any other mortgage now or
hereafter constituting a lien upon the Leased Property, and to all additions,
increases, renewals, modifications, consolidations, replacements or extensions
thereof. Although no instrument or act on the part of the Tenant shall be
necessary to effectuate such subordination, the Tenant agrees to execute,
acknowledge and deliver such further commercially reasonable instruments
subordinating this Lease to such lease or sale agreement and mortgage.
However, Landlord agrees to cause the IDA sale agreement and mortgage, or any
other sale agreement or mortgage, and all other financing instruments to
provide that the Lender shall not have any right to

14

 

terminate this Lease, so long as Tenant is not in default under this Lease
beyond any applicable notice and cure period.

     (B)  In the event of the cancellation or termination of the sale agreement,
including any extensions or renewals, or in the event of the foreclosure of any
mortgage, the Tenant shall make full and complete attornment to the IDA and/or
other lender for the balance of the term of this Lease, upon the same covenants
and conditions as are contained herein, so as to establish direct privity of
estate and contract between the IDA and/or other lender and the Tenant with the
same force and effect as though this Lease Agreement were originally made
directly between them. The Tenant shall thereafter make all rent payments
directly to the IDA or to the other lender, as the case may be.

26.     Fees and Expenses. Should either party hereto commence an action against
the other to enforce any obligation under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys’ fees and expenses from the
other.

27.     Indemnification.

     (A)  Indemnification by Landlord. Landlord hereby agrees to indemnify,
defend and hold harmless Tenant, its successors, assigns, subsidiaries,
directors, officers, agents and employees from and against any and all damage,
loss, liability or expense including, but not limited to, reasonable attorneys’
fees and legal costs, suffered by same directly or by reason of any claim, suit
or judgment brought by or in favor of any person or persons for damage, loss or
expense due to, but not limited to, bodily injury, including death arising at
any time therefrom, and property damage sustained by such person or persons
which arises out of, is occasioned by or attributable to the acts or omissions
of Landlord, its licensees, concessionaires, agents, employees or contractors
(“Landlord Employees”), or any breach or default in the performance of any
obligation on Landlord’s part to be performed under the terms of this Lease,
except to the extent caused by the negligence or the willful misconduct of
Tenant, its employees and agents. If any proceeding is brought against Tenant
by reason of any such claim, Landlord shall defend same at Landlord’s expense
by counsel satisfactory to Tenant.

     (B)  Indemnification by Tenant. Tenant hereby agrees to indemnify, defend
and hold harmless Landlord, its successors, assigns, subsidiaries, directors,
officers, agents and employees from and against any and all damage, loss,
liability or expense including, but not limited to, reasonable attorney’s fees
and legal costs, suffered by same directly or by reason of any claim, suit or
judgment brought by or in favor of any person or persons for damage, loss or
expense due to, but not limited to, bodily injury, including death arising at
any time therefrom, and property damage sustained by such person or persons
which arises out of, is occasioned by or attributable to the use or occupancy
of the Leased Premises by Tenant, the acts or omissions of Tenant, its
subtenants, licensees, concessionaires, agents, employees or contractors
(“Tenant Employees”), or any breach or default in the performance of any
obligation on Tenant’s part to be performed under the terms of this Lease,
except to the extent caused by the negligence or willful misconduct of
Landlord, its employees and agents. If any proceeding is brought against

Landlord by reason of any such claim, Tenant shall defend same at Tenant’s
expense by counsel satisfactory to Landlord.

15

 

     (C)  Survival. The foregoing indemnities shall survive the expiration of
the Term or any other termination of this Lease. Notwithstanding the
foregoing, Landlord and Tenant agree that neither party hereto is indemnifying
the other for the acts of third parties who are not Landlord Employees (for
whom Landlord shall bear responsibility) or Tenant Employees (for whom Tenant
shall bear responsibility). Each party’s agreement to indemnify and hold the
other party harmless pursuant to the foregoing is not intended to and shall not
relieve any insurance carrier of its obligations under policies required to be
maintained under this Lease by Tenant or Landlord, with the indemnitor in each
such case having the right to the benefit of any available insurance proceeds
as a setoff and/or mitigation of any indemnity amounts paid.

     (D)  Limitation of Liability. Neither party shall be liable to the other
party for special or consequential damages as a result of any breach of any
provision of this Lease or any negligent act or omission.

     (E)  Subrogation. Upon either party’s fully assuming and performing its
obligations as set forth in subparagraph (A) or subparagraph (B) hereof,
whichever is applicable, such party (the “Indemnifying Party”) shall be
subrogated to any rights of the other party (the “Indemnified Party”) against
any third parties. The Indemnified Party shall promptly notify the
Indemnifying Party of any claim asserted against the Indemnified Party on
account of any injury or claimed injury to persons or property and shall
promptly deliver to the Indemnifying Party the original or a true copy of any
summons or other process, pleading, or notice issued in any suit or other
proceeding to assert or enforce any such claim. The Indemnifying Party shall
have the duty to defend any such suit, to the extent of its indemnification as
set forth in subparagraph (A) or (B) above whichever is applicable, is
applicable thereto.

     (F)  Insurance. The Indemnifying Party’s obligation to indemnify the
Indemnified Party hereunder shall only apply to the extent any liability, loss
or expense incurred by the Indemnified Party (including reasonable attorneys’
fees) is not covered by insurance maintained by Indemnified Party.

28.     Waiver of Subrogation. Without affecting any other rights or remedies,
each party to this Lease hereby releases and relieves the other party
(including such other party’s officers, directors, agents, representatives,
employees, affiliated corporations, partners, managers, successors and assigns)
and waives its right to recover damages (whether in contract or tort) against
such other party (and such other party’s officers, directors, agents,
representatives, employees, affiliated corporations, partners, managers,
successors and assigns), for any and all losses and damages to the waiving
party, or to any property of the waiving party, arising out of or incident to
any peril covered by insurance maintained by the waiving party as required by
the terms of this Lease, but only to the extent of such insurance. Each party
to this Lease agrees to cause its insurer(s) to include a waiver of subrogation
rights provision in the policies of insurance required to be maintained
pursuant to this Lease.

29.     Notices. Any notice, consent or request required or permitted under this
Lease Agreement shall be in writing and will be deemed sufficiently given if
delivered personally or sent by registered or certified mail, return receipt
requested, to the respective parties at the following addresses:

16

 

	 	 	 	 
	 	
If to Landlord:
	 	Sitterly Associates II, LLC

c/o Abele Builders, Inc.

14 Corporate Drive

Clifton Park, New York 12065

Attn: Edward P. Abele
	 	 	 	 
	 	
If to Tenant:
	 	Anthony P

On2 Technologies, Inc.

21 Corporate Drive, Suite 10

Clifton Park, New York 12065

30.     Modification and Waivers.

     (A)  No Oral Modifications or Discharge. This Lease Agreement may not be
discharged or terminated, nor may it be changed, modified or supplemented
orally, but only by a document in writing, signed by both Landlord and Tenant.

     (B)  Modification at Request of Mortgage Lenders. If, in connection with
obtaining temporary or permanent financing for any portion of the Leased
Property, any lender shall request reasonable modifications of the Lease as a
condition to such financing, Tenant agrees that Tenant will not unreasonably
withhold, delay or defer the execution of a modification agreement, provided
such modifications do not increase the financial obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant’s reasonable use and enjoyment of the Leased Property.

     (C)  No Waiver by Implication; No Oral Waivers. The failure of either
party to seek redress for any default, or to insist upon the strict performance
of any covenant or condition of this Lease shall not constitute an implied
waiver, and shall not prevent any subsequent act or omission from having all
the force and effect of any original default. The receipt by Landlord of rent
or payment of rent by Tenant with knowledge of the breach of any covenant of
this Lease shall not be deemed a waiver of such breach. No provision of this
Lease shall be deemed to have been waived by either party, unless such waiver
be in writing signed by such party. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord’s right to recover
the balance of such rent or pursue any other remedy in this Lease provided.

31.     Security Deposit. The Tenant will deposit the sum of one (1) month’s Base
Rent contemporaneously with execution of this Lease, as security for the full
and faithful performance by the Tenant of all of the terms, covenants and
conditions of this Lease upon the Tenant’s part to be performed. Provided that
Tenant is not in default under any of the terms and provisions of this Lease,
the security deposit shall be returned to Tenant; otherwise, it shall be used
to restore the Leased Premises to the condition required by the terms of this
Lease or otherwise applied against Tenant’s obligations in the event of a
default.

17

 

32.     Memorandum of Lease. This Lease Agreement shall not be recorded. Landlord
and Tenant shall, at the request of either party, execute and deliver a
memorandum of this Lease Agreement in proper form for recording, but the
memorandum shall not in any circumstances be deemed to modify or change any of
the provisions of this Lease Agreement, the provisions of which shall in all
instances prevail.

33.     Estoppel Certificates. Each party agrees at any time, and from time to
time, upon not less than fifteen (15) days prior notice by the other party, to
execute, acknowledge, and deliver to the other party, a statement in writing
certifying (or, if there have been modifications, that the same is in full
force and effect as modified and stating the modifications) stating the dates
to which the fixed base rent and additional rent have been paid, and stating
whether or not to the best knowledge of the signer, there exists any default
beyond any applicable notice and cure period by the other and, if so,
specifying each such default. It is the parties intent that any such statement
delivered pursuant hereto may be relied upon by the other party and by any
mortgagee or prospective mortgagee of any mortgage affecting the Building or
Tenant’s interest in this Lease, and by any subtenant or assignee.

34.     Environmental Matters. Insofar as they are applicable to Tenant’s use of
the Leased Premises, Tenant shall comply with all environmental laws, which
include all federal, state, local and municipal laws, statutes, ordinances,
rules, regulations, orders, decrees or requirements for regulating, relating
to, or imposing liability or standards of conduct concerning the use, storage,
treatment, transportation, manufacture, refinement, handling, production and
disposal of all waste generated on the Leased Property, hazardous materials
covered by any Environmental Law, or otherwise pertaining to environmental
protection, as now or at any time hereafter in effect, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601; the Superfund Amendment and
Reauthorization Act of 1986, Public Law 99-499, 100 Stat. 1613; Toxic
Substances Control Act of 1976; the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901; the Occupational Safety and Health Act, 29 U.S.C. Section
655 and Section 657; the Clean Air Act, 42 U.S.C. Section 7401; the Clean Water
Act, 33 U.S.C. Section 1251; the New York State Environmental Quality Review
Act, New York State Environmental Conservation Law Section 8-1101; the New York
Environmental Conservation Law, together with all amendments thereto,
substitutions therefor, rules and regulations promulgated thereunder and all
amendments to and substitutions for the rules and regulations (the
aforementioned are called the “Environmental Laws”). Tenant shall defend,
indemnify and hold harmless the Landlord and the Landlord’s employees, agents,
partners, officers, directors and trustees from any and against any and all

claims, demands, penalties, fines, liabilities, settlements, damages, costs
and/or expenses of whatever kind or nature and/or any other environmental
clean-up of any kind or description, known or unknown, contingent or otherwise,
arising out of or in any way relating to any violation of any Environmental
Laws arising out of Tenant’s use of the Building and Leased Property and caused
by Tenant, its employees, contractors, invitees or such other persons under
Tenant’s control. Landlord represents to Tenant that to the best of Landlord’s
knowledge, as of the date hereof there are no material violations of any
environmental law or any of the above cited statutes. Notwithstanding the
foregoing, Tenant shall have the right to use and store at the Leased Property
in compliance with applicable laws reasonable quantities of office products and
cleaning supplies.

18

 

35.     Construction and Miscellaneous.

     (A)  Governing Law. This Lease shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.

     (B)  Grammatical Usage. In construing this Lease, feminine or neuter
pronouns shall be substituted for those masculine in form, and vice versa, and
plural terms shall be substituted for singular and singular for plural, in any
place in which the context so requires.

     (C)  Terms Inclusive. The term “Landlord” and “Tenant” shall include the
parties named in this Lease, their legal successors in interest, and all
permitted subtenants or assigns.

     (D)  Captions. Captions are inserted in the Lease only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of intent of this Lease Agreement or in any way affect this Lease.

     (E)  Severability. If any term or provision of this Lease shall, to any
extent, be declared to be invalid or unenforceable, the remainder of this Lease
shall not be affected thereby and the balance of the terms and provisions of
this Lease shall be valid and enforceable to the fullest extent permitted by
Law.

     (F)  Counterparts. This Lease Agreement may be executed in several
counterparts, and any signed counterpart shall constitute a legal original for
all purposes. Any such counterparts may be introduced into evidence in any
action or proceeding without having to produce the others.

     (G)  Consent. Whenever either party’s consent or approval shall be
required herein, unless such consent or approval is expressed herein as being
in the sole or absolute discretion of such party, such consent or approval
shall not be unreasonably or arbitrarily withheld, conditioned or delayed, and
shall be deemed to have been given, unless within thirty (30) days of the other
party’s request therefor, the party whose consent has been requested notifies
the other that it is denying such consent or approval, stating in such notice
the reasonable grounds therefor.

     (H)  Intentionally deleted.

     (I)  Force Majeure. If either party hereto shall be delayed or hindered in
or prevented from the performance of any act required hereunder by reason of
acts of God, governmental emergencies, strikes, lockouts, labor troubles,
inability to procure material, failure of power, restrictive governmental laws
or regulations, riots, insurrection, war or other reason of a like nature not
the fault of the party delayed in performing work or doing acts required under
this Lease, the period for the performance of any such act shall be extended
for a period equivalent to the period of such delay. Notwithstanding the
foregoing, the provisions of this Subparagraph shall at no time operate to
excuse Tenant from any obligations for payment of Rent, or any other payments
required by the terms of this Lease when the same are due, and all such amounts
shall be paid when due, except as otherwise expressly provided in this Lease.

19

 

     (J)  Further Action. The parties shall execute and deliver all documents,
provide all information and take or forbear from all such action as may be
necessary or appropriate to achieve the purpose of this Agreement.

     (K)  Exclusive Agreement. This Lease Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto. No
covenant, representation or condition not expressed in this Lease shall affect,
or be deemed to interpret, change or restrict the express provisions hereof.

     (L)  Trial by Jury. It is mutually agreed between the Landlord and the
Tenant that each of them shall, and hereby does, waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other on any matters whatsoever arising out of, or in any way connected with,
this Lease, the Tenant’s use or occupancy of the Leased Property, and any claim
of injury or damage related to any of the same.

     (M)  Amendment or Termination. Except as otherwise provided herein, this
Lease may be modified or amended only with the prior written approval of both
parties, and it may not be discharged or terminated except in writing.

     (N)  Authorizations and Representations. Each party hereby severally
represents that it has been duly authorized to execute, deliver and perform
this Lease through its members, officers or agents signing on its behalf and
affixing any appropriate seal hereto.

     (O)  Accord and Satisfaction. Landlord is entitled to accept, receive and
cash or deposit any payment made by Tenant for any reason or purpose or in any
amount whatsoever, and apply the same at Landlord’s option to any obligation of
Tenant and the same shall not constitute payment of any amount owed except that
to which Landlord has applied the same. No endorsement or statement on any
check or payment shall effect Landlord’s right to recover any and all amounts
owed by Tenant hereunder and Landlord’s right to pursue any other available
remedy.

     (P)  Financing. If Landlord desires to obtain or refinance any mortgage
loan, Tenant shall negotiate in good faith with Landlord concerning any request
made by any lender or proposed lender for changes or modifications in this
Lease subject however to Subsection 30(B). In particular, Tenant shall agree,
upon request of Landlord, to supply any such Lender with such notices and
information as Tenant is required to give to Landlord hereunder and to extend
the rights of Landlord hereunder to any such lender and to consent to such
financing if such consent is requested by such lender. Tenant shall provide
any other consent or statement and shall execute any and all other commercially
reasonable documents that such lender reasonably requires in connection with
such financing, including any commercially reasonable subordination,
non-disturbance and attornment agreement, so long as the same do not adversely
affect any right, benefit or privilege of Tenant under this Lease except in any
non-material respect or materially increase Tenant’s obligations under this
Lease in any material respect or increase any of Tenant’s monetary obligations
under this Lease.

36.     Intentionally Deleted.

20

 

     IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of
the date first above written.

	 	SITTERLY ASSOCIATES II, LLC

	 	By:	/s/ Edward P. Abele

Edward P. Abele

	 	Its: General Partner of Sole Member

	 	ON2 TECHNOLOGIES, INC.

	 	By:
	/s/ Mark Meagher

Mark Meagher

	 	Its: Chief Financial Officer

21<PAGE>
                                                                  EXHIBIT 10(ww)

                              EMPLOYMENT AGREEMENT

                  AGREEMENT by and among American International Group, Inc., a
Delaware corporation (the "Parent"), American General Corporation, a Texas
corporation (the "Company"), and John A. Graf (the "Executive") dated as of the
11th day of May, 2001.

                  Parent has determined that it is in the best interests of
Parent and the Company and their respective shareholders to assure that the
Company will have the continued services of the Executive following the merger
(the "Merger") of the Company and Washington Acquisition Corporation, a Texas
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to
the Agreement and Plan of Merger dated as of May 11th, 2001 (the "Merger
Agreement"), to provide the surviving corporation after the Merger with
continuity of management. Pursuant to the terms of the Prior Agreement (as
defined below), Executive would have had the right to terminate his employment
upon consummation of the Merger. However, Parent desires to retain the
Executive's continued services pursuant to the terms of this Agreement.
Therefore, in order to accomplish these objectives, Parent, the Company and the
Executive agree as follows:

                  NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

         1.       Effective Date. The "Effective Date" shall mean the "Effective
Date" (as defined in the Merger Agreement) of the Merger. This Agreement shall
be and become effective on the Effective Date. If the Effective Date does not
occur on or before February 28, 2002 or if the Merger Agreement is earlier
terminated in accordance with its terms, then this Agreement shall terminate
automatically on February 28, 2002 or on such earlier Merger Agreement
termination date and none of Parent, the Company or the Executive shall have any
obligation to the other hereunder.

         2.       Employment Period. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to continue to serve the Company,
subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary thereof
(the "Employment Period").

         3.       Terms of Employment.

                  (a)      Position and Duties.

                           (i)      During the Employment Period, (A) the
Executive shall serve in the position set forth on Exhibit A attached hereto,
with the duties and responsibilities associated with such position on the
Effective Date (except to the extent expressly provided in Exhibit A) as shall
be assigned to him by the Board of Directors or Chief Executive Officer of the
Company and (B) the Executive's services shall be performed in the location set
forth on Exhibit A hereto.

                           (ii)     During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time during
normal business hours to the business and affairs of the Company and Parent and
to use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall not be
a violation of this

<PAGE>

Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company and Parent in accordance with
this Agreement, and with respect to the activities described in clauses (A) and
(C) hereof subject to Parent's policies as in effect from time to time.

                  (b)      Compensation.

                           (i)      Initial Payment. On the Effective Date, the
Company shall pay to the Executive a lump sum payment equal to the amount set
forth on Exhibit A hereto, which is equal to the cash payment that the Executive
would have been entitled to receive pursuant to Section 4.5 (the "Cash
Severance") of the Change in Control Severance Agreement between the Company and
the Executive dated as of April 1, 2000 (the "Severance Agreement"), had he been
terminated by the Company without "cause" (as defined therein) upon the
Effective Date. In addition, on the Effective Date, the Company shall pay to the
insurance company which has issued the policy which is the subject of the
Split-Dollar Agreement between the Executive and the Company, dated as of May
15, 1998 (the "Split-Dollar Agreement"); the amount set forth on Exhibit A
hereto (the "Split Dollar Payment"), which is equal to the projected amount of
the premium payments that the Company would have been required to make during
the three-year period immediately following the Effective Date on the policy
underlying the Split-Dollar Agreement, pursuant to Paragraph 5(b) of the
Split-Dollar Agreement. The Executive shall also be entitled to an excise tax
gross-up payment as set forth in Section 4.7 of the Severance Agreement solely
with respect to the payments and benefits that the Executive was entitled to
receive under the terms of the Severance Agreement, the Employment Agreement
between the Executive and the Company dated as of May 1, 2000 (the "Prior
Employment Agreement"), the Supplemental Executive Retirement Agreement between
the Company and the Executive, dated as of May 1, 2000 (the "SERA") and the
Split-Dollar Agreement (collectively, the "Pre-Effective Date Agreements") or
with respect to the vesting of or lapse of restrictions on, as a direct result
of the Merger, compensation earned, benefits accrued or equity awards granted
prior to the Effective Date (including, without limitation, benefits due and
owing under the Pre-Effective Date Agreements and specifically incorporated
herein). Except as set forth in the preceding sentence, in no event shall the
Executive be entitled to an excise tax gross-up payment with respect to any
amounts payable or benefits provided under the terms of this Agreement. The
Executive acknowledges and agrees that in no event shall he be entitled to the
payments or benefits under the Severance Agreement based upon a termination
during a "Period of Anticipated Change in Control" (as defined in the Severance
Agreement).

                           (ii)     Base Salary. During the Employment Period,
the Executive shall receive an annual base salary ("Annual Base Salary") of no
less than the annual base salary in effect with respect to the Executive for
calendar year 2001.

                           (iii)    Annual Bonus. For each calendar year ending
during the Employment Period, the Executive shall receive (or at his election
pursuant to the deferred compensation plan of the Company (if any) defer part or
all of) an annual cash bonus at least equal to the amount set forth on Exhibit A
hereto (the "Annual Bonus") no later than January 31 of the following year, and
the Annual Bonus hereunder shall be in lieu of any bonus amount (or portion

                                       -2-

<PAGE>

thereof) payable to the Executive under any agreement or bonus plan of the
Company, including without limitation, the Company Performance-Based Plan for
Executive Officers with respect to the calendar year in which the Effective Date
occurs, and the Executive hereby waives all right under any such agreements or
plans. For the calendar year within which the Employment Period ends, the
Executive shall receive no later than January 31 of the following year (or at
his election pursuant to the applicable deferred compensation plan of the
Company (if any) defer part or all of) a bonus which shall equal or exceed an
amount determined by multiplying the Annual Bonus amount set forth on Exhibit A
by a fraction the numerator of which shall be the number of days in such
calendar year which were included in the Employment Period and the denominator
of which shall be 365.

                           (iv)     Incentive Awards. At the time equity grants
are made to other employees of the Company pursuant to the Merger Agreement, the
Executive will be granted equity based awards with respect to the common stock
of Parent (the "2001 Service Awards"), pursuant to the terms of the applicable
Parent plan as in effect from time to time, that is equal in value to the value
of all options (valued using a Black-Scholes value of $10.00, after giving
effect to the stock split in 2001), restricted shares and Performance Awards
contained in a Performance Based Restricted Stock/Restricted Share Unit Award
(valued using the fair market value of the Company's common stock on the date of
grant) with respect to restricted share units and performance awards that were
granted to the Executive by the Company on January 17, 2001, and with the ratio
of the options, restricted shares and performance awards being the same as the
ratio of the awards granted to the Executive on January 17, 2001. For purposes
of the immediately preceding sentence, the value of the options in Parent's
common stock shall be determined using the Black-Scholes valuation model, using
assumptions established in manner consistent with the assumptions applied by
Parent, consistent with past practices, in respect of stock option grants in
2001. Any stock options on Parent common stock granted in connection with the
2001 Service Awards will have an exercise price equal to the fair market value
of the Parent common stock subject thereto on the date of grant and, except as
otherwise provided herein, shall vest in four equal installments on each of the
first, second, third and fourth anniversaries of the date of grant. Any
restricted shares and Performance Awards granted in respect of Parent common
stock shall have terms and conditions that are substantially comparable to those
applied in respect of the 2001 awards made by the Company. In the event that the
Executive receives any equity award grants (other than reload options) from the
Company after the date hereof, the 2001 Service Awards shall be reduced by the
value of any such awards (determined using a Black-Scholes value with respect to
options, using assumptions established on a basis consistent with those applied
by the Company in determining such Black-Scholes value in respect of the 2001
grants to the Executive, and the fair market value on the date of grant with
respect to performance based or restricted stock awards).

                           (v)      Retirement Benefits. On the Effective Date,
the Executive shall be paid the benefits payable to the Executive under the
SERA, which benefits shall be calculated under the terms and conditions thereof
(including without limitation, any enhanced service and age credits provided
under Section 2.6 in respect of a termination of the Executive's employment
following the occurrence of a Change of Control) as though the Executive's
employment terminated on the Effective Date without Cause and the Executive
elected to receive a lump sum distribution of such benefits, with any offset
against such benefits related to the benefits payable to the Executive under any
other retirement plan maintained by the Company based on the benefits

                                      -3-

<PAGE>

accrued by the Executive thereunder as of the Effective Date. From and after the
Effective Date, the Executive shall not be entitled to accrue any additional
benefit under the SERA. From and after the Effective Date, the Executive shall
participate in the applicable retirement plans of the Company as though no SERA
benefit was accrued, provided that the Executive shall not become a participant
in the Company's or Parent's Supplemental Executive Retirement Plan and that in
no event shall the Executive be entitled to duplicate benefits with respect to
the same period of service. To the extent anything contained in this Section
3(b)(v) is inconsistent with the terms and conditions of the SERA, the SERA
shall be deemed amended hereby.

                           (vi)     Other Employee Benefit Plans. During the
Employment Period, except as otherwise expressly provided herein, the Executive
shall be entitled to participate in all employee benefit, welfare and other
plans, practices, policies and programs generally applicable to similarly
situated executives of the Company, provided that, in no event shall the
Executive be entitled to receive duplicate benefits with respect to the same
period of service under any plans, practices, policies or programs of the
Company and/or Parent. Notwithstanding anything contained herein to the
contrary, the Executive expressly understands and agrees that he will not
initially be entitled to become a participant in the STARR International Co.,
Inc. ("SICO") Deferred Compensation Profit Participation Plan ("SICO Plan") or
to become a stockholder of C.V. STARR & Co., Inc. ("STARR"), but that following
the first anniversary of the Effective Date, Parent will recommend to the Boards
of Directors of SICO and of STARR that the Executive be eligible to commence
participation in the SICO Plan and to become a stockholder of STARR, consistent
with similarly situated executives of subsidiaries of Parent. Any participation
in the SICO Plan or STARR will require a mutually agreeable reduction in the
other compensation payable or provided to the Executive, including without
limitation the Base Salary and the Annual Bonus, and such reduction will be a
condition to participation in such plans and will in no event be deemed a breach
of this Agreement. Any reduction in the compensation otherwise payable hereunder
shall be agreed to, in writing, by the parties in advance of the time such
reduction is to be effective, and such writing shall set forth, in reasonable
detail sufficient for the Executive to understand, the compensation being
provided in lieu thereof and all vesting and forfeiture provisions related
thereto (and other restrictions, if any, on the ability of the Executive to
access or receive such compensation).

                           (vii)    Indemnification. The Company shall indemnify
the Executive during his employment hereunder and following the termination of
the Executive's employment hereunder, on the same basis as the Company
indemnifies similarly situated executives of the Company.

                           (viii)   Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the Company's policies.

                           (ix)     Perquisites. During the Employment Period,
the Executive shall be entitled to perquisites in accordance with the plans,
practices, policies and programs generally applicable to similarly situated
executives of the Company.

                                       -4-

<PAGE>

                           (x)      Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the plans,
policies, programs and practices of the Company as in effect with respect to the
similarly situated executives of the Company.

                           (xi)     Other Benefits From Prior Employment
Agreement. Upon and following any termination of the Executive's employment with
the Company following the Effective Date, regardless of the reason, the Company
shall provide the Executive with the benefits described in Section 8(c)(iv) of
the Prior Employment Agreement for the duration described in the Prior
Employment Agreement, based on the comparable benefits provided immediately
prior to the Date of Termination.

         4.       Termination of Employment.

                  (a)      Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company or Parent determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 10(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal representative.

                  (b)      With or Without Cause. The Company or Parent may
terminate the Executive's employment during the Employment Period with or
without Cause. For purposes of this Agreement, "Cause" shall mean:

                           (i)      the continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by Parent that specifically identifies the manner
in which Parent believes that the Executive has not substantially performed the
Executive's duties, or

                           (ii)     the engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably injurious to the
Company or one of its affiliates, or

                           (iii)    conviction of a felony or guilty or nolo
contendere plea by the Executive with respect thereto.

                  Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Parent Board or the Board of
Directors of the Company or upon the instructions of the Chief Executive Officer
of Parent or the Company or based upon the advice of counsel for Parent or the
Company shall be conclusively presumed to be done, or omitted to be done, by the

                                       -5-

<PAGE>

Executive in good faith and in the best interests of the Company. The acts
and/or omissions which are alleged to constitute the basis for a Cause
termination shall be identified to the Executive in reasonable detail in
writing, at the time of any such termination of the Executive's employment for
Cause.

                  (c)      Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean a material breach by the Company or Parent of a
material provision of this Agreement. Without limiting the generality of the
foregoing, Parent and the Executive agree that any of the following would
constitute a material breach of this Agreement by Parent: (i) any reduction in
the Executive's base salary or annual bonus (other than a reduction consented
to by the Executive in writing, including, without limitation, any reduction
contemplated by Section 3(b)(vi)); (ii) any material adverse change (without
his prior written consent) in the Executive's duties and responsibilities, or
titles, as set forth in Section 3(a)(i) and Exhibit A attached hereto; and (iii)
any relocation of his principal place of employment in violation of Section
3(a)(i) and Exhibit A attached hereto.

                  (d)      Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 10(b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than thirty days after the giving of such notice). The failure by the
Executive, the Company or Parent to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive, the Company or Parent, respectively,
hereunder or preclude the Executive, the Company or Parent, respectively, from
asserting such fact or circumstance in enforcing the Executive's, the Company's
or Parent's rights hereunder.

                  (e)      Date of Termination. "Date of Termination" means (i)
if the Executive's employment is terminated by the Company or Parent for Cause,
or by the Executive with or without Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein within 30 days of such
notice, as the case may be, (ii) if the Executive's employment is terminated by
the Company or Parent other than for Cause or Disability, the Date of
Termination shall be the date on which the Company or Parent notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.

         5.       Obligations of the Company upon Termination, (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company or Parent shall terminate the Executive's employment other than for
Cause, death or Disability or the Executive shall terminate employment for Good
Reason:

                                       -6-

<PAGE>

                           (i)      the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the aggregate of
the following amounts:

                           A.       (1) the Executive's Annual Base Salary
                  through the Date of Termination to the extent not theretofore
                  paid ("Accrued Salary"), (2) the benefits described in Section
                  3(b)(xi) hereof and (3) any benefits to which the Executive is
                  entitled under the terms and conditions of any applicable
                  employee benefits plan, program or agreement (collectively,
                  subclause (l)-(3) shall be referred to as the "Accrued
                  Obligations"); and

                           B.       a lump sum amount equal to the greater of
                  (x) the severance under the severance policy applicable to
                  similarly situated executives of the Company, as in effect
                  from time to time, and (y) the sum of the Executive's Annual
                  Base Salary and the Annual Bonus amount set forth in Section
                  3(b)(iii); and

                           C.       a pro-rata portion of the Annual Bonus
                  payable to the Executive under Section 3(b)(iii), which shall
                  be determined by multiplying such bonus by a fraction, the
                  numerator of which is the number of days in the calendar year
                  in which the Executive's date of termination occurs which have
                  elapsed prior to such date of termination and the denominator
                  of which is 365; and

                           D.       outplacement services for the duration and
                  of the nature described in Section 8(c)(v) of the Prior
                  Employment Agreement; and

                           (ii)     to the extent granted prior to the Date of
Termination, the 2001 Service Awards shall vest immediately.

                  (b)      Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the Accrued Obligations (to the
extent applicable upon the Executive's death). Accrued Salary shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. In addition, (i) to the extent
granted prior to the Date of Termination, all of the 2001 Service Awards shall
become fully vested and, to the extent applicable, exercisable for the maximum
period allowable under the applicable plan for a termination due to death and
(ii) the Executive's estate shall be entitled to the death benefits as in effect
on the date of the Executive's death with respect to similarly situated
executives of the Company (including, without limitation, any rights to
accelerated vesting and enhanced exercise periods applicable in respect of any
equity awards made to the Executive in connection with his employment after the
Effective Date (excluding the 2001 Service Awards, which are addressed in
subclause (i)) that are generally available to similarly situated executives of
subsidiaries of Parent whose employment has terminated for such reason under
the terms of the plan, program or arrangement under which such awards have been
made (the "Equity Enhancements")).

                  (c)      Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment Period,
this Agreement shall terminate without further obligations to the Executive,
other than in respect of the Accrued Obligations. Accrued

                                      -7-

<PAGE>

Salary shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination. In addition, (i) to the extent granted prior to the
Date of Termination, all of the 2001 Service Awards shall become fully vested
and, to the extent applicable, exercisable for the maximum period allowable
under the applicable Parent plan for a termination due to disability and (ii)
the Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits as in effect at any time thereafter generally with
respect to similarly situated executives of the Company and to the Equity
Enhancements).

                  (d)      Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive the Accrued Obligations and the only duties,
obligations and liabilities of the Executive to the Company or Parent thereafter
shall be the restrictive covenants set forth in Section 7 hereof.

         6.       Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company or Parent may have
against the Executive or others.

         7.       Confidential Information; Noncompetition; Nonsolicitation.

                  (a)      The Executive shall hold in a fiduciary capacity for
the benefit of the Company and Parent all secret or confidential information,
knowledge or data relating to the Company, Parent or any of their affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company, Parent or any of
their affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's employment
with the Company, Parent or any of their affiliated companies, the Executive
shall not, without the prior written consent of Parent or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company, Parent or any of their
affiliated companies and those designated by them.

                  (b)      The Executive agrees that until the earlier of (i)
the fourth anniversary of the Effective Date and (ii) the first anniversary of
the Executive's termination of employment for any reason (the "Restricted
Period"), the Executive will not, without the written consent of Parent, engage
in any business of, or enter the employ of, or have any interest in, directly or
indirectly, any other person, firm, corporation or other entity engaged in a
business that competes with, or provides services and/or products of a nature
substantially similar to those provided by, the Company, Parent or their
affiliates, with an office or facility in any geographic area in which the
Company, Parent or their affiliates do business. Nothing herein shall restrict
the Executive from owning 1% or less of the outstanding securities of any
corporation or other entity whose securities are listed on any national
securities exchange or traded over-the-counter, if the Executive has no other
connection or relationship with the issuer of such securities.

                                      -8-

<PAGE>

                  (c)      During the Restricted Period, the Executive will not,
directly or indirectly, on behalf of the Executive or any other person, solicit
for employment or employ by other than the Company or Parent any person who, at
any time during the six-month period immediately preceding the date of such
solicitation, was an employee of the Company, Parent or any of their affiliates.

                  (d)      The Executive acknowledges and agrees that due to the
nature of the business in which the Company, Parent and their affiliates are
engaged and because of the nature of the confidential information to which the
Executive has access, it would be impractical and excessively difficult to
determine the actual damages of the Company or Parent in the event the Executive
breached any of the covenants of this Section 7 and that remedies at law (such
as monetary damages) for any breach of the Executive's obligations under this
Section 7 would be inadequate. The Executive therefore agrees and consents that,
if the Executive commits any breach of a covenant under this Section 7 or
threatens to commit any such breach, the Company and Parent shall have the right
(in addition to, and not in lieu of, any other right or remedy that may be
available to each of them) to temporary and permanent injunctive relief from a
court of competent jurisdiction. With respect to any provision of this Section 7
finally determined by a court of competent jurisdiction to be unenforceable, the
Executive, the Company and Parent hereby agree that such court shall have
jurisdiction to reform this Agreement or any provision hereof so that it is
enforceable to the maximum extent permitted by law, and the parties agree to
abide by such court's determination.

                  (e)      The provisions of this Section 7 shall remain in full
force and effect until the expiration of the period specified therein,
notwithstanding the earlier termination of the Executive's employment
hereunder, the Employment Period or this Agreement, provided that the Effective
Date has occurred.

         8.       Successors.

                  (a)      This Agreement is personal to the Executive and
without the prior written consent of the Company and Parent shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.

                  (b)      This Agreement shall inure to the benefit of and be
binding upon the Company and Parent and their respective successors and assigns.

                  (c)      The Company and Parent will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company or
Parent, as applicable, to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company and/or Parent would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" and "Parent" shall mean the Company and Parent as
hereinbefore defined and any successor to their respective businesses and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. As used in this Agreement, the term "affiliated
companies" and "affiliates" shall include any company controlled by, controlling
or under common control with the Company.

                                       -9-

<PAGE>

         9.       Dispute Mechanism.

                  (a)      Pre-Effective Date Agreements. To the extent that
there is any dispute between the parties with respect to any benefits payable
hereunder which are due and payable under a Pre-Effective Date Agreement
(including, without limitation, the amounts payable under Section 3(b)(i), the
SERA benefits payable under Section 3(b)(v) and the benefits payable or provided
under Section 5(a)(i)(D)), such dispute shall be resolved pursuant to the
mechanism set forth in Section 20 of the Prior Employment Agreement, which is
incorporated by reference herein and made a part hereof, and Parent shall be
obligated to pay (or shall cause the Company to pay) the Executive's legal and
arbitration fees and expenses as provided under Section 10 of the Prior
Employment Agreement, which is incorporated by reference herein and made a part
hereof.

                  (b)      Benefits and Claims Not Related to the Pre-Effective
Date Agreements. To the extent that there is any dispute between the parties
with respect to any benefits payable hereunder which are not due and payable
under a Pre-Effective Date Agreement (and therefore not subject to the dispute
mechanism set forth in Section 9(a) above), Parent shall be obligated to pay (or
shall cause the Company to pay) the Executive's legal and arbitration fees and
expenses related to such dispute in the event that the Executive prevails at
arbitration or trial as to any material issue presented in such dispute.

         10.      Miscellaneous.

                  (a)      This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

                  (b)      All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                  If to the Executive: At the most recent address on file
                                       at the Company

                                      -10-

<PAGE>

                  If to the Company:   American General Corporation
                                       2929 Allen Parkway
                                       Houston, Texas 77019
                                       Attention: General Counsel

                  Copy to Parent:      American International Group, Inc.
                                       70 Pine Street
                                       New York, New York 10270
                                       Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

                  (c)      The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

                  (d)      The Company's obligations (i) to indemnify the
Executive pursuant to Section 3(vii), (ii) to provide the Executive with
benefits and compensation pursuant to Section 5, (iii) to pay any gross-up
payment required to be paid under Section 3(b)(i), and (iv) to pay any amount
not previously paid (and required to be paid hereunder ) in respect of any
Pre-Effective Date Agreement, as well as the dispute mechanisms set forth in
Section 9, shall survive the termination of the Executive's employment
hereunder, the Employment Period or this Agreement, provided that the Effective
Date has occurred.

                  (e)      None of the benefits provided to the Executive under
any of the Pre-Effective Date Agreements or under Section 5 hereof shall be
subject to any mitigation or offset, except as may otherwise be expressly
provided hereunder.

                  (f)      The Company or Parent may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.

                  (g)      The Executive's or the Company's or Parent's failure
to insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive, the Company or Parent may have
hereunder shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.

                  (h)      From and after the Effective Date, this Agreement
shall supersede and terminate the Severance Agreement, the Prior Employment
Agreement, and any amendments thereto, except to the extent that any of the
benefits made available under the Prior Employment Agreement are expressly
intended to continue under the terms of this Agreement. From and after the
Effective Date, the SERA and the Split-Dollar Agreement shall be amended in
accordance with the terms hereof, and, upon satisfaction of the Company's
obligations as set forth herein, the Company and Parent shall have no further
obligations under such agreements.

                                      -11-

<PAGE>

                  IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from their respective Boards
of Directors, each of the Company and Parent has caused these presents to be
executed in its name on its behalf, all as of the day and year first above
written.

                                    /s/ John A. Graf
                             ---------------------------------------------------
                                    JOHN A. GRAF

                             AMERICAN GENERAL CORPORATION

                             BY  /s/ Mark S. Berg
                                 -----------------------------------------------
                             Name:  Mark S. Berg
                             Title: Executive Vice President and General Counsel

                             AMERICAN INTERNATIONAL GROUP, INC.

                             BY  /s/ Ernest T. Patrikis
                                 -----------------------------------------------
                             Name:  Ernest T. Patrikis
                             Title: Senior Vice President and General Counsel

                                      -12-

<PAGE>

                                    Exhibit A

Name: John A. Graf

Position: Senior Vice Chairman

Adjustments to Responsibilities: Excluding responsibilities related to
investments.

Location: Houston, Texas

Cash Severance Amount: $4,875,000

Split-Dollar Payment: $222,387

Annual Bonus: $1,250,000

<PAGE>

                       AMERICAN INTERNATIONAL GROUP, INC.
                      70 PINE STREET, NEW YORK, N.Y. 10270
                           TELEPHONE: (212) 770-7000

                                                                   July 27, 2001

John A. Graf
6340 Brompton
Houston, Texas 77005

         Re: Amendment to Employment Agreement dated as of May 11, 2001

Dear Mr. Graf:

This letter confirms the following understandings reached among you, American
International Group, Inc. ("Parent"), SunAmerica Inc., a Delaware corporation
and a wholly-owned subsidiary of Parent ("SunAmerica"), and American General
Corporation ("Company") with respect to the Employment Agreement dated as of May
11,2001( the "Agreement") and constitutes an amendment to such Agreement:

1.  As of the Effective Date (as defined in the Agreement"), (a) the Company's
    rights and obligations under the Agreement will be assigned to SunAmerica
    without further action required, (b) SunAmerica will assume all rights and
    obligations of the Company under the Agreement, and (c) all references in
    the Agreement to the Company (other than references to specifically
    identified employee benefits or benefit or other plans of the Company which
    remain in effect subsequent to the Effective Date (which references will
    remain references to such continuing plans of the Company so long as such
    plans remain in effect in accordance with the terms of the Merger Agreement
    (as defined in the Agreement)) will be deemed to be references to
    SunAmerica.

2.  Exhibit A to the Agreement is amended as follows:

         "Position: Vice Chairman, SunAmerica Inc. You will be elected as a
         member of the Board of Directors of SunAmerica Inc.

<PAGE>

         Adjustments to Responsibilities: The Executive acknowledges and agrees
         that the businesses comprising the Retirement Services Division of
         American General Corporation are being integrated into SunAmerica Inc.
         and its subsidiaries (excluding American General Investment Management,
         which is being integrated into the Fixed Income operations of Parent).
         The Executive's responsibilities will include the Fixed Annuity
         business, the non-profit group Retirement Plan business (i.e., Variable
         Annuity Life Insurance Company) and the Broker-Dealer business (i.e.,
         The SunAmerica Financial Network) (these businesses collectively
         referred to herein as the "Reference Businesses"). The Executive's
         responsibilities will exclude responsibilities related to investments,
         the mutual fund business (acknowledging that the mutual fund business
         of American General Corporation is being combined with SunAmerica Asset
         Management Corp.) and Individual Variable Annuities

         Location: Houston, Texas, then Los Angeles, California (after an agreed
         upon transitional period not to exceed 12 months."

3.  Section 3(b)(iii) of the Agreement is amended as follows: "Bonus. For each
    calendar year ending during the Employment Period, (a) the Executive shall
    receive (or at his election pursuant to the deferred compensation plan of
    the Company, if any, defer part or all of) an annual cash bonus of not less
    than $1,250,000 (the "Annual Bonus") no later than January 31 of the
    following year and (b) the Annual Bonus hereunder shall be in lieu of any
    bonus amount (or portion thereof) payable to the Executive under any
    agreement or bonus plan of the Company, Parent or any subsidiary of Parent
    (other than the Supplementary Bonus as hereinafter described), including
    without limitation, the Company Performance-Based Plan for Executive
    Officers with respect to the calendar year in which the Effective Date
    occurs, and the Executive hereby waives all rights under such agreement or
    plans. For the calendar year within which the Employment Period ends, the
    Executive shall receive no later than January 31 of the following year (or
    at his election pursuant to the applicable deferred compensation plan of the
    Company, if any, defer part or all of) a bonus which shall

                                       2

<PAGE>

    equal or exceed an amount determined by multiplying the Annual Bonus by a
    fraction the numerator of which shall be the number of days in such calendar
    year which were included in the Employment Period and the denominator of
    which shall be 365.

         For each calendar year ending during the Employment Period, the
    Executive will receive a minimum of $90,000 of bonus compensation (the
    "Supplementary Bonus") payable in equal quarterly amounts with regard to
    services performed in that year provided the Executive is employed by Parent
    or a subsidiary of Parent at the time of the respective quarterly payment
    when such payment becomes due."

4.  Section 3(b)(iv) of the Agreement is amended as follows: "Incentive Awards.
    At the time equity grants are made to executive officers of the Parent in
    respect of services performed in the calendar year ending December 31, 2001,
    the Executive will be granted equity-based awards with respect to the common
    stock of Parent (the "2001 Service Awards"), pursuant to the terms of the
    applicable Parent plans or the applicable plans of Starr International
    Company, Inc. ("SICO"), which the parties agree has an aggregate value as of
    the date of this letter of at least $8,731,163 comprised of the following:

             -    stock options with an exercise price equal to the fair market
                  value of Parent common stock on the date of grant, vesting
                  (subject to your continued employment with Parent or its
                  subsidiaries on the vesting dates) in four equal installments
                  on each of the first, second, third and fourth anniversaries
                  of the date of grant having an aggregate Black-Scholes
                  valuation of $2,148,023 using a Black-Scholes factor of
                  0.4059;

             -    Five year cliff vesting stock options vesting (subject to your
                  continued employment with Parent or its subsidiaries on the
                  vesting date) in full on the fifth anniversary of the date of
                  grant with an exercise price equal to the fair market value of
                  Parent common stock on the date of grant having an aggregate
                  Black Scholes valuation of $2,520,000 using a Black-Scholes
                  factor of 0.40;

                                       3

<PAGE>

             -    Performance share units having a maximum aggregate value of
                  $3,825,000 based upon the fair market value on the date of
                  grant which shall vest (subject to your continued employment
                  with the Parent or its subsidiaries on the vesting date) from
                  0 to 100 percent as soon as administratively feasible after
                  December 31, 2004 (provided that, the receipt of shares of
                  Parent common stock pursuant to such units may be deferred, at
                  the election of the Executive, pursuant to an applicable
                  deferral program of the Parent, if any ) upon achievement of
                  the following implied growth rates of Cumulative Pre-Tax
                  Operating Earnings of (a) the Reference Businesses (with
                  respect to 50% of the maximum shares earned shown below) and
                  (b) SunAmerica (with respect to the other 50% of the maximum
                  shares earned shown below):

<TABLE>
<S>                                   <C>     <C>                          <C>
Maximum Implied Growth Rate---------  15.0%   Maximum Shares Earned------  100%
Target Implied Growth Rate----------  12.5%   Maximum Shares Earned------   50%
Threshold Implied Growth Rate---- --   8.5%   Maximum Shares Earned------   25%
Below Implied Growth Rate-------- --  8.50%   Maximum Shares Earned------    0%
</TABLE>

                  Cumulative Pre-Tax Operating Earnings means the consolidated
                  pretax operating earnings of the Reference Businesses or
                  SunAmerica, as applicable, excluding net realized investment
                  gains, non-recurring items, and the cumulative effect of
                  accounting changes under generally accepted accounting
                  principles;

                  and

             -    900 participation units in the then current SICO Deferred
                  Compensation Profit Participation Plan ("SICO Plan") (number
                  of units determined using a valuation model for the shares of
                  Parent common stock expected to be distributable with respect
                  to such units in accordance with the terms of the SICO Plan
                  using assumptions established on a basis consistent with those
                  applied by Parent in valuing participation units for similarly
                  situated executives of Parent.)

    In the event that the Executive receives any equity award grants (other than
    reload options) from the Company after the date hereof prior to the
    Effective Date, the 2001

                                        4

<PAGE>

    Service Awards shall be reduced by the value of any such awards (determined
    using a Black-Scholes value with respect options, using assumptions
    established on a basis consistent with those applied by the Company in
    determining such Black-Scholes value in respect of the 2001 grants to the
    Executive, and the fair market value on the date of grant with respect to
    performance based and restricted stock awards.)"

5.  Section 3(b)(vi) of the Agreement is amended as follows: "Other Employee
    Benefit Plans. During the Employment Period, except as otherwise expressly
    provided herein, the Executive shall be entitled to participate in all
    employee benefit, welfare and other plans, practices, policies and programs
    generally applicable to similarly situated executives of the Company,
    provided that in no event shall the Executive be entitled to receive
    duplicate benefits with respect to the same period of service under any
    plans, practices, policies or programs of the Company and/or Parent.
    Notwithstanding anything contained herein to the contrary, the Executive
    expressly understands and agrees that he will not initially be entitled to
    become a stockholder of C.V. Starr & Co., Inc. ("Starr"), but that following
    the first anniversary of the Effective Time, Parent will recommend to the
    Board of Directors of Starr that the Executive be eligible to become a
    stockholder of Starr, consistent with similarly situated executives of
    subsidiaries of Parent. Any Participation as a stockholder of Starr will
    require a mutually agreeable reduction in other compensation payable or
    provided to the Executive, including without limitation the Base Salary, the
    Annual Bonus and the Supplementary Bonus, and such reduction will be a
    condition to such participation and will in no way be deemed a breach of
    this Agreement. Any reduction in the compensation otherwise payable
    hereunder shall be agreed to, in writing, by the parties in advance of the
    time such reduction is to be effective, and such writing shall set forth, in
    reasonable detail sufficient for the Executive to understand, the
    compensation being provided in lieu thereof and all vesting and forfeiture
    provisions related thereto (and other restrictions, if any, on the ability
    of the Executive to access or receive such compensation).

6.  The Executive agrees that this letter agreement constitutes his written
    consent to changes in his compensation arrangements, duties and
    responsibilities and principal

                                        5

<PAGE>

    place of employment and under no circumstances shall such changes constitute
    "Good Reason" for termination by the Executive as defined in Section 4(c) of
    the Agreement.

7.  From and after the date hereof, the Agreement is hereby amended by this
    letter agreement, in accordance with Section 10 of the Agreement.

Very truly yours,

American International Group, Inc.              American General Corporation

By: /s/ M.R. Greenberg                          By: /s/ Gary D. Reddick
    -------------------------                       ----------------------------
    Name:  M.R. Greenberg                       Name:  Gary D. Reddick
    Title: Chairman                             Title: Executive Vice President

SunAmerica Inc.

By: /s/ Jay S. Wintrob
    -------------------------
    Name:  Jay S. Wintrob
    Title: President and CEO

Accepted and Agreed as of August 6, 2001:

    /s/ John A. Graf
-----------------------------
    John A. Graf

                                       6
<PAGE>
                                                                  March 25, 2003

John A. Graf
6340 Brompton
Houston, Texas 77005

     Re: Second Amendment to Employment Agreement dated as of May 11, 2001

Dear Mr. Graf:

This letter confirms the following understandings reached among you, American
International Group, Inc. ("Parent"), AIG SunAmerica Inc. (formerly SunAmerica
Inc.), a Delaware corporation and a wholly-owned subsidiary of Parent ("AIG
SunAmerica"), and American General Corporation ("Company") with respect to the
Employment Agreement dated as of May 11, 2001 (the "Original Agreement") and
the Amendment to the Original Agreement dated July 27, 2001 (the "First
Amendment" and, together with the Original Agreement, the "Agreements") and
constitutes an amendment to the Agreements:

1. As of November 6, 2002, (a) AIG SunAmerica's rights and obligations under the
   Agreements will be assigned to Parent without further action required, (b)
   Parent will assume all rights and obligations of AIG SunAmerica under the
   Agreements, and (c) all references in the Agreements to the Company or AIG
   SunAmerica (other than references to specifically identified employee
   benefits or benefit or other plans of the Company which remain in effect
   subsequent to the Effective Date (which references will remain references to
   such continuing plans of the Company so long as such plans remain in
   effect)), will be deemed to be references to Parent.

2. Exhibit A to the Original Agreement is amended as follows (superceding
   Section 2 of the First Amendment):

   "POSITION: Executive Vice President, Retirement Savings, American
   International Group, Inc. Vice Chairman, AIG SunAmerica Inc. Executive will
   continue to serve as a member of the Board of Directors of AIG SunAmerica
   Inc.

   ADJUSTMENTS TO RESPONSIBILITIES: The Executive will head the international
   retirement savings operations of the AIG companies. The operations include
   the pension, annuity, and retail asset management businesses of the AIG
   companies internationally.

   LOCATION: New York, New York."

3. Section 4 of the First Amendment (amending Section 3(b)(iv) of the Original
   Agreement) is amended to delete the third bullet point contained therein in
   its entirety and to insert in lieu thereof the following:

     "Performance share units having a maximum aggregate value of $3,825,000
     based upon the fair market value on the date of grant which shall vest
     (subject to your continued employment with the Parent or its subsidiaries
     on the vesting date) from 25 to 100 percent as soon as administratively
     feasible after December 31, 2004 (provided that, the receipt of shares of
     Parent common stock pursuant to such units may be deferred, at the election
     of the Executive, pursuant to an applicable deferral program of the Parent,
     if any), such vesting percentage to be at the discretion of the Chief
     Executive Officer of Parent based upon his assessment of the growth and
     profitability of (i) the international retirement savings operations and
     (ii) the domestic fixed annuity and non-profit group retirement plan
     businesses of AIG SunAmerica, otherwise referred to as AIG Annuity and AIG
     VALIC."

4. The Executive agrees that this letter agreement constitutes his written
   consent to changes in his compensation arrangements, duties and
   responsibilities and principal place of employment and under no
   circumstances shall change constitute
<PAGE>
   "Good Reason" for termination by the Executive as defined in Section 4(c) of
   the Original Agreement.

5. From and after the date hereof, the Agreements are hereby amended by this
   letter agreement, in accordance with Section 10 of the Original Agreement.

Very truly yours,

American International Group, Inc.        American General Corporation

By: /s/ M.R. Greenberg                    By: /s/ Ernest T. Patrikis
    -------------------------                 --------------------------
    Name:  M.R. Greenberg                     Name:  Ernest T. Patrikis
    Title: Chairman and Chief                 Title: Executive Vice President
           Executive Officer

AIG SunAmerica Inc.

By: /s/ Jay S. Wintrob
    -------------------------
    Name:  Jay S. Wintrob
    Title: President and Chief
           Executive Officer

Accepted and Agreed as of March 25, 2003:

/s/ John A. Graf
-----------------------
John A. Graf

                                       2

<PAGE>

                             SPLIT-DOLLAR AGREEMENT

         THIS SPLIT-DOLLAR AGREEMENT (this "Agreement") is made and entered into
effective as of May 15, 1998 (the "Effective Date"), by and among AMERICAN
GENERAL CORPORATION, a Texas corporation, with principal offices and place of
business in Houston, Texas (hereinafter referred to as the "Company"), JOHN A.
GRAF (hereinafter referred to as the "Executive"), and Susan Marineau, Trustee
of the Graf 1998 Family Trust (hereinafter referred to as the "Owner"),(1/)

         WITNESSETH THAT:

         WHEREAS, the Executive is currently employed by the Company or an
affiliate of the Company; and

         WHEREAS, in order to retain the benefits of the services of the
Executive for the Company and its affiliates, the Company desires to assist the
Executive in providing life insurance protection for the Executive's family
under a policy of life insurance (hereinafter referred to as the "Policy")
insuring the life of the Executive, which Policy is described in Exhibit A
attached hereto and by this reference made a part hereof, and which is being
issued by American General Life Insurance Company (hereinafter referred to as
the "Insurer"); and

         WHEREAS, the Company is willing to pay all of the premiums due on the
Policy as an additional employment benefit for the Executive, on the terms and
conditions hereinafter set forth; and

         WHEREAS, the Owner will be the owner of the Policy and, as such, will
possess all incidents of ownership in and to the Policy; and

         WHEREAS, the Company wishes to have the Policy collaterally assigned to
it by the Owner in order to secure the repayment of the amounts which it will
pay toward the premiums on the Policy;

         NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:

----------------
         (1/) If the Executive will be the owner of the policy (as opposed to an
insurance trust or other entity), then the Executive's name should be inserted
in each of the blank spaces provided for the name of the Executive and the name
of the Owner. If the space provided for the name of the Owner is not completed,
then the Executive shall be deemed to be the Owner.

<PAGE>

         1.       DEFINED TERMS. The terms "Agreement," "Company," "Effective
Date," "Executive," "Insurer," "Owner," and "Policy" shall have the meanings
assigned to such terms in the preceding provisions of this Agreement. Where the
following words and terms are used in this Agreement, they shall have the
respective meanings set forth below, unless the context clearly indicates to the
contrary:

                  (a)      AFFILIATE: The term "Affiliate" shall have the
         meaning set forth in Rule 12b-2 promulgated under Section 12 of the
         Securities Exchange Act of 1934, as amended from time to time.

                  (b)      ANNIVERSARY DATE: Each annual anniversary of the
         Effective Date; provided, however, that for purposes of Paragraph l(d)
         below, the Effective Date shall also be considered an Anniversary Date.

                  (c)      AVERAGE ANNUAL BONUS: As of any date for which the
         Benefit Amount must be determined pursuant to the terms of this
         Agreement that occurs (1) during the period beginning on the Effective
         Date and ending on the first Anniversary Date, an amount equal to 75%
         of the Executive's annual base salary from the Company or an Affiliate
         of the Company at the rate in effect on the Effective Date (the "Deemed
         Bonus"), (2) during the period beginning on the day immediately
         following the first Anniversary Date and ending on the second
         Anniversary Date, an amount equal to the average of the Deemed Bonus
         and the most recent annual incentive bonus paid in cash by the Company
         (or an Affiliate of the Company) to the Executive on or before the
         first Anniversary Date, (3) during the period beginning on the day
         immediately following the second Anniversary Date and ending on the
         third Anniversary Date, an amount equal to the average of the Deemed
         Bonus and the two most recent annual incentive bonuses paid in cash by
         the Company (or an Affiliate of the Company) to the Executive on or
         before the second Anniversary Date, and (4) after the third Anniversary
         Date, an amount equal to the average of the three most recent annual
         incentive bonuses paid in cash by the Company (or an Affiliate of the
         Company) to the Executive on or before the Anniversary Date next
         preceding such date for which the Benefit Amount is determined.

                  (d)      BASE SALARY: As of any date for which the Benefit
         Amount must be determined pursuant to the terms of this Agreement, the
         Executive's annual base salary from the Company or an Affiliate of the
         Company at the rate in effect on the Anniversary Date next preceding
         such date.

                  (e)      BENEFIT AMOUNT: As of any given date, an amount equal
         to 200% of the sum of the Executive's Base Salary and Average Annual
         Bonus as of such date; provided, however, that on the Executive's
         Normal Retirement Date, the Benefit Amount shall be reduced to 100% of
         the sum of the Executive's Base Salary and Average Annual Bonus as of
         the Measurement Date (except that if the Executive continues his or her
         employment beyond the Executive's Normal Retirement Date, then such
         reduction shall occur on the date

                                      -2-

<PAGE>

         of the Executive's termination of employment with the Company for a
         reason other than death). Notwithstanding the foregoing or any
         provision in this Agreement to the contrary, the Benefit Amount shall
         not be increased at any time after the Effective Date to the extent
         such increase is subject to the medical underwriting requirements of
         the Insurer and the Insurer refuses to increase the face amount of the
         Policy based upon the health or medical condition of the Executive.

                  (f)      CAUSE: The term "Cause" shall have the meaning
         assigned to such term in the Change in Control Severance Agreement.

                  (g)      CHANGE IN CONTROL: The term "Change in Control" shall
         have the meaning assigned to such term in the Change in Control
         Severance Agreement.

                  (h)      CHANGE IN CONTROL SEVERANCE AGREEMENT: The Change in
         Control Severance Agreement between the Company and the Executive that
         is in effect on the Effective Date (or any successor agreement
         thereto).

                  (i)      CLAIMANT: The term "Claimant" shall have the meaning
         assigned to such term in Paragraph 10 hereof.

                  (j)      DISABLED: The Executive shall be considered
         "Disabled" for purposes of this Agreement at such time as the Executive
         becomes entitled to receive long-term disability benefits under a
         long-term disability plan maintained by the Company or an Affiliate of
         the Company.

                  (k)      MEASUREMENT DATE: The earlier of (1) the date upon
         which the Executive's employment with the Company terminates for any
         reason whatsoever (including, without limitation, termination of
         employment by reason of the death or retirement of the Executive), (2)
         the date upon which the Executive becomes Disabled, or (3) the
         effective date of the termination of this Agreement pursuant to
         Paragraph 8 hereof.

                  (l)      NORMAL RETIREMENT DATE: The term "Normal Retirement
         Date" shall have the meaning assigned to such term in the Company's
         Supplemental Executive Retirement Plan that is in effect on the
         Effective Date.

                  (m)      PREMIUM PAYMENT PERIOD: A period of 10 years
         commencing on the Effective Date; provided, however, that upon written
         notice to the Owner and the Executive prior to the occurrence of a
         Change in Control, the Company may from time to time extend the Premium
         Payment Period for any period determined by the Company that ends on or
         before the later of (1) the Executive's Normal Retirement Date or (2)
         the fifteenth Anniversary Date.

                                      -3-

<PAGE>

                  (n)      RELEVANT ASSUMPTIONS: As of any given date, (1) the
         Company's assumption as of such date with respect to the rate of
         increase, if any, in the Benefit Amount from such date to the
         Executive's Normal Retirement Date (or, if the Executive continues his
         or her employment with the Company beyond the Executive's Normal
         Retirement Date, to the Executive's projected date of retirement from
         the Company) and (2) current mortality rates and charges, crediting
         rates, expenses, and other relevant matters applicable to the Policy as
         of such date. Notwithstanding the foregoing, the assumed rate of
         increase in the Benefit Amount shall be 0% from and after the
         Measurement Date.

         2.       ACQUISITION AND OWNERSHIP OF POLICY; LIMITATIONS ON OWNER'S
RIGHTS IN POLICY.

                  (a)      The Owner shall contemporaneously purchase the Policy
from the Insurer in the initial total face amount specified in Exhibit A
attached hereto. The parties hereto agree that they shall take all reasonable
action necessary to cause the Insurer to issue the Policy, and shall take any
further reasonable action which may be necessary to cause the Policy to conform
to the provisions of this Agreement. The parties hereto agree that the Policy
shall be subject to the terms and conditions of this Agreement and of the
collateral assignment filed with the Insurer relating to the Policy.

                  (b)      The Policy names the Owner, and the Owner shall be,
the sole and absolute owner of the Policy. The Owner shall not exercise any of
the ownership rights granted to the owner of the Policy by the terms thereof
except with the express written consent of the Company. Without limiting the
scope of the foregoing, the Owner shall not sell, assign, transfer, borrow
against or withdraw from the cash surrender value of the Policy, change the
beneficiary designation provision of the Policy, change the elected death
benefit option provisions of the Policy, decrease or increase the face amount of
insurance, surrender or cancel the Policy, or take any other action with respect
to the Policy without, in any such case, the express written consent of the
Company.

                  (c)      Notwithstanding the provisions of Paragraph 2(b)
above, the Owner shall have the right to take any of the following actions
without the express written consent of the Company, provided that the Owner
provides the Company with 15 days prior written notice of any such action: (1)
designate the beneficiary or beneficiaries to receive the portion of the
proceeds payable under the Policy specified in Paragraph 7(b) hereof; (2) elect
the settlement option with respect to such proceeds from among the settlement
options available under the Policy; and (3) change such beneficiary designation
and settlement option from time to time.

         3.       COLLATERAL ASSIGNMENT: LIMITATION ON COMPANY'S RIGHTS IN
POLICY.

                  (a)      To secure the repayment to the Company of the amount
of the premiums on the Policy paid by the Company hereunder, the Owner has,
contemporaneously herewith, assigned the Policy to the Company as collateral
under a separate assignment instrument The collateral assignment of the Policy
to the Company shall not be terminated, altered or amended by the Owner, without
the express written consent of the Company. The parties hereto agree to take all
action

                                      -4-

<PAGE>

necessary to cause such collateral assignment to conform to the provisions of
this Agreement and to be accepted by the Insurer. Without limiting the scope of
the preceding provisions of this Paragraph 3, the parties hereto agree that the
Company shall have an interest in the cash surrender value and the death
benefits under the Policy to secure the amounts due to the Company hereunder,
which interest shall in no event be less than the aggregate premium payments
made with respect to the Policy by the Company pursuant to Paragraph 5 below.

                  (b)      The Company shall not at any time prior to the
termination of this Agreement (1) take any action that would cause the death
benefits under the Policy that would be available for distribution to the
beneficiary or beneficiaries designated by the Owner as provided herein to be
less than the Benefit Amount (determined as of the earlier of the Measurement
Date or the date such action was taken by the Company) and (2) from and after
the date upon which a Change in Control occurs, borrow against the Policy,
pledge the Policy as collateral for a loan, withdraw any amount from the Policy
or otherwise access any funds held under the Policy until such time as the
beneficiary or beneficiaries designated by the Owner have received all of the
Policy death benefits to which they are entitled pursuant to the provisions of
this Agreement.

         4.       ADJUSTMENTS TO POLICY FACE AMOUNT. On each Anniversary Date
that occurs prior to the Measurement Date, the parties hereto shall cause the
total face amount of the Policy to be adjusted to the extent necessary, if any,
so that such face amount is equal to the Benefit Amount (which Benefit Amount
shall be determined as of the day immediately following such Anniversary Date);
provided, however, that if any such adjustment would require a reduction in the
face amount of the Policy, then the Company may, in its sole discretion,
determine that no such adjustment to the face amount of the Policy shall be made
for such Anniversary Date. Further, on, or as soon as administratively
practicable after, the Executive's Normal Retirement Date (or, if later, the
date of the termination of the Executive's employment with the Company for a
reason other than death), the parties hereto shall cause the total face amount
of the Policy to be reduced to the extent necessary, if any, so that such face
amount is equal to the Benefit Amount in effect at such time. The parties hereto
agree that they shall take all reasonable action necessary to cause the Insurer
to adjust the face amount of the Policy as provided in the preceding provisions
of this Paragraph 4. Without limiting the scope of the foregoing, (a) the
Executive and the Owner shall furnish any and all information requested by the
Company or the Insurer to facilitate an adjustment to the face amount of the
Policy and (b) the Executive shall take such physical examinations as the
Insurer may deem necessary.

         5.       PAYMENT OF PREMIUMS.

                  (a)      On the Effective Date and on or before each
Anniversary Date, the Company shall pay to the Insurer, as premium payments with
respect to the Policy, the amount, if any, determined by the Company in its sole
discretion; provided, however, that:

                           (1)      on the Effective Date and on each
         Anniversary Date that occurs during the Premium Payment Period and
         prior to the termination of this Agreement, the Company shall make
         substantially level premium payments with respect to the Policy based
         upon a

                                      -5-

<PAGE>

         premium payment policy established by the Company that is designed to
         (i) maintain the Policy in a manner sufficient to provide the level of
         death benefits to the Owner's beneficiary or beneficiaries pursuant to
         Paragraph 7(b) hereof in the event of the Executive's death prior to
         the end of the Premium Payment Period and (ii) accumulate sufficient
         funds under the Policy (based upon the assumption that the Executive
         will retire as of the Executive's Normal Retirement Date) so that as of
         the end of the Premium Payment Period the Policy is projected to have
         sufficient funds to (A) at all times thereafter provide a minimum death
         benefit in an amount equal to the Benefit Amount without any further
         premium payments and (B) permit the Owner to terminate this Agreement
         as of the later of the Executive's Normal Retirement Date or the
         fifteenth Anniversary Date and use accumulations under the Policy to
         obtain the release of the collateral assignment of the Policy to the
         Company; and

                           (2)      on each Anniversary Date that occurs after
         the end of the Premium Payment Period and prior to the termination of
         this Agreement, the Company shall make a premium payment with respect
         to the Policy in at least the amount required so that as of such
         Anniversary Date the Policy is projected to have sufficient funds to
         (i) at all times thereafter provide a minimum death benefit in an
         amount equal to the Benefit Amount without any further premium payments
         and (ii) permit the Owner to terminate this Agreement as of the later
         of the Executive's Normal Retirement Date or the fifteenth Anniversary
         Date and use accumulations under the Policy to obtain the release of
         the collateral assignment of the Policy to the Company.

The amount of each premium payment required pursuant to clauses (1) and (2) of
the preceding sentence shall be determined based upon (i) the Relevant
Assumptions in effect as of the date such premium payment is required to be paid
by the Company pursuant to this Paragraph 5(a) and (ii) if the Measurement Date
has not occurred as of such premium payment date, the Company's estimate of the
date upon which the Measurement Date will occur (which date shall be estimated
to be no earlier than the Executive's Normal Retirement Date). The Owner and the
Executive acknowledge and agree that (A) the Company is agreeing to make premium
payments with respect to the Policy as described above based upon the Relevant
Assumptions and for the period of time set forth in this Agreement, (B) the
actual crediting rates under the Policy and the charges and expenses incurred
with respect to the Policy may deviate from the rates, charges and expenses
utilized from time to time under the Relevant Assumptions, and (C) accordingly,
the Company makes no guarantee that the Policy will, in fact, have sufficient
funds to provide a minimum death benefit in an amount equal to the Benefit
Amount at all times after the termination of this Agreement without any further
premium payments. The Company shall promptly notify the Owner of the date and
the amount of each premium payment made by the Company with respect to the
Policy and, promptly upon receipt, the Owner shall furnish the Company with a
copy of the annual report for the Policy received by the Owner from the Insurer.

                  (b)      If the Executive's employment with the Company is
terminated under circumstances pursuant to which the Executive is entitled to a
severance benefit under the Change in Control Severance Agreement, then the
Company shall promptly pay into a rabbi trust a single

                                      -6-

<PAGE>

lump sum cash payment in an amount equal to the projected amount of premium
payments that the Company would be required to make with respect to the Policy
pursuant to Paragraph 5(a) hereof during the 36 month period immediately
following such termination of employment. Pursuant to the terms of the rabbi
trust, on each of the first three Anniversary Dates that occur after the
termination of the Executive's employment with the Company, the trustee of the
rabbi trust shall pay to the Insurer as a premium with respect to the Policy
one-third of the amount initially deposited in the rabbi trust by the Company.
After the trustee has made three such premium payments, the rabbi trust shall
terminate and any remaining funds held by the trustee shall be returned to the
Company. Notwithstanding the foregoing, the Company shall remain obligated to
make all premium payments required pursuant to Paragraph 5(a) hereof; provided,
however, that the Company shall be relieved of such obligation to the extent of
the amount of each premium payment made by the trustee of the rabbi trust with
respect to the Policy. All costs and expenses associated with the establishment
and maintenance of the rabbi trust shall be paid by the Company.

                  (c)      Neither the Executive nor the Owner shall have any
obligation to pay any premiums with respect to the Policy prior to the
termination of this Agreement. The Company shall have no obligation to pay any
premiums with respect to the Policy from and after the termination of this
Agreement pursuant to Paragraph 8 below.

         6.       PROVISION OF INFORMATION. On or before January 31 of each
calendar year, the Company shall furnish to the Executive a statement of the
amount of income, if any, reportable by the Executive for federal and state
income tax purposes for the preceding calendar year as a result of the existence
and maintenance of the Policy. The Owner and the Executive shall promptly
furnish the Company with (a) copies of any information or notices provided by
the Insurer from time to time with respect to the Policy and (b) any other
material or information relating to the Policy and reasonably requested by the
Company from time to time. Upon request, the Company shall promptly furnish to
the Owner evidence of timely payment of any amount required to be paid by the
Company pursuant to Paragraph 5 hereof.

         7.       COLLECTION AND DISTRIBUTION OF DEATH PROCEEDS.

                  (a)      Upon the death of the Executive prior to the
termination of this Agreement during the Executive's lifetime, the Company and
the Owner shall cooperate with the beneficiary or beneficiaries designated by
the Owner to take whatever action is necessary to collect the death benefit
provided under the Policy. When such benefit has been collected and paid as
provided herein, this Agreement shall thereupon terminate.

                  (b)      Upon the death of the Executive prior to the
termination of this Agreement during the Executive's lifetime, the beneficiary
or beneficiaries designated by the Owner pursuant to Paragraph 2(c) hereof shall
be entitled to receive a portion of the death benefits provided under the Policy
in an amount equal to the Benefit Amount determined as of the Measurement Date
(which amount shall be reduced as provided in Paragraph 1(e) hereof upon the
later of the Executive's Normal Retirement Date or the date of the termination
of the Executive's employment with the

                                      -7-

<PAGE>

Company for a reason other than death). This amount shall be paid under the
settlement option elected by the Owner.

                  (c)      Upon the death of the Executive prior to the
termination of this Agreement during the Executive's lifetime, the Company shall
have the unqualified right to receive any and all of the death benefits provided
under the Policy in excess of the amount payable pursuant to Paragraph 7(b)
above to the beneficiary or beneficiaries designated by the Owner. This amount
shall be paid to the Company in a single lump sum cash payment.

                  (d)      The parties hereto agree that, upon the request of
the Company, the beneficiary designation provision of the Policy shall conform
to the provisions hereof.

         8.       TERMINATION OF AGREEMENT.

                  (a)      This Agreement may be terminated by the Owner at any
time during the Executive's lifetime and after the fifteenth Anniversary Date
upon written notice to the Company and payment to the Company by the Owner at
the time of such notice of a single lump sum cash payment in an amount equal to
the aggregate premium payments made by the Company pursuant to Paragraph 5
hereof on or before the date of such termination, less any withdrawals from the
Policy by the Company prior to the date of such termination and any indebtedness
secured by the Policy which was incurred by the Company and remains outstanding
as of the date of such termination, including any unpaid accrued interest on
such indebtedness. Upon receipt of such amount, the Company shall release the
collateral assignment of the Policy by the execution and delivery of an
appropriate instrument of release.

                  (b)      This Agreement may be terminated by the Company at
any time during the Executive's lifetime (including, without limitation, upon
the Executive's termination of employment with the Company or at any time before
or after such termination); provided, however, that (i) from and after the
Executive's Normal Retirement Date, this Agreement may not be terminated by the
Company until the later of such Normal Retirement Date, the date upon which the
Executive's employment with the Company terminates, the expiration of the
Premium Payment Period or the fifteenth Anniversary Date, (ii) from and after
the date upon which the Executive becomes Disabled, this Agreement may not be
terminated by the Company until the earlier of the Executive's Normal Retirement
Date, the expiration of the Premium Payment Period, the fifteenth Anniversary
Date, or the third anniversary of the date upon which the Executive becomes
Disabled, and (iii) from and after the date upon which a Change in Control
occurs, this Agreement may be terminated by the Company only on or after the
date upon which the Executive's employment with the Company terminates (except
that, if the Executive's employment with the Company terminates under
circumstances pursuant to which the Executive is entitled to a severance benefit
under the Change in Control Severance Agreement, then this Agreement may not be
terminated by the Company until the third anniversary of the date of such
termination of employment). The Company shall provide the Owner and the
Executive with 30 days' prior written notice of any such termination of this
Agreement by the Company. If this Agreement is terminated by the Company as
provided in the

                                       -8-

<PAGE>

preceding provisions of this Paragraph 8(b), then for 60 days after the
effective date of the termination of this Agreement, the Owner shall have the
option of obtaining the release of the collateral assignment of the Policy to
the Company. To obtain such release, the Owner shall repay to the Company the
total amount of the premium payments made by the Company hereunder, less any
withdrawals from the Policy by the Company prior to the date of such termination
and any indebtedness secured by the Policy which was incurred by the Company and
remains outstanding as of the date of such termination, including any unpaid
accrued interest on such indebtedness. Upon receipt of such amount, the Company
shall release the collateral assignment of the Policy by the execution and
delivery of an appropriate instrument of release. If the Owner fails to exercise
such option within such 60 day period, then the interest of the Owner in the
Policy shall automatically be transferred to the Company and the Owner shall
execute any document or documents requested by the Company or the Insurer to
effect such transfer. Alternatively, the Company may enforce its right to be
repaid the amount due it hereunder from the cash surrender value of the Policy
under the collateral assignment of the Policy; provided that in the event the
cash surrender value of the Policy exceeds the amount due the Company, such
excess shall be paid to the Owner. Thereafter, neither the Owner nor any person
claiming under the Owner shall have any further interest in and to the Policy,
either under the terms thereof or under this Agreement.

                  (c)      Notwithstanding any provision in this Agreement to
the contrary, if the Executive's employment with the Company is terminated for
Cause at any time (whether before or after the Executive attains his or her
Normal Retirement Date), then (i) this Agreement shall automatically terminate
upon such termination of employment, (ii) the interest of the Owner in the
Policy shall automatically be transferred to the Company and the Owner shall
execute any document or documents requested by the Company or the Insurer to
effect such transfer, (iii) the Company may exercise all rights of ownership of
the Policy, take all proceeds of the Policy, take proceeds designated for the
beneficiary or beneficiaries designated by the Owner, assign its ownership
interest in the Policy to any other party or take any other action the Company
determines in its sole discretion, and (iv) neither the Owner, the Executive nor
their respective heirs, assigns, personal representatives, or beneficiaries
shall have any further rights, claims, or interests of any nature whatsoever in
the Policy or in this Agreement.

                  (d)      It is a condition precedent to the execution of this
Agreement that the Owner and the Executive acknowledge and agree that the
Company has the right, subject to certain limitations set forth in Paragraph
8(b) hereof, to terminate this Agreement at any time for any reason whatsoever
or for no reason at all. Without limiting the scope of the foregoing, the Owner
and the Executive specifically acknowledge and agree that the Company shall have
the right to terminate this Agreement prior to the occurrence of a Change in
Control in the event that the premiums required to be paid under the Policy are
increased due to a deterioration in the health or medical condition of the
Executive after the Effective Date. In such event, the Owner and the Executive
hereby waive, and agree that they shall not assert, any claim or cause of
action, in contract, tort or otherwise, against the Company, any Affiliate of
the Company or any employee, director, officer or agent of the Company or any
such Affiliate with respect to the termination of this Agreement, including,
without limitation, any claim or cause of action based on any alleged
discriminatory practice. By

                                      -9-

<PAGE>

entering into this Agreement, the parties hereto agree that the conditions and
provisions set forth in this Paragraph 8(d) are an essential component of this
Agreement, and it is their intent that such conditions and provisions not be
severed from the other terms and provisions of this Agreement.

         9.       INSURER NOT A PARTY. Subject to the terms and conditions of
the Policy, the Insurer shall be fully discharged from its obligations under the
Policy by payment of the Policy death benefit to the beneficiary or
beneficiaries named in the Policy and upon the performance of its other
obligations in accordance with the terms of the Policy. In no event shall the
Insurer be considered a party to this Agreement, or any modification or
amendment hereof. No provision of this Agreement, nor of any modification or
amendment hereof, shall in any way be construed as enlarging, changing, varying,
or in any other way affecting the obligations of the Insurer as expressly
provided in the Policy.

         10.      NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE
AND ADMINISTRATION.

                  (a)      NAMED FIDUCIARY. The Company is hereby designated as
the named fiduciary under this Agreement. The named fiduciary shall have
authority to control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and carrying out a
premium payment policy and method consistent with the objectives of this
Agreement.

                  (b)      (1)      CLAIM. A person who believes that he or she
         is being denied a benefit to which he or she is entitled under this
         Agreement (hereinafter referred to as a "Claimant") may file a written
         request for such benefit with the Company, setting forth his or her
         claim. The request must be addressed to the Company at its then
         principal place of business.

                           (2)      CLAIM DECISION. Upon receipt of a claim, the
         Company shall advise the Claimant that a reply will be forthcoming
         within 90 days and shall, in fact, deliver such reply within such
         period. The Company may, however, extend the reply period for an
         additional 90 days for reasonable cause.

                                    If the claim is denied in whole or in part,
         the Company shall adopt a written opinion, using language calculated to
         be understood by the Claimant, setting forth: (i) the specific reason
         or reasons for such denial; (ii) the specific reference to pertinent
         provisions of this Agreement on which such denial is based; (iii) a
         description of any additional material or information necessary for the
         Claimant to perfect his or her claim and an explanation why such
         material or such information is necessary; (iv) appropriate information
         as to the steps to be taken if the Claimant wishes to submit the claim
         for review; and (v) the time limits for requesting a review under
         subsection (3) and for review under subsection (4) hereof.

                                      -10-

<PAGE>

                           (3)      REQUEST FOR REVIEW. Within 60 days after the
         receipt by the Claimant of the written opinion described above, the
         Claimant may request in writing that the Company review its
         determination. Such request must be addressed to the Company, at its
         then principal place of business. The Claimant or his or her duly
         authorized representative may, but need not, review the pertinent
         documents and submit issues and comments in writing for consideration
         by the Company. If the Claimant does not request a review of the
         Company's determination within such 60 day period, he or she shall be
         barred and estopped from challenging the Company's determination.

                           (4)      REVIEW OF DECISION. Within 60 days after the
         Company's receipt of a request for review, it will review the
         determination. After considering all materials presented by the
         Claimant, the Company will render a written opinion, written in a
         manner calculated to be understood by the Claimant, setting forth the
         specific reasons for the decision and containing specific references to
         the pertinent provisions of this Agreement on which the decision is
         based. If special circumstances require that the 60 day time period be
         extended, the Company will so notify the Claimant and will render the
         decision as soon as possible, but no later than 120 days after receipt
         of the request for review.

         11.      ARBITRATION.

                  (a)      Upon completion of the claims procedure described in
Paragraph 10(b) hereof (if applicable), all claims, demands, causes of action,
disputes, controversies, and other matters in questions arising out of or
relating to this Agreement, any provision hereof, the alleged breach thereof, or
in any way relating to the subject matter of this Agreement involving the
parties hereto and/or their respective representatives, even though some or all
of such claims allegedly are extra-contractual in nature, whether such claims
sound in contract, tort, or otherwise, at law or in equity, under state or
federal law, whether provided by statute or the common law, for damages or any
other relief, shall be resolved by binding arbitration pursuant to the Federal
Arbitration Act in accordance with the Employment Dispute Resolution Rules then
in effect with the American Arbitration Association. The arbitration proceeding
shall be conducted in Houston, Texas. This agreement to arbitrate shall be
enforceable in either federal or state court.

                  (b)      The enforcement of this agreement to arbitrate and
all procedural aspects of this agreement to arbitrate, including but not limited
to, the construction and interpretation of this agreement to arbitrate, the
issues subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act and shall be decided by the arbitrators.
In deciding the substance of any such claims, the arbitrators shall apply the
substantive laws of the State of Texas (excluding Texas choice-of-law principles
that might call for the application of some other state's law); provided,
however, it is expressly agreed that the arbitrators shall have no authority to
award treble, exemplary, or punitive damages under any circumstances regardless
of whether such damages may be available under Texas law, the parties hereby
waiving their right, if any, to recover treble, exemplary, or punitive damages
in connection

                                      -11-

<PAGE>

with any such claims. If any party to this Agreement institutes arbitration to
enforce the terms of this Agreement, the party who prevails in such
arbitration, whether plaintiff or defendant, in addition to the remedy or relief
obtained in such arbitration proceeding shall be entitled to recover its or his
expenses incurred in connection with such arbitration proceeding, including,
without limitation, arbitrators and attorneys fees, and the arbitrators are
authorized to so award such costs and fees.

                  (c)      The arbitration may be initiated by any party by
providing to the other parties a written notice of arbitration specifying the
claims. Within 30 days of the notice of initiation of the arbitration procedure,
(1) the Owner and the Executive, acting together, shall denominate one
arbitrator and (2) the Company shall denominate one arbitrator. The two
arbitrators shall select a third arbitrator failing agreement on which within 60
days of the original notice, either the Owner, the Executive or the Company
shall apply to the Senior Active United States District Judge for the Southern
District of Texas, who shall appoint a third arbitrator. While the third
arbitrator shall be neutral, the two party-appointed arbitrators are not
required to be neutral and it shall not be grounds for removal of either of the
two party-appointed arbitrators or for vacating the arbitrators' award that
either of such arbitrators has past or present minimal relationships with the
party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable person
would have to conclude there in fact existed actual bias. A mere appearance or
impression of bias will not constitute evident partiality or otherwise
disqualify an arbitrator.

                  (d)      The three arbitrators shall by majority vote resolve
all disputes between the parties. There shall be no transcript of the hearing
before the arbitrators. The arbitrators' decision shall be in writing, but shall
be as brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall certify in their award that they have faithfully
applied the terms and conditions of this Agreement and that no part of their
award includes any amount for exemplary or punitive damages. All proceedings
conducted hereunder and the decision of the arbitrators shall be kept
confidential by the parties, e.g., the arbitrators' award shall not be released
to the press or published in any of the various arbitration reporters. Judgment
upon any award rendered in any such arbitration proceeding may be entered by any
federal or state court having jurisdiction.

         12.      AMENDMENT. This Agreement may not be amended, altered, or
modified, except by a written instrument signed by the parties hereto, or their
respective successors or assigns. Notwithstanding the foregoing or any other
provision herein to the contrary, the Premium Payment Period, the face amount of
the Policy, the amount of premiums to be paid by the Company, and/or the
references in this Agreement to the fifteenth Anniversary Date may be changed by
the Company without the consent of the Owner or the Executive to the extent
necessary to (a) maintain the Policy as a "life insurance contract" (within the
meaning of Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the interpretative authority promulgated thereunder) and (b)
prevent the Policy from constituting a "modified endowment contract" (within the
meaning of Section 7702A of the Code and the interpretative authority
promulgated thereunder). The Company shall provide the Owner and the Executive
with prompt written notice of any such change.

                                      -12-

<PAGE>

         13.      BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns, and the Owner, the
Executive and their respective successors, assigns, heirs, executors,
administrators, and beneficiaries; provided, however, that the rights and
obligations of the Owner and the Executive hereunder are personal and neither
this Agreement, nor any right, benefit, or obligation of the Owner or the
Executive hereto, shall be subject to voluntary or involuntary assignment,
alienation or transfer, whether by operation of law or otherwise, without the
prior written consent of the Company.

         14.      NOTICE. Any notice, consent or demand required or permitted to
be given under the provisions of this Agreement shall be in writing, and shall
be signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States registered
or certified mail, postage prepaid, addressed to such party's last known address
as shown on the records of the Company. The date of such mailing shall be deemed
the date of notice, consent or demand.

         15.      EMPLOYMENT RELATIONSHIP. For all purposes of this Agreement,
the Executive shall be considered to be in the employment of the Company as long
as the Executive remains an employee of the Company or any Affiliate of the
Company. However, this Agreement is not an employment agreement This Agreement
shall not be construed as creating an express or implied contact of
employment and does not modify the nature of the Executive's employment
relationship with the Company or its Affiliates, as the case may be. Except as
otherwise agreed in writing between the Executive and the Company or an
Affiliate of the Company, the employment relationship between the Executive and
the Company or its Affiliates is at-will, i.e., the employment relationship may
be terminated at any time at the will of either the Company or the Executive for
any reason or no reason at all.

         16.      TAXES AND POLICY ILLUSTRATIONS. The Company makes no
guarantees and assumes no obligations or responsibilities with respect to the
Owner's or the Executive's federal, state, or local income, estate, inheritance,
and gift tax obligations, if any, under this Agreement, the Policy or the
collateral assignment of the Policy to the Company. The Executive and the Owner
agree and acknowledge that the Policy illustrations provided prior to the
Effective Date and any Policy illustrations that may be provided from time to
time thereafter by the Company, the Insurer or their respective agents and
representatives are not guaranteed and are not a part of the Policy or this
Agreement. Such Policy illustrations shall not create any additional obligations
or responsibilities to the Executive or the Owner by the Company, the Insurer,
or their respective agents and representatives.

         17.      GOVERNING LAW. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Texas.

                                      -13-

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this the 15th day of May, 1998, effective as of the Effective Date.

                                  AMERICAN GENERAL CORPORATION

                                  By:  /s/ Beth Dobbs
                                       --------------------
                                       Name:  Beth Dobbs
                                       Title: Vice President - Benefits/Payroll

                                                                       "COMPANY"

                                  JOHN A. GRAF

                                  /s/ John A. Graf
                                  ----------------------
                                                                     "EXECUTIVE"

                                  /s/ Susan G. Marineau
                                  ----------------------
                                  SUSAN G. MARINEAU

                                                                         "OWNER"

                                  Notarized for Susan G. Marineau

                                             [NOTARY PUBLIC STAMP]

                                         State of New York      SS
                                         County of New York
                                         Subscribed and sworn (affirmed)
                                         before me this 23 day of Dec. 1998

                                         L.S. /s/ Alex Karpinski
                                              ------------------

                                      -14-
<PAGE>

                                    EXHIBIT A

         The following life insurance policy is subject to the attached
Split-Dollar Agreement:

Insurer:                            American General Life Insurance Company

Insured:                            John A. Graf

Policy Number:                      CM0002178L

Face Amount on the Effective Date:  $ 1,266,824.00

Effective Date of Policy:           May 15, 1998

                                      -15-

<PAGE>

                ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL

         A.       FOR VALUE RECEIVED, the undersigned (hereinafter the "Owner")
hereby assigns, transfers and sets over to American General Corporation, with
principal offices and place of business in Houston, Texas, its successors and
assigns (hereinafter the "Assignee"), Policy No. CM0002178L issued by American
General Life Insurance Company (hereinafter the "Insurer"), and any
supplementary contracts issued in connection therewith (said policy and
contracts hereinafter the "Policy"), insuring the life of JOHN A. GRAF (the
"Executive"), and all claims, options, privileges, rights, title and interest
therein and thereunder (except as otherwise provided herein), subject to all the
terms and conditions of the Policy and to all superior liens, if any, which the
Insurer may have against the Policy. The Owner, by this Assignment, and the
Assignee, by acceptance of the assignment of the Policy to it hereunder, agree
to the terms and conditions contained herein.

         B.       This Assignment is made and the Policy is to be held as
collateral security for any and all liabilities and obligations of the Owner to
the Assignee, either now existing or that may hereafter arise, under and
pursuant to that certain Split-Dollar Agreement by and among the Owner, the
Assignee, and the Executive, dated effective as of May 15, 1998 (hereinafter the
"Split-Dollar Agreement"). The liabilities and obligations described in the
preceding sentence are hereinafter referred to as the "Liabilities."

         C.       It is expressly agreed that, without detracting from the
generality of the foregoing, the following specific rights are included in this
Assignment and pass to the Assignee by virtue hereof:

                  1.       The sole right to collect from the Insurer the net
         proceeds of the Policy when it becomes a claim by death or maturity;

                  2.       The sole right to surrender the Policy and receive
         the surrender value thereof at any time provided by the terms of the
         Policy and at such other times as the Insurer may allow; and

                  3.       The sole right to obtain one or more withdrawals,
         loans or advances on the Policy, either from the Insurer or, at any
         time, from other persons, and to pledge or assign the Policy as
         security for such loans or advances.

         D.       It is expressly agreed that the following specific rights, so
long as the Policy has not been surrendered and to the extent permitted under
the Split-Dollar Agreement, are reserved by the Owner and excluded from this
Assignment and do not pass by virtue hereof:

                  1.       The right to designate and change the beneficiary to
         receive the portion of the proceeds under the Policy specified in
         Paragraph 7(b) of the Split-Dollar Agreement; and

<PAGE>

                  2.       The right to elect any optional mode of settlement
         permitted by the Policy or allowed by the Insurer with respect to such
         proceeds.

However, the reservation of these rights by the Owner shall in no way impair
the right of the Assignee to surrender the Policy nor impair any other right of
the Assignee hereunder. Further, any exercise of these rights shall be made
subject to this Assignment and to the rights of the Assignee hereunder.

         E.       Notwithstanding the foregoing, the Assignee covenants and
agrees with the Owner as follows:

                  1.       Any balance of sums received hereunder from the
         Insurer remaining after payment of the then existing Liabilities shall
         be paid by the Assignee to the persons entitled thereto under the terms
         of the Policy, had this Assignment not been executed;

                  2.       The Assignee will not exercise the right to surrender
         the Policy, nor the right to make withdrawals from the Policy or obtain
         policy loans from the Insurer, unless and until there has been default
         in any of the Liabilities or the Split-Dollar Agreement has been
         terminated, pursuant to its terms; in any event, the Assignee will not
         exercise any such right until 15 days after the Assignee shall have
         mailed notice of intention to exercise such right, by first class mail,
         to the Owner at the address last supplied in writing to the Assignee
         specifically referring to this Assignment; and

                  3.       The Assignee will, upon request, forward the Policy
         to the Insurer without unreasonable delay, for endorsement of any
         designation or change of beneficiary or any election of an optional
         mode of settlement that has been elected by the Owner.

         F.       The Insurer is hereby authorized to recognize the Assignee's
claims to rights hereunder without investigating the reason for any action taken
by the Assignee, the validity or the amount of the Liabilities, the existence of
any default therein, termination of the Split-Dollar Agreement, the giving of
any notice hereunder, or the application to be made by the Assignee of any
amounts to be paid to the Assignee. The sole signature of the Assignee shall be
sufficient for the exercise of any rights under the Policy assigned hereby and
the sole receipt of the Assignee for any sums received shall be a full discharge
and release therefor to the Insurer. Payment for all or any part of the sums due
under the policy and assigned herein shall be drawn to the exclusive order of or
as directed by the Assignee if, when, and in such amounts as may be requested by
the Assignee.

         G.       The Assignee shall be under no obligation to pay any premium
on the Policy nor the principal of or interest on any loans or advances on the
Policy, whether or not obtained by the Assignee, or any other charges on the
Policy.

         H.       The exercise of any right, option, privilege or power given
herein to the Assignee shall be at the option of the Assignee, and (except as
provided herein) the Assignee may exercise any

                                       -2-

<PAGE>

such right, option, privilege or power without notice to, or assent by, or
affecting the liability of, or releasing any interest hereby assigned by the
Owner.

         I.       If applicable, the Assignee may take or release other
security, may release any party primarily or secondarily liable for any of the
Liabilities, may grant extensions, renewals or indulgences with respect to the
Liabilities, or may apply the proceeds of the Policy hereby assigned or any
amount received on account of the Policy by the exercise of any right permitted
under this Assignment to the Liabilities in such order as the Assignee shall
determine, without resorting to or regard to other security.

         J.       As applied to the duties and responsibilities of the Insurer,
in the event of any conflict between the provisions of this Assignment and the
provisions of the Split-Dollar Agreement with respect to the Policy or the
Assignee's rights of collateral security therein, the provisions of this
Assignment shall prevail. As applied between the Owner and the Assignee, in the
event of any such conflict, the provisions of the Split-Dollar Agreement shall
prevail.

         K.       The Owner declares that no proceedings in bankruptcy are
pending against the Owner and that the Owner's property is not subject to any
assignment for the benefit of creditors of the Owner.

         SIGNED this 15th day of May, 1998, effective as of May 15, 1998.

                                             /s/ Susan G. Marineau
                                             -----------------------
                                             _______________________
                                             _______________________

                                                                         "OWNER"

This Assignment is hereby accepted and agreed to by the Assignee.

                                    AMERICAN GENERAL CORPORATION

                                    By: /s/ Beth Dobbs
                                        ---------------
                                        Name:  Beth Dobbs
                                        Title: Vice President- Benefits/Payroll

                                                                      "ASSIGNEE"

                                      -3-

<PAGE>

STATE OF N.Y.    Section )
                 Section )
N.Y. COUNTY      Section )

         On the 23 day of Dec., 1998, before me personally came, SUSAN G.
MARINEAU, to me known to be the individual who executed the Assignment on the
preceding pages hereof and acknowledged to me that he or she executed the same.

                                                 /s/ Alex Karpinski
                                                 ------------------
                                                 Notary Public in and for
                                                 THE STATE OF___________________
My Commission Expires:

[NOTARY PUBLIC STAMP]

                                      -4-
<PAGE>

                               FIRST AMENDMENT TO
                             SPLIT-DOLLAR AGREEMENT

         WHEREAS, the Personnel Committee of the Board of Directors of the
Company initially authorized the Company to establish and pay premiums under a
split-dollar life insurance arrangement relating to a life insurance policy
insuring the life of the Executive and providing the Executive's family with a
death benefit equal to 200% of the sum of the Executive's base salary and
average annual incentive bonus (the death benefit) being reduced to 100% of the
sum of the Executive's base salary and average annual incentive bonus upon
Executive's Normal Retirement Date; and

         WHEREAS, the Personnel Committee has subsequently authorized the
Company, to amend Executive's Split Dollar Agreement so that Executive's death
benefit upon his Normal Retirement Date shall not be reduced to 100% of the sum
of the Executive's base salary and average annual incentive bonus, but remain at
200% of the sum of the Executive's base salary and average annual incentive
bonus; and

         WHEREAS, the Personnel Committee has subsequently authorized the
Company to enter into an employment agreement with the Executive which was not
in effect at the time of Executive's Split Dollar Agreement and which contains
certain provisions with respect to split-dollar insurance following termination
of Executive's employment.

         Now, THEREFORE, this First Amendment to the Split-Dollar Agreement
made as of May 15,1998 (the "Agreement"), by and among American General
Corporation, a Texas corporation (the "Company"), JOHN A. GRAF (the "Executive")
and Susan Marineau as Trustee of the Graf 1998 Family Trust (the "Owner") is
made as of May 15,2000 by amending the Agreement as follows:

1.       Paragraph 1(e) is hereby amended to read, in its entirety, as follows:

         Benefit Amount: As of any given date, an amount equal to 200% of the
         sum of the Executive's Base Salary and Average Annual Bonus as of such
         date. Notwithstanding the foregoing or any provision in this Agreement
         to the contrary, the Benefit Amount shall not be increased at any time
         after the Effective Date to the extent such increase is subject to the
         medical underwriting requirements of the Insurer and the Insurer
         refuses to increase the face amount of the Policy based upon the health
         or medical condition of the Executive.

2.       Paragraph 1(l) is hereby amended to read, in its entirety, as follows:

<PAGE>

         Normal Retirement Date: The term "Normal Retirement Date" shall have
         the meaning assigned to such term in the Supplemental Executive
         Retirement Agreement between the Company and the Executive that is in
         effect on the date of the execution of the First Amendment to this
         Agreement.

3.       Paragraph 4 is hereby amended to read, in its entirety, as follows:

         Adjustments to Policy Face Amount. On each Anniversary Date that occurs
         prior to the Measurement Date, the parties hereto shall cause the total
         face amount of the Policy to be adjusted to the extent necessary, if
         any, so that such face amount is equal to the Benefit Amount (which
         Benefit Amount shall be determined as of the day immediately following
         such Anniversary Date); provided, however, that if any such adjustment
         would require a reduction in the face amount of the Policy, then the
         Company may, in its sole discretion, determine that no such adjustment
         to the face amount of the Policy shall be made for such Anniversary
         Date. The parties hereto agree that they shall take all reasonable
         action necessary to cause the Insurer to adjust the face amount of the
         Policy as provided in the preceding provisions of this Paragraph 4.
         Without limiting the scope of the foregoing, (a) the Executive and the
         Owner shall furnish any and all information requested by the Company or
         the Insurer to facilitate an adjustment to the face amount of the
         Policy and (b) the Executive shall take such physical examinations as
         the Insurer may deem necessary.

4.       Paragraph 8(e) is added to read as follows:

         Should Executive and Company enter into an Employment Agreement which
         is in effect on the date of the termination of Executive's employment,
         and which contains specific terms with respect to the treatment of
         Executive's split-dollar insurance following termination of employment,
         such terms of the Employment Agreement shall control notwithstanding
         any provisions to the contrary set forth in Paragraph 8 herein.

5.       As amended by this First Amendment, the Agreement is hereby
         specifically ratified and reaffirmed.

                                       2

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on October 12, 2000.

                          AMERICAN GENERAL CORPORATION

                          By:/s/ Gary D. Reddick
                             -------------------------
                             Gary D. Reddick
                             Executive Vice President and
                             Chief Administrative Officer - Corporate Operations

                          /s/ John A. Graf
                          ----------------------------
                          John A. Graf
                                                            Executive

                          THE GRAF 1998 FAMILY TRUST

                          By:/s/ Susan Marineau
                             -------------------------
                             Susan Marineau, Trustee

                                                            Owner

                                       3

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