Document:

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

EXHIBIT 10.12    
    

JUNIOR SUBORDINATED LOAN AGREEMENT  

 DATED AS OF APRIL 19, 1999  

 BETWEEN  

 FALCON FINANCIAL, LLC,

as Borrower,  

 and  

 FALCON AUTO VENTURE LLC,

as Lender  

 

	Section 1. DEFINITIONS	 	1
	1.1	 	Certain Defined Terms	 	1
	1.2	 	Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement	 	9
	1.3	 	Other Definitional Provisions	 	10
	Section 2. AMOUNT AND TERMS OF LOAN	 	10
	2.1	 	Amount; Notes	 	10
	2.2	 	Interest on the Loans	 	10
	2.3	 	Prepayments; General Provisions Regarding Payments	 	11
	2.4	 	Use of Proceeds	 	12
	2.5	 	Increased Costs; Taxes; Capital Adequacy	 	12
	Section 3. CONDITIONS TO LOANS	 	13
	3.1	 	Conditions to Effectiveness of this Agreement and the First Loan	 	13
	3.2	 	Conditions to the Second Loan	 	14
	Section 4. COMPANY'S REPRESENTATIONS AND WARRANTIES	 	15
	4.1	 	Organization, Powers, Qualification, Good Standing, Business and Subsidiaries	 	15
	4.2	 	Authorization of Borrowing, etc.	 	16
	4.3	 	No Restricted Junior Payments	 	16
	4.4	 	Title to Properties; Liens	 	16
	4.5	 	Litigation; Adverse Facts	 	16
	4.6	 	Payment of Taxes	 	16
	4.7	 	Performance of Agreements; Materially Adverse Agreements	 	16
	4.8	 	Governmental Regulation	 	17
	4.9	 	Securities Activities	 	17
	4.10	 	Employee Benefit Plans	 	17
	4.11	 	Certain Fees	 	17
	4.12	 	Environmental Protection	 	17
	4.13	 	Employee Matters	 	18
	4.14	 	Solvency	 	18
	4.15	 	Disclosure	 	18
	Section 5. COMPANY'S AFFIRMATIVE COVENANTS	 	18
	5.1	 	Financial Statements and Other Reports	 	18
	5.2	 	Existence, etc.	 	20
	5.3	 	Payment of Taxes and Claims; Tax Consolidation	 	20
	5.4	 	Maintenance of Properties; Insurance	 	20
	5.5	 	Inspection	 	20
	5.6	 	Compliance with Laws, etc.	 	20
	5.7	 	Company's Remedial Action Regarding Hazardous Materials	 	21
	Section 6. COMPANY'S NEGATIVE COVENANTS	 	21
	6.1	 	Indebtedness	 	21
	6.2	 	Liens and Related Matters	 	22
	6.3	 	Investments; Joint Ventures	 	22
	6.4	 	Contingent Obligations	 	23
	6.5	 	Restricted Junior Payments	 	23
	6.6	 	Restriction on Fundamental Changes	 	23
	6.7	 	Consolidated Capital Expenditures	 	24
	6.8	 	Restriction on Leases	 	24
	6.9	 	Transactions with Shareholders and Affiliates	 	24
	6.10	 	Disposal of Subsidiary Stock	 	24
	6.11	 	Accounting Changes	 	24
	6.12	 	Limitation of Ranking of Future Indebtedness	 	24
	6.13	 	Stay, Extension and Usury Laws	 	25
	 	 	 	 	 

i

 

	6.14	 	Amendment of Operating Agreement and Certain Agreements	 	25
	6.15	 	Amendments of Documents Relating to Subordinated Indebtedness	 	25
	Section 7. EVENTS OF DEFAULT	 	25
	7.1	 	Failure to Make Payments When Due	 	25
	7.2	 	Default in Other Agreements	 	25
	7.3	 	Intentionally Omitted	 	26
	7.4	 	Breach of Warranty	 	26
	7.5	 	Other Defaults Under Loan Documents	 	26
	7.6	 	Involuntary Bankruptcy; Appointment of Receiver, etc.	 	26
	7.7	 	Voluntary Bankruptcy; Appointment of Receiver, etc.	 	27
	7.8	 	Judgments and Attachments	 	27
	7.9	 	Dissolution	 	27
	7.10	 	Employee Benefit Plans	 	27
	7.11	 	Material Adverse Effect	 	27
	Section 8. SUBORDINATION	 	28
	8.1	 	Junior Subordinated Loan Obligations Subordinate to Senior Loan Obligations and Senior Subordinated Loan Obligations	 	28
	8.2	 	Payment Over of Proceeds and Rights Upon Dissolution, Etc.	 	28
	8.3	 	Suspension of Payment When Senior Loan Obligations or Senior Subordinated Loan Obligations In Default; Continued Accrual of Interest	 	30
	8.4	 	Subrogation to Rights of Holders of Senior Loan Obligations and Senior Subordinated Loan Obligations	 	30
	8.5	 	Payments Received In Contravention of this Agreement	 	30
	8.6	 	Subordination Rights Not Imposed by Acts or Omissions of Senior Lenders, Senior Subordinated Lenders or Company; Further Assurances	 	31
	8.7	 	Provisions Solely to Define Relative Rights	 	32
	8.8	 	No Impairment of Obligations	 	32
	8.9	 	Lender Exercising Remedies.	 	32
	8.10	 	Intentionally Omitted.	 	32
	8.11	 	No Assignment of Junior Subordinated Loan Obligations and Other Matters	 	32
	Section 9. MISCELLANEOUS	 	33
	9.1	 	Assignments and Participations in Loan	 	33
	9.2	 	Expenses	 	33
	9.3	 	Indemnity	 	33
	9.4	 	Amendments and Waivers	 	34
	9.5	 	Independence of Covenants	 	34
	9.6	 	Notices	 	34
	9.7	 	Survival of Representations, Warranties and Agreements	 	34
	9.8	 	Failure or Indulgence Not Waiver; Remedies Cumulative	 	35
	9.9	 	Marshalling; Payments Set Aside	 	35
	9.10	 	Severability	 	35
	9.11	 	Headings	 	35
	9.12	 	Applicable Law	 	35
	9.13	 	Successors and Assigns	 	35
	9.14	 	Consent to Jurisdiction and Service of Process	 	35
	9.15	 	Waiver of Jury Trial	 	36
	9.16	 	Counterparts; Effectiveness	 	36
	9.17	 	Confidentiality	 	36
	 	 	Signature pages	 	S-1
	 	 	 	 	 

ii

 

	
EXHIBITS	
 	

 
	

I	
 	

                FORM OF NOTE	
 	

 
	II	 	                FORM OF INTEREST CAPITALIZATION NOTE	 	 
	III	 	                FORM OF COMPLIANCE CERTIFICATE	 	 
	
SCHEDULES	
 	

 
	2.1	 	                COMPANY ACCOUNT	 	 

iii

   FALCON FINANCIAL, LLC  

 JUNIOR SUBORDINATED LOAN AGREEMENT  

        This JUNIOR SUBORDINATED LOAN AGREEMENT (this "Agreement") is
dated as of April 19, 1999 and entered into by and among FALCON FINANCIAL, LLC, a Delaware limited liability company
("Company"), and FALCON AUTO VENTURE LLC, a Delaware limited liability company (the
"Lender"). 

R E C I T A L S  

        WHEREAS, Company, SunAmerica Life Insurance Company ("SunAmerica")
and Goldman Sachs Mortgage Company ("Goldman"; collectively with SunAmerica, the "Senior Subordinated
Lenders") entered into the Amended and Restated Senior Subordinated Loan Agreement as of January 7, 1998 (as it has been and may be amended, supplemented or otherwise
modified from time to time, the "Senior Subordinated Loan Agreement") pursuant to which the parties have agreed to extend a $19.3 million senior
subordinated loan facility for the purposes and on the terms and conditions set forth therein; 

        WHEREAS, Company, SunAmerica, as Sponsor and Master Servicer, LaSalle National Bank, as Paying Agent and Custodian, and ABN AMRO Bank
N.V., as Facility Agent, entered into the Revolving Warehouse Financing Agreement as of January 7, 1998 (as it has been and may be amended, supplemented or otherwise modified from time to time,
the "Warehouse Agreement"), pursuant to which Company will from time to time obtain financing for the extension of franchise loans to franchised new car
automobile dealers and mortgage loans to real property owners (collectively, the "Receivables") by selling such Receivables to certain purchasers; 

        WHEREAS, Company desires that Lender extend a $500,000 junior subordinated loan facility for the purposes and on the terms and conditions
set forth herein; 

        NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company and Lender hereby
agree as follows: 

Section 1.    DEFINITIONS    

1.1    Certain Defined Terms.    

        The
following terms used in this Agreement shall have the following meanings: 

        "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or
by contract or otherwise. 

        "Agreement" means this Junior Subordinated Loan Agreement, as it may be amended, supplemented or otherwise modified from time to time. 

        "Asset Sale" means the sale by Company or any of its Subsidiaries to any Person of any assets (whether tangible or intangible) of Company
or any of its Subsidiaries outside of the ordinary course of business, including, in any event, a sale of Eligible Assets by Company to a Subsidiary (including a trust) of Company in connection with a
Securitization Transaction. 

        "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor
statute. 

1

 

        "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the States of New York and
California or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. 

        "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee
that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. 

        "Cash Equivalents" means (i) marketable securities issued or directly and unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one
year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from
Standard & Poor's Ratings Group or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having unimpaired capital
and surplus of not less than $250,000,000 (each such commercial bank herein called a "Cash Equivalent Bank"); (v) Eurodollar time deposits having
a maturity of less than one year purchased directly from any Cash Equivalent Bank (whether such deposit is with such Cash Equivalent Bank or any other Cash Equivalent Bank); and (vi) money
market funds having the highest rating attainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. 

        "Commitment" means the commitment of Lender to make Loans to the Company pursuant to Section 2.1A. 

        "Commitment Termination Date" means October 1, 2004. 

        "Company" has the meaning assigned to that term in the introduction to this Agreement. 

        "Company Member Interests" means the member interests of Company. 

        "Compliance Certificate" means a certificate substantially in the form of  Exhibit III annexed hereto delivered to Lender by Company pursuant to  Section 5.1(ii). 

        "Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash
or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its
Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of
Company and its Subsidiaries plus (ii) to the extent not covered by clause (i) of this definition, the aggregate of all expenditures by
Company and its Subsidiaries during that period to acquire (by purchase or otherwise) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person. 

        "Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid or payable by Company and its Subsidiaries on
a consolidated basis during that period under all Capital Leases and Operating Leases to which Company or any of its Subsidiaries is a party as lessee. 

        "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person
(i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide
assurance to the obligee of such obligation of another that such obligation of 

2

 

another
will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in
respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or
(iii) under interest rate swap, cap or collar agreements and currency swap or cap agreements or any other similar agreements. Contingent Obligations shall include, without limitation,
(a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by
any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase
or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under
subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of
the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. 

        "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its
properties is subject. 

        "Cut-Off Date" has the meaning set forth in the Warehouse Agreement. 

        "Eligible Assets" means loans made by Company to Dealers (as defined in the Senior Subordinated Loan Agreement) in accordance with the
Loan Origination Guidelines, any assets collateralizing such loans and any assets acquired from Dealers in sale/leaseback transactions. 

        "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA that is, or was at any time,
maintained or contributed to by Company or any of its ERISA Affiliates. 

        "Environmental Laws" means all statutes, ordinances, orders, rules, regulations, plans, policies or decrees and the like relating to
(i) environmental matters, including, without limitation, those relating to fines, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from
the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health,
industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any of their respective properties. 

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. 

        "ERISA Affiliate", as applied to any Person, means (i) any corporation which is, or was at any time, a member of a controlled group
of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is, or was at any time, a member; (ii) any trade or business (whether or not
incorporated) which is, or was at any time, a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that
Person is, or was at any time, a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that
Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is, or was at any time, a member. 

3

 

        "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued
thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue
Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in
a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with two or more contributing sponsors
or the termination of any such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or
the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition
of liability on Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal by Company or any of its ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by Company or any of its ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the
imposition on Company or any of its ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or
(l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against Company or any of its ERISA Affiliates in connection with any such Employee Benefit Plan; (x) receipt from the Internal Revenue Service of
notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a)
of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or
(xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. 

        "Event of Default" means each of the events set forth in Section 7. 

        "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. 

        "Facilities" means all real property now, hereafter or heretofore owned, leased, operated or used by Company or any of its Subsidiaries or
any of their respective predecessors or Affiliates. 

        "First Funding Date" means the date of the funding of the First Loan. 

        "First Loan" has the meaning set forth in Section 2.1A. 

        "Fiscal Year" means the fiscal year of Company and its Subsidiaries ending on September 30 of each calendar year. For purposes of
this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends. 

        "Funding Date" means the First Funding Date or the Second Funding Date, as applicable. 

        "GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, generally accepted accounting
principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and 

4

 

pronouncements
of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as
the same are applicable to the circumstances as of the date of determination. 

        "Governmental Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit, whether federal, state, county, district, city or other political subdivision or otherwise and whether now or hereafter in existence, or any
officer or official thereof. 

        "Governmental Authorization" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any
Governmental Authority. 

        "Hazardous Materials" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental
Authority, or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of the Facilities. 

        "Hedge Agreement" means the Master Repurchase Agreement entered into by and between Company and Goldman, Sachs & Co. as it may be
amended, supplemented or otherwise modified from time to time. 

        "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations
with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, and (iv) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Trade credit incurred in the ordinary course of business on customary trade terms
shall not constitute Indebtedness. 

        "Indemnitee" has the meaning assigned to that term in Section 9.3. 

        "Interest Capitalization Note" means the promissory note issued by Company pursuant to Section 2.2C, substantially in the form of  Exhibit II annexed hereto, as
it may be amended, supplemented or otherwise modified from time to time. 

        "Interest Payment Date" means, as provided under the Warehouse Agreement, the tenth (10th) day of each month,  provided that if such tenth (10th) day is not a Business
Day, the Interest Payment Date for such month shall be the next succeeding Business Day.
 

        "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. 

        "Investment" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a
beneficial interest in, stock or other Securities of any other Person, or (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel
expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person including a Subsidiary of
Company, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The
amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. 

        "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form;  provided that in no event shall
any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. 

5

 

        "Junior Subordinated Loans" means the First Loan and the Second Loan made hereunder in the aggregate principal amount of not more than
$500,000, other than the Loans evidenced by the Interest Capitalization Note. 

        "Junior Subordinated Loan Obligations" means all obligations of every nature of Company from time to time owed to Lender under the Loan
Documents, whether for principal, interest, fees, expenses, indemnification or otherwise. 

        "Lender" has the meaning set forth in the Introduction to this Agreement. 

        "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest, and any mechanic's liens) and any credit insurance arrangement, option, trust or
other preferential arrangement having the practical effect of any of the foregoing. 

        "Loans" means the First Loan and the Second Loan made by the Lender to Company pursuant to Section 2.1A., and loans with respect to
the capitalization of interest evidenced by the Interest Capitalization Note. 

        "Loan Documents" means this Agreement and the Notes. 

        "Loan Origination Guidelines" means Company's loan origination guidelines relating to Eligible Assets, attached as Schedule 1.1(b)
to the Senior Subordinated Loan Agreement, as modified from time to time in accordance with the terms of the Senior Subordinated Loan Agreement. 

        "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time. 

        "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Company or any of its Subsidiaries or (ii) the impairment of the ability of Company to perform, or of Lender to enforce, the Junior Subordinated Loan
Obligations. 

        "Maturity Date" means October 1, 2004. 

        "Multiemployer Plan" means a "multiemployer plan", as defined in Section 3(37) of ERISA, to which Company or any of its ERISA
Affiliates is contributing, or ever has contributed, or to which Company or any of its ERISA Affiliates has, or ever has had, an obligation to contribute. 

        "Notes" means (i) the promissory note of Company issued pursuant to Section 2.1B on the date hereof, and (ii) the
Interest Capitalization Note, collectively, as they may be amended, supplemented or otherwise modified from time to time. 

        "Notice of Borrowing" means a notice delivered by Company to Lender pursuant to Section 2.1B with respect to the First Loan or the
Second Loan, as applicable. 

        "Officers' Certificate" means, for any Person, a certificate executed on behalf of such Person by its chairman of the board (if an
officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer, or one of its managers; provided that every
Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officers or managers making or giving
such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers,
they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. 

6

 

        "Operating Agreement" means the Amended and Restated Operating Agreement dated as of October 1, 1997 among SunAmerica Life
Insurance Company, MLQ Investors, L.P., and Falcon Auto Venture LLC (as amended and supplemented from time to time, including by the First Amendment to Amended and Restated Operating Agreement dated
as of January 7, 1998) as such agreement may be further amended, supplemented or otherwise modified from time to time. 

        "Operating Lease" means, as applied to any Person, any lease of any property that is not a Capital Lease, other than any such lease under
which that Person is the lessor. 

        "PBGC" means the Pension Benefit Guaranty Corporation (or any successor thereto). 

        "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal
Revenue Code or Section 302 of ERISA. 

        "Permitted Encumbrances" means the following types of Liens (other than any such Lien imposed pursuant to Section 401(a)(29) or
412(n) of the Internal Revenue Code or by ERISA): 

          (i)  Liens
for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by Section 5.3; 

         (ii)  statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; 

        (iii)  Liens
incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security,
or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); 

        (iv)  any
attachment or judgment Lien not constituting an Event of Default under Section 7.8; 

         (v)  leases
or subleases granted to others not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; 

        (vi)  easements,
rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; 

       (vii)  any
(a) interest or title of a lessor or sublessor under any lease permitted by Section 6.8, (b) restriction or encumbrance that the interest or
title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the
preceding clause (b); and 

      (viii)  Liens
arising from filing UCC financing statements relating solely to leases permitted by this Agreement. 

        "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, Joint
Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political
subdivisions thereof. 

        "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. 

7

   
        "Proceeding" means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or
other winding up of a Person. 

        "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the environment, or into or out of any Facility. 

        "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any Company Member
Interests now or hereafter outstanding, except a dividend payable solely in additional member interests, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Company Member Interests now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any Company Member Interests now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. 

        "Sale/Leaseback Program" means the sale and leaseback financing program described in the Loan Origination Guidelines. 

        "Second Funding Date" means the date of the funding of the Second Loan. 

        "Second Loan" has the meaning set forth in Section 2.1A. 

        "Securities" means any stock, limited liability company interests, shares, partnership interests, voting trust certificates, certificates
of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. 

        "Securitization Transaction" means a securitization of Eligible Assets financed hereunder with a Subsidiary of Company in rated (by a
nationally recognized statistical rating organization) asset backed transactions on terms acceptable to Requisite Lenders under the Senior Subordinated Loan Agreement. 

        "Senior Loan Obligations" means all obligations of every nature of Company now or hereafter existing for Indebtedness for borrowed money
and Capital Leases permitted to be incurred hereunder, including any promissory note or other document or instrument delivered pursuant thereto, and all amendments, extensions or renewals thereof, in
each case whether for principal, interest (including, without limitation, interest that, but for the filing of a petition in bankruptcy with respect to Company, would accrue on such obligations),
fees, expenses or otherwise, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from any Senior Lender as a preference, fraudulent transfer or otherwise. 

        "Senior Lender" means any holder of Senior Loan Obligations. 

        "Senior Subordinated Lenders" has the meaning set forth in the Recitals to this Agreement. 

8

 

        "Senior Subordinated Loan Obligations" means all obligations of every nature of Company from time to time owed to any Senior Subordinated
Lender, whether for principal, interest, fees, expenses, indemnification or otherwise. 

        "Solvent" means, with respect to any Person, that as of the date of determination both (A)
(i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not
less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential
asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and
(iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and  (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and
conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual or matured liability. 

        "Subordinated Indebtedness" means any Indebtedness of Company subordinated in right of payment to the Junior Subordinated Loan Obligations
pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Lender. 

        "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or
other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the
election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. 

        "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed;  provided that "Tax on the
overall net income" of a Person shall be construed as a reference to a tax
imposed by the jurisdiction in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person is deemed to be doing business on all or
part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or
otherwise). 

        "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. 

        "Warehouse Agreement" has the meaning assigned to that term in the Recitals to this Agreement. 

1.2    Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.    

        Except
as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial
statements and other information required to be delivered by Company to Lender pursuant to Section 5.1(i) shall be prepared in accordance with GAAP as in effect at the time of such preparation. 

9

 

1.3    Other Definitional Provisions.    

        References
to "Sections" shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference. 

Section 2.    AMOUNT AND TERMS OF LOAN    

2.1    Amount; Notes.    

        A.    Commitment.    Subject to the terms and conditions of this Agreement and in reliance upon the representations
and warranties of Company herein set forth, Lender hereby agrees to lend to Company from time to time during the period from the Closing Date to but excluding the Commitment Termination Date an
aggregate amount not exceeding $500,000 to be used for working capital purposes. Lender's Commitment shall expire on the Commitment Termination Date and all Loans and all other amounts owed hereunder
with respect to the Loans and the Commitment shall be paid in full no later than that date. Amounts borrowed under this Section 2.1A once repaid may not be reborrowed. Lender shall make an
initial loan of $300,000 (the "First Loan") on a date to be determined by the Company subject to compliance with the conditions set forth in
Section 3.1. Lender shall make a second loan of $200,000 (the "Second Loan") on a date to be determined by the Company subject to compliance with
the conditions set forth in Section 3.2. 

        B.    Borrowing Mechanics.    Loans evidenced by the Interest Capitalization Note shall be in the amounts calculated
according to Section 2.2C of this Agreement. When Company desires that Lender make the First Loan or the Second Loan, as applicable, it shall deliver to Lender a Notice of Borrowing no later
than 12:00 noon (New York time) on the Business Day at least two (2) Business Days in advance of the proposed Funding Date, in which case Lender shall fund the First Loan or the Second Loan, as
applicable, by 12:00 noon (New York time) on the applicable Funding Date. The Notice of Borrowing shall specify the proposed Funding Date (which shall be a Business Day). A Notice of Borrowing shall
be irrevocable and Company shall be bound to make a borrowing in accordance therewith. 

        C.    Disbursement of Funds.    Upon satisfaction or waiver of the conditions precedent specified in
Sections 3.1 (in the case of the First Loan) and 3.2 (in the case of the Second Loan), Lender shall make the proceeds of such Loans available to Company on the applicable Funding Date by wire
transfer to the applicable Account(s) of Company set forth on Schedule 2.1 annexed hereto. 

        D.    Notes.    Company shall execute and deliver to Lender on the date hereof (i) a Note substantially in the
form of Exhibit I annexed hereto to evidence Lender's Loans, in the principal amount of $500,000, and (ii) an Interest Capitalization Note
substantially in the form of Exhibit II annexed hereto to evidence Lender's Loans representing capitalized interest on all Loans. 

2.2    Interest on the Loans.    

        A.    Rate of Interest.    The Loans (including the Loans evidenced by the Interest Capitalization Note) shall bear
interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the rate of 12.0% per annum. 

        B.    Interest Payments.    Interest on the Loans shall be payable in arrears on each Interest Payment Date, upon any
prepayment of the Loans (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); provided, that if a Loan is made
during the period from and including a Cut-Off Date to and including the next succeeding Interest Payment Date, the interest accrued thereon shall not be payable on such Interest Payment
Date, but shall be payable on the following Interest Payment Date and, in such case, interest shall be payable from the date of borrowing to but excluding such following Interest Payment Date. 

10

 

        C.    Interest Capitalization Note.    Company shall, unless it otherwise notifies Lender, and provided that no
Potential Event of Default or Event of Default shall have occurred and be continuing, pay one-fourth of the accrued and unpaid interest on the Loans (including the Interest Capitalization
Note), by capitalizing such interest pursuant to the Interest Capitalization Note. The amount of interest evidenced by the Interest Capitalization Note shall (i) be evidenced by the making of a
notation on the Interest Capitalization Note, (ii) be added to the principal of the Loans, (iii) bear interest at the rate of 12.0% per annum, and, (iv) unless otherwise expressly
provided herein, be deemed part of the Loans for all purposes of this Agreement. The failure to make a notation of any Loan made under such Interest Capitalization Note shall not limit or otherwise
affect the obligation of Company hereunder or under such Interest Capitalization Note with respect to the Loans and payments of principal or interest on such Interest Capitalization Note. 

        D.    Default Rate.    Upon the occurrence and during the continuation of any Event of Default, the outstanding
principal amount of the Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at the rate of 14.0% per
annum. Payment or acceptance of the increased rates of interest provided for in this Section 2.2D is not a permitted alternative to timely payment and shall not constitute a waiver of any Event
of Default or otherwise prejudice or limit any rights or remedies of Lender. 

        E.    Computation of Interest.    Interest on the Loans shall be computed on the basis of a 360-day year
for the actual number of days elapsed in the period during which it
accrues. In computing interest on the Loans, the date of the making of each Loan shall be included, and the date of payment of such Loan shall be excluded. 

2.3    Prepayments; General Provisions Regarding Payments.    

        A.    Voluntary Prepayments.    Company may, upon not less than one (1) Business Day's prior written notice to
Lender (which notice shall be received by Lender prior to noon, New York time), and not prior to payment in full of the Senior Loan Obligations and Senior Subordinated Loan Obligations, from time to
time prepay the Loans to Lender in whole or in part. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the
prepayment date. 

        B.    General Provisions Regarding Payments.    

        (i)    Manner and Time of Payment.    All payments by Company of principal, interest, fees and other Junior
Subordinated Loan Obligations hereunder and under the Notes shall be made in same day funds and without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Lender
or its agent not later than 12:00 Noon (New York time) on the date due at its office specified on the signature page hereto for the account of such Lender; funds received by Lender or its agent after
that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. 

        (ii)    Application of Payments to Principal and Interest.    All payments in respect of the principal amount of any
Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal. 

        (iii)    Application Order of Payments.    Aggregate principal and interest payments on the Loans shall be applied  first to current
interest on the Interest Capitalization Note, second to current interest on the
promissory note of Company issued pursuant to Section 2.1B, third to principal of the Interest Capitalization Note, and  fourth to principal of the
promissory note of Company issued pursuant to Section 2.1B. 

11

 

        (iv)    Payments on Business Days.    Whenever any payment to be made hereunder shall be stated to be due on a day
that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder. 

        (v)    Notation of Payment.    Subject to the restrictions of Section 9.1, Lender agrees that before disposing
of the Note held by it, or any part thereof (other than by granting participations therein), Lender will make a notation thereon of all principal payments previously made thereon and of the date to
which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of the Loan made under such Note
shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal of or interest on such Note. 

2.4    Use of Proceeds.    

        A.    Loans.    The proceeds of the Loans shall be used by Company for working capital purposes. 

        B.    Margin Regulations.    No portion of the proceeds of any borrowing under this Agreement shall be used by Company
or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or
Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds. 

2.5    Increased Costs; Taxes; Capital Adequacy.    

        A.    Compensation for Increased Costs and Taxes.    If Lender shall determine (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each
case that becomes effective after the date hereof, or compliance by Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or
quasi-governmental authority (whether or not having the force of law): 

          (i)  subjects
Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of Lender) with respect to this Agreement or any
of its obligations hereunder or any payments to Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; 

         (ii)  imposes,
modifies or holds applicable any reserve (including, without limitation, any marginal, emergency, supplemental, special or other reserve), special deposit,
compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or
advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender; or 

        (iii)  imposes
any other condition (other than with respect to a Tax matter) on or affecting Lender (or its applicable lending office) or its obligations hereunder; 

and
the result of any of the foregoing is to increase the cost to Lender of agreeing to make, making or maintaining the Loans hereunder or to reduce any amount received or receivable by Lender (or its
applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to Lender, upon receipt of the statement referred to in the next sentence, such additional amount or
amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as Lender in its sole discretion shall determine) as may be necessary to compensate Lender for
any such increased cost or reduction in amounts received or receivable hereunder. Lender shall deliver to 

12

 

Company
a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.5A, which statement shall be conclusive and
binding upon all parties hereto absent manifest error. 

        B.    Withholding of Taxes.    

        (i)    Payments to Be Free and Clear.    All sums payable by Company under this Agreement and the other Loan Documents
shall be paid free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax (other than a Tax on the overall net income of Lender) imposed,
levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a
payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. 

        (ii)    Grossing-up of Payments.    If Company or any other Person is required by law to make any
deduction or withholding on account of any such Tax from any sum paid or payable by Company to Lender under any of the Loan Documents: 

        (a)   Company
shall notify Lender of any such requirement or any change in any such requirement as soon as Company becomes aware of it; 

        (b)   Company
shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own
account or (if that liability is imposed on such Lender) on behalf of and in the name of Lender; 

        (c)   the
sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that,
after the making of that deduction, withholding or payment, Lender receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required
or made; and 

        (d)   within
30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment
of any Tax which it is required by clause (b) above to pay, Company shall deliver to Lender evidence satisfactory to Lender of such deduction, withholding or payment and of the remittance
thereof to the relevant taxing or other authority. 

Section 3.    CONDITIONS TO LOANS    

        The
obligations of Lender to make the Loans hereunder are subject to the satisfaction of the following conditions. 

3.1    Conditions to Effectiveness of this Agreement and the First Loan.    

        The
effectiveness of this Agreement and the obligation of Lender to make the First Loan on the First Funding Date are subject to prior or concurrent satisfaction of the following
conditions: 

        A.    Lender shall have received before the First Funding Date, in accordance with the provisions of Section 2.1B, an
originally executed Notice of Borrowing, signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated by any of the
above-described officers on behalf of Company in a writing delivered to Lender. 

        B.    Company Documents.    On or before the First Funding Date, Company shall have delivered or caused to be
delivered to Lender the following, each, unless otherwise noted, dated the First Funding Date: 

13

 

          (i)  Certified
copies of its Operating Agreement, together with a good standing certificate from the Secretary of State of the State of Delaware and each other state in
which it is qualified as a foreign corporation or limited liability company to do business, each dated a recent date prior to the date hereof; 

         (ii)  Resolutions
of the managers and members of Company approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents,
certified as of the First Funding Date by a manager or the Secretary of Company as being in full force and effect without modification or amendment; 

        (iii)  Signature
and incumbency certificates of its officers executing this Agreement and the other Loan Documents; 

        (iv)  Executed
originals of this Agreement and the other Loan Documents; and 

         (v)  Such
other documents as Lender may reasonably request. 

        C.    Representations and Warranties; Performance of Agreements.    Company shall have delivered to Lender an
Officer's Certificate, in form and substance satisfactory to Lender, to the effect that the representations and warranties in Section 4 hereof are true, correct and complete in all material
respects on and as of the First Funding Date to the same extent as though made on and as of that date and that Company shall have performed in all material respects all agreements and satisfied all
conditions which this Agreement provides shall be performed or satisfied by it on or before the First Funding Date except as otherwise disclosed to and agreed to in writing by Lender. 

        D.    Completion of Proceedings.    All corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Lender and its counsel shall be satisfactory in form and substance to Lender and such counsel,
and Lender and such counsel shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. 

3.2    Conditions to the Second Loan.    

        The
obligation of Lender to make the Second Loan on the Second Funding Date is subject to prior or concurrent satisfaction of the following conditions: 

        A.    Lender shall have received before the Second Funding Date, in accordance with the provisions of Section 2.1B, an
originally executed Notice of Borrowing, in each case signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated
by any of the above-described officers on behalf of Company in a writing delivered to Lender. 

        B.    As of the Second Funding Date: 

          (i)  The
representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of the Second
Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; 

         (ii)  No
event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an
Event of Default or a Potential Event of Default; 

14

  

        (iii)  Company
shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it
on or before the Second Funding Date; 

        (iv)  No
order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain Lender from making the Loan to be made by it on the
Second Funding Date; and 

         (v)  The
making of the Second Loan on the Second Funding Date shall not violate any law including, without limitation, Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal Reserve System. 

Section 4.    COMPANY'S REPRESENTATIONS AND WARRANTIES    

        In
order to induce Lender to enter into this Agreement and to make the Loans hereunder, Company represents and warrants to Lender as of the First Closing Date, that the following
statements are true, correct and complete: 

4.1    Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.    

        A.    Organization and Powers.    Company is a limited liability
company duly organized, validly existing and in good standing under the laws of the State of Delaware. Company has all requisite power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into the Loan Documents, to carry out the transactions contemplated thereby and to issue and pay the Notes. 

        B.    Qualification and Good Standing.    Company is qualified to do
business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, and is in compliance with all licensing requirements
required to carry out its business and operations at such time, except in jurisdictions where the failure to be so qualified or in good standing or licensed has not had and will not have a Material
Adverse Effect. 

        C.    Subsidiaries.    Company has no Subsidiaries as of the date
hereof. 

4.2    Authorization of Borrowing, etc.    

        A.    Authorization of Borrowing.    The execution, delivery and
performance of the Loan Documents and the issuance, delivery and payment of the Notes have been duly authorized by all necessary action on the part of Company. 

        B.    No Conflict.    The execution, delivery and performance by
Company of the Loan Documents, the issuance, delivery and payment of the Notes and the consummation of the transactions contemplated by the Loan Documents do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Operating Agreement or other charter documents of Company or any of its Subsidiaries
or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company
or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the date hereof and disclosed in writing to Lender. 

        C.    Governmental Consents.    The execution, delivery and
performance by Company of the Loan Documents, the issuance, delivery and payment of the Notes and the consummation of the transactions contemplated by the Loan Documents do not and will not require
any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority. 

15

 

        D.    Binding Obligation.    Each of the Loan Documents has been duly
executed and delivered by Company and is the legally valid and binding obligation of Company, enforceable against Company in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 

        E.    Valid Issuance of Company Member Interests.    The Company
Member Interests have been duly and validly issued, and are fully paid and nonassessable. The issuance and sale of such Company Member Interests either (a) have been registered or qualified
under applicable federal and state securities laws or (b) are exempt therefrom. 

4.3    No Restricted Junior Payments.    

        Neither
Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to
do so except as permitted by Section 6.5. 

4.4    Title to Properties; Liens.    

        Company
and its Subsidiaries have good, sufficient and legal title to all of their respective properties and assets reflected in the most recent financial statements delivered pursuant
to Section 5.1, except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.6. Except as
permitted by this Agreement, all such properties and assets are free and clear of Liens. 

4.5    Litigation; Adverse Facts.    

        There
is no action, suit, proceeding, arbitration or governmental investigation (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity or before
or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of Company, threatened
against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries that has had, or could reasonably be expected to result in, a Material Adverse Effect.
Neither Company nor any of its Subsidiaries is (i) in violation of any applicable law that has had, or could reasonably be expected to result in, a Material Adverse Effect or
(ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that has had, or could reasonably be expected to result in, a Material Adverse Effect. 

4.6    Payment of Taxes.    

        Except
to the extent permitted by Section 5.3, all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have
been paid when due and payable. Company knows of no proposed tax assessment against Company or any of its Subsidiaries which is not being actively contested by Company or such Subsidiary in good faith
and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall
have been made or provided therefor. 

4.7    Performance of Agreements; Materially Adverse Agreements.    

        A.    Neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would 

16

 

constitute
such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. 

        B.    Neither Company nor any of its Subsidiaries is a party to or is otherwise subject to any agreement or instrument or any
charter or other internal restriction which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect. 

4.8    Governmental Regulation.    

        Neither
Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the
Junior Subordinated Loan Obligations unenforceable. 

4.9    Securities Activities.    

        Neither
Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying
any Margin Stock. 

4.10    Employee Benefit Plans.    

        A.    Company and each of its ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and
the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. 

        B.    No ERISA Event has occurred or is reasonably expected to occur. 

4.11    Certain Fees.    

        No
broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and Company hereby indemnifies Lender against,
and agrees that it will hold Lender harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any
expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 

4.12    Environmental Protection.    

          (i)  the
operations of Company and each of its Subsidiaries (including, without limitation, all operations and conditions at or in the Facilities) comply in all material
respects with all Environmental Laws; 

         (ii)  Company
and each of its Subsidiaries have obtained all Governmental Authorizations under Environmental Laws necessary to their respective operations, and all such
Governmental Authorizations are in good standing, and Company and each of its Subsidiaries are in compliance with all material terms and conditions of such Governmental Authorizations; 

        (iii)  neither
Company nor any of its Subsidiaries has received (a) any notice or claim to the effect that it is or may be liable to any Person as a result of or in
connection with any Hazardous Materials or (b) any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. § 9604) or comparable state laws, and, to the best of Company's knowledge, none of the operations of Company or any of its Subsidiaries is the subject of any federal or state
investigation relating to or in connection with any Hazardous Materials at any Facility or at any other location; 

17

 

        (iv)  none
of the operations of Company or any of its Subsidiaries is subject to any judicial or administrative proceeding alleging the violation of or liability under any
Environmental Laws which if adversely determined could reasonably be expected to have a Material Adverse Effect; and 

         (v)  neither
Company nor any of its Subsidiaries has any contingent liability in connection with any Release of any Hazardous Materials by Company or any of its Subsidiaries. 

4.13    Employee Matters.    

        There
is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 

4.14    Solvency.    

        Company
and each of its Subsidiaries is and, upon the incurrence of any Junior Subordinated Loan Obligations by Company on any date on which this representation is made, will be,
Solvent. 

4.15    Disclosure.    

        No
representation or warranty of Company or any of its Subsidiaries contained in any Loan Document or in any other document, certificate or written statement furnished to Lender by or on
behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material
fact (known to Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the
same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Company to be reasonable at the time
made, it being recognized by Lender that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may
differ from the projected results. There is no fact known (or which should upon the reasonable exercise of diligence be known) to Company (other than matters of a general economic nature) that has
had, or could reasonably be expected to result in, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to Lender for use
in connection with the transactions contemplated hereby. 

Section 5.    COMPANY'S AFFIRMATIVE COVENANTS    

        Company
covenants and agrees that, until payment in full of the Loans and other Junior Subordinated Loan Obligations, unless Lender shall otherwise give prior written consent, Company
shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5. 

5.1    Financial Statements and Other Reports.    

        Company
will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP. Company will deliver to Lender: 

        (i)    Year-End Financials:    as soon as available and in any event within 90 days after the end
of each Fiscal Year, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the
previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the periods indicated, (b) a narrative report describing the operations of Company and its Subsidiaries in the form
prepared for presentation to senior management for such Fiscal Year, and (c) in the case of such 

18

 

consolidated
financial statements, a report thereon of KPMG Peat Marwick LLP or other independent certified public accountants of recognized national standing selected by Company and
satisfactory to Lender, which report shall be unqualified, shall express no doubts about the ability of Company and its Subsidiaries to continue as a going concern, and shall state that such
consolidated financial statements fairly present the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such
accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; 

        (ii)    Officers' and Compliance Certificates:    together with each delivery of financial statements of Company and
its Subsidiaries pursuant to subdivision (i) above, (a) an Officers' Certificate of Company stating that the signers have reviewed the terms of this Agreement and have made, or caused to
be made under their supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and
that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers'
Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of
existence thereof and what action Company has
taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 6; 

        (iii)    Events of Default, etc.:    promptly upon any officer of Company obtaining knowledge (a) of any
condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that Lender has given any notice or taken any other action with respect to a claimed Event of
Default or Potential Event of Default, (b) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or
condition of the type referred to in Section 7.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Company with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Company were required to file such reports under the Exchange
Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the
nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of
Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; 

        (iv)    Litigation or Other Proceedings:    promptly upon any officer of Company obtaining knowledge of the
institution of, or non-frivolous threat of, or any material development in, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries not previously disclosed in writing by Company to Lender that: 

        (1)   if
adversely determined, has a reasonable possibility of giving rise to a Material Adverse Effect; or 

        (2)   seeks
to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; 

19

 

written
notice thereof together with such other information as may be reasonably available to Company to enable Lender and its counsel to evaluate such matters; 

        (v)    Notices Under Other Documents:    with reasonable promptness, copies of any notices or other written
information delivered pursuant to any requirement of any Senior Loan Document; 

        (vi)    Other Information:    with reasonable promptness, such other information and data with respect to Company or
any of its Subsidiaries as from time to time may be reasonably requested by Lender. 

5.2    Existence, etc.    

        Except
as permitted under Section 6.6, Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all
rights and franchises material to its business. 

5.3    Payment of Taxes and Claims; Tax Consolidation.    

        A.    Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made
therefor. 

        B.    Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person (other than Company or any of its Subsidiaries). 

5.4    Maintenance of Properties; Insurance.    

        Company
will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. Company will
maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and businesses of its Subsidiaries against
loss or damage of the kinds customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses. 

5.5    Inspection.    

        Company
shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Lender to visit and inspect any of the properties of Company or any of its
Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably requested. 

5.6    Compliance with Laws, etc.    

        Company
shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority,
noncompliance with which could reasonably be expected to cause a Material Adverse Effect. 

20

 

5.7    Company's Remedial Action Regarding Hazardous Materials.    

        Company
shall promptly take, and shall cause each of its Subsidiaries promptly to take, all necessary remedial action in connection with the presence, storage, use, disposal,
transportation or Release of any Hazardous Materials on, under or about any Facility in order to comply with all applicable Environmental Laws and Governmental Authorizations. If Company or any of its
Subsidiaries undertakes any remedial action with respect to any Hazardous Materials on, under or about any Facility, Company or such Subsidiary shall conduct and complete such remedial action in
compliance with all applicable Environmental Laws, and in accordance with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the
extent that, Company's or such Subsidiary's liability for such presence, storage, use, disposal, transportation or discharge of any Hazardous Materials is being contested in good faith by Company or
such Subsidiary. 

Section 6.    COMPANY'S NEGATIVE COVENANTS    

        Company
covenants and agrees that, until payment in full of the Loans and other Junior Subordinated Loan Obligations, unless Lender shall otherwise give prior written consent, Company
shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. Notwithstanding any other provision of this Section 6, if the Senior Lenders or
Senior Subordinated Lenders, pursuant to the Warehouse Agreement or the Senior Subordinated Loan Agreement, have consented to any action or omission on the part of the Company that would otherwise be
restricted or required by a covenant in
this Section 6, Lender shall be deemed to have consented to such action or omission pursuant to this Section 6. 

6.1    Indebtedness.    

        Other
than Indebtedness that is subordinated or junior in right of payment to the Junior Subordinated Loan Obligations, Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: 

          (i)  Company
may become and remain liable with respect to the Junior Subordinated Loan Obligations; 

         (ii)  Company
and its Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by Section 6.4 and, upon any matured obligations
actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; 

        (iii)  Company
may become and remain liable with respect to Indebtedness in respect of Capital Leases; provided that such
Capital Leases are permitted under the terms of Section 6.8; 

        (iv)  Company
may become and remain liable with respect to Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned Subsidiary of Company may become and
remain liable with respect to Indebtedness to Company or any other wholly-owned Subsidiary of Company; provided that (a) all such intercompany
Indebtedness shall be evidenced by promissory notes, (b) all such intercompany Indebtedness owed by Company to any of its Subsidiaries shall be subordinated in right of payment to the payment
in full of the Junior Subordinated Loan Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any Subsidiary of
Company under any guaranty of the Junior Subordinated Loan Obligations shall result in a pro tanto reduction of the amount of any intercompany
Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; 

21

  

         (v)  Company
may become and remain liable under the Warehouse Agreement in an aggregate principal amount permitted thereunder from time to time; 

        (vi)  Company
may become and remain liable under the Senior Subordinated Loan Agreement in an aggregate principal amount permitted thereunder from time to time; 

       (vii)  Company
may become and remain liable with respect to Indebtedness (other than Capital Leases) to finance the purchase price of assets (other than Eligible Assets)
acquired after the Closing Date (as defined in the Senior Subordinated Loan Agreement) in the ordinary course of business in an aggregate principal amount for Company and its Subsidiaries not to
exceed $500,000 at any time outstanding; and 

      (viii)  Company
and its Subsidiaries may become and remain liable with respect to Indebtedness incurred in connection with Securitization Transactions and the Sale/Leaseback
Program. 

6.2    Liens and Related Matters.    

        A.    Prohibition on Liens.    Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in
respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit
to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any State or under any
similar recording or notice statute, except: 

          (i)  Permitted
Encumbrances; 

         (ii)  Liens
securing Indebtedness under the Warehouse Agreement; 

        (iii)  Liens
securing Indebtedness under the Senior Subordinated Loan Agreement; 

        (iv)  Liens
incurred in connection with Securitization Transactions and the Sale/Leaseback Program; and 

         (v)  Liens
arising pursuant to Section 6 of the Hedge Agreement. 

        B.    No Restrictions on Subsidiary Distributions to Company or Other
Subsidiaries.    Except as provided herein, and in the Senior Subordinated Loan Agreement and the Warehouse Agreement, Company will not, and will not permit any of
its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on any of such Subsidiary's capital stock owned by Company or any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or advances to Company or any other Subsidiary of Company, or (iv) transfer any of its property or assets to
Company or any other Subsidiary of Company. 

6.3    Investments; Joint Ventures.    

        Company
shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: 

          (i)  Company
and its Subsidiaries may make and own Investments in Cash Equivalents; 

         (ii)  Company
and its Subsidiaries may make intercompany loans to the extent permitted under Section 6.1(iv); 

        (iii)  Company
and its Subsidiaries may make Consolidated Capital Expenditures permitted by Section 6.7; 

22

 

        (iv)  Company
and its Subsidiaries may acquire Eligible Assets; 

         (v)  Company
and its Subsidiaries (i) may form bankruptcy-remote wholly-owned Subsidiaries for the sole purpose of acquiring Eligible Assets from Company and entering
into Securitization Transactions or the Sale/Leaseback Program, and (ii) may establish the Sale/Leaseback Program and engage in Securitization Transactions; and 

        (vi)  Company
may make and own Investments pursuant to the terms of the Hedge Agreement. 

6.4    Contingent Obligations.    

        Company
shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: 

          (i)  Company
and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment
obligations incurred in connection with the Sale/Leaseback Program and Securitization Transactions or other sales of assets; 

         (ii)  Company
and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness of Company or any of its Subsidiaries
permitted by Section 6.1; 

        (iii)  Company
may become and remain liable with respect to Contingent Obligations in respect of sale and repurchase obligations pursuant to the Hedge Agreement; and 

        (iv)  Company
may become and remain liable with respect to Contingent Obligations in respect of the Customer Obligations (as defined in the Warehouse Agreement) as required
under the Warehouse Agreement. 

6.5    Restricted Junior Payments.    

        Company
shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment;  provided that Company may make
distributions to its members necessary to pay income taxes solely attributable to such members' ownership in Company. 

6.6    Restriction on Fundamental Changes.    

        Company
shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of Company or any of its Subsidiaries, or enter into any transaction
of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any part of its business, property or fixed assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all
or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, except: 

          (i)  any
Subsidiary of Company may be merged with or into Company or any wholly-owned Subsidiary of Company, or be liquidated, wound up or dissolved, or all or any
substantial part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any wholly-owned
Subsidiary of Company; provided that, in the case of such a merger, Company or such wholly-owned Subsidiary shall be the continuing or surviving
corporation; 

         (ii)  Company
and its Subsidiaries may make Consolidated Capital Expenditures permitted under Section 6.7; 

23

 

        (iii)  Company
may make Asset Sales in connection with the Sale/Leaseback Program and Securitization Transactions; and 

        (iv)  Company
may make transfers pursuant to the Warehouse Agreement and the Hedge Agreement. 

6.7    Consolidated Capital Expenditures.    

        Company
shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, except in the ordinary course of business in an aggregate amount not to
exceed $500,000 in any Fiscal Year. 

6.8    Restriction on Leases.    

        Company
shall not, and shall not permit any of its Subsidiaries to, become liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of
the lessee under any lease, whether an Operating Lease or a Capital Lease except for (a) obligations incurred in the ordinary course of business if immediately after giving effect to the
incurrence of liability with respect to such lease, the Consolidated Rental Payments at the time in effect during the then current Fiscal Year or any future period of 12 consecutive calendar months
shall not exceed $500,000, and (b) obligations for leased office space not to exceed $200,000 in any Fiscal Year. 

6.9    Transactions with Shareholders and Affiliates.    

        Except
for this Agreement, Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with Falcon Auto Venture LLC or its members on terms that are less favorable to Company or that
Subsidiary, as the case may be, than those that might be obtained at the time on an arms' length basis. 

6.10    Disposal of Subsidiary Stock.    

        Company
shall not, and shall not permit any of its Subsidiaries to directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other
equity Securities of any of its Subsidiaries, except to Company, another Subsidiary of Company, or to qualified directors if required by applicable law. 

6.11    Accounting Changes.    

        A.    Company shall not, and shall not permit any of its Subsidiaries to, (i) make or permit any change in accounting
principles or reporting practices, except as required or permitted by GAAP or (ii) change its Fiscal Year or fiscal quarters. 

        B.    Company and its Subsidiaries will use one of the following accounting firms, or its successors: 

KPMG
Peat Marwick LLP/Ernst & Young

Arthur Andersen LLP

Coopers & Lybrand/Price Waterhouse

Deloitte & Touche 

6.12    Limitation of Ranking of Future Indebtedness.    

        Company
shall not, directly or indirectly, incur, create, or suffer to exist any Indebtedness that is subordinate or junior in right of payment (to any extent) to any obligations under
the Senior Loan Documents and that is senior or superior in right of payment (to any extent) to the Notes other than obligations of the Company under the Senior Subordinated Loan Agreement. 

24

 

6.13    Stay, Extension and Usury Laws.    

        Company
shall not, and shall not permit any of its Subsidiaries to (to the extent each may lawfully do so), at any time insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive Company from paying all or a portion of the principal of or premium, if any, interest or
any other Junior Subordinated Loan Obligations on the Notes as contemplated herein, wherever enacted, now or at any time hereinafter in force, or that may materially affect the covenants or the
performance by Company of its obligations hereunder in a manner inconsistent with the provisions hereof. Company expressly waives all benefit or advantage of any such law to the extent permitted by
applicable law. If a court of competent jurisdiction prescribes that Company may not waive its rights to take the benefit or advantage of any stay or extension law or any usury law or other law in
accordance with the prior sentence, then the obligation to pay interest on the Notes shall be reduced to the maximum legal limit under applicable law governing the interest payable in connection with
the Notes and any amount of interest or premium, if any, paid by Company that is deemed illegal shall be deemed to have been a prepayment of principal (without penalty) on the Notes. 

6.14    Amendment of Operating Agreement and Certain Agreements.    

        Company
shall not materially amend, supplement or otherwise materially modify its Operating Agreement without the consent of Lender. Company shall not amend, supplement or otherwise
modify or waive its rights under the Senior Loan Documents or without the consent of Lender if such amendment, modification or waiver is, or has the effect of being, materially adverse to Company or
Lender. 

6.15    Amendments of Documents Relating to Subordinated Indebtedness.    

        Company
shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment
thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default), change the redemption,
prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if
the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on
the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) that would be adverse to Company or Lender. 

Section 7.    EVENTS OF DEFAULT    

        If
any of the following conditions or events ("Events of Default") shall occur: 

7.1    Failure to Make Payments When Due.    

        Failure
to pay any installment of principal of the Loans when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; or failure to pay any interest on
the Loans or any fee or any other amount due under this Agreement within one (1) day after the date due; or 

7.2    Default in Other Agreements.    

          (i)  the
occurrence of a Termination Event under the Warehouse Agreement; (ii) failure of Company or any of its Subsidiaries to pay when due (a) any principal
of or interest on any Indebtedness (other than Indebtedness referred to in Section 7.1), (b) any Contingent Obligation, in each case beyond the end of any grace period provided therefor;
or (iii) breach or default by Company 

25

 

or
any of its Subsidiaries with respect to any other material term of (a) any evidence of any Indebtedness or any Contingent Obligation, or (b) any loan agreement, mortgage, indenture or
other agreement relating to such Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause that Indebtedness or Contingent Obligation(s) to become or be declared
due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 

7.3    Intentionally Omitted.    

7.4    Breach of Warranty.    

        Any
representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by
Company or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made  provided, that if such
default referred to in this Section 7.4 is susceptible of being cured, no Event of Default shall arise under this
Section 7.4 unless such default shall remain uncured for a 30-day period after such occurrence, provided,  further, however, that if the default is susceptible of cure but cannot reasonably be cured with such
30-day period and Company shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, Company
shall have such additional time as is reasonably necessary to effect such cure, but in no event in excess of 60 days from the original occurrence, whereupon an Event of Default shall arise
under this Section 7.4; or 

7.5    Other Defaults Under Loan Documents.    

        Company
shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other
Section of this Section 7, provided, that if such default referred to in this Section 7.5 is susceptible of being cured, no Event of
Default shall arise under this Section 7.5 unless such default shall remain uncured for a 30-day period after such occurrence,  provided, further,
however, that if the default is
susceptible of cure but cannot reasonably be cured with such 30-day period and Company shall have commenced to cure such default within such 30-day period and thereafter
diligently and expeditiously proceeds to cure the same, Company shall have such additional
time as is reasonably necessary to effect such cure, but in no event in excess of 60 days from the original occurrence, whereupon an Event of Default shall arise under this Section 7.5;
or 

7.6    Involuntary Bankruptcy; Appointment of Receiver, etc.    

          (i)  A
court having jurisdiction in the premises shall enter a decree or order for relief in respect of Company or any of its Subsidiaries in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under
any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or any of its Subsidiaries under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over Company or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment,
execution or similar process shall have been issued against any substantial part of the property of Company or any of its Subsidiaries, and any such event described in this clause (ii) shall
continue for 60 days unless dismissed, bonded or discharged; or 

26

 

7.7    Voluntary Bankruptcy; Appointment of Receiver, etc.    

          (i)  Company
or any of its Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to
a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Company or
any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Company or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of Directors of Company or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize
any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 

7.8    Judgments and Attachments.    

        Any
money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $25,000 or (ii) in the aggregate at any
time an amount in excess of $100,000 (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed
against Company or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than
five (5) days prior to the date of any proposed sale thereunder); or 

7.9    Dissolution.    

        Any
order, judgment or decree shall be entered against Company or any of its Subsidiaries decreeing the dissolution or split up of Company or that Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or 

7.10    Employee Benefit Plans.    

        There
shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Company or any of its ERISA
Affiliates in excess of $50,000 during the term of this Agreement; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or
in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $100,000;  provided, that if
such default referred to in this Section 7.10 is susceptible of being cured, no Event of Default shall arise under this
Section 7.10 unless such default shall remain uncured for a 30-day period after such occurrence, provided,  further, however, that if the default is susceptible of cure but cannot reasonably be cured with such
30-day period and Company shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, Company
shall have such additional time as is reasonably necessary to effect such cure, but in no event in excess of 60 days from the original occurrence, whereupon an Event of Default shall arise
under this Section 7.10; or 

7.11    Material Adverse Effect.    

        Any
event or change shall occur that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 

        THEN

          (i)  upon
the occurrence of any Event of Default described in Section 7.6 or 7.7, and subject to Section 8.2, each of (a) the unpaid principal amount of
and accrued interest on the Loans and (b) all other Junior Subordinated Loan Obligations shall automatically become immediately due and payable, 

27

 

without
presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of Lender to make the Loans shall thereupon terminate;
and 

         (ii)  upon
the occurrence and during the continuation of any other Event of Default, Lender may, by written notice to Company, declare all or any portion of the amounts
described in clauses (a) and (b) above to be due and payable immediately after indefeasible payment in full of the Senior Loan Obligations and the Senior Subordinated Loan Obligations, and the
same shall forthwith become immediately due and payable at such time. Lender agrees that it shall not Exercise Remedies except as permitted under Section 8.9. 

        Notwithstanding
anything contained in the preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to such paragraph Company shall pay all
arrears of interest and all payments on account of principal which shall have become due under this Agreement otherwise than as a result of such acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non-payment of the principal
of and accrued interest on the Loans, which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 9.4 then Lender, by written notice to Company,
may at its option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind Lender to a decision which may be made at the election of Lender and are not intended to benefit Company and do not
grant Company the right to require Lender to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. 

Section 8.    SUBORDINATION    

8.1    Junior Subordinated Loan Obligations Subordinate to Senior Loan Obligations and Senior Subordinated Loan
Obligations.    

        Company
covenants and agrees, and Lender, by its execution of this Agreement likewise covenants and agrees, the Junior Subordinated Loan Obligations shall be junior and subordinate in
right of payment to the prior indefeasible payment in full of all Senior Loan Obligations and Senior Subordinated Loan Obligations of Company in accordance with this Section 8. Except for the
payment of regularly scheduled installments of interest on the Notes in accordance with the terms thereof, no direct or
indirect payment on account of the Junior Subordinated Loan Obligations shall be made on, nor shall Lender accept or receive, nor shall any distribution of assets of Company be applied to the payment,
purchase or other retirement of, the Junior Subordinated Debt Obligations unless and until the Senior Loan Obligations and the Senior Subordinated Loan Obligations are indefeasibly paid in full. In no
event shall the Junior Subordinated Loan Obligations be prepaid, in whole or in part, without the prior written consent of each Senior Lender and each Senior Subordinated Lender. 

8.2    Payment Over of Proceeds and Rights Upon Dissolution, Etc.    

        (1)   In
the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceedings
relative to Company, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise) or upon an assignment for the
benefit of creditors, or any other marshalling of the assets of Company, then (i) first, all Senior Loan Obligations (including any interest accruing subsequent to a filing of a petition in
bankruptcy with respect to the Company, whether or not such interest is an allowed claim enforceable against Company in a bankruptcy proceeding under the Bankruptcy Code) shall be paid in full in
cash, or payment provided for in cash or Cash Equivalents, and (ii) second, all Senior Subordinated Loan Obligations (including any interest accruing subsequent to a filing of a petition in
bankruptcy with respect to the Company, whether or not such interest is an 

28

 

allowed
claim enforceable against Company in a bankruptcy proceeding under the Bankruptcy Code) shall be paid in full before Lender shall be entitled to receive or retain any payment or distribution
of assets from Company with respect to the Junior Subordinated Loan Obligations. In any such proceedings, any payment by Company on account of the Junior Subordinated Loan Obligations to which Lender
would be entitled if the Junior Subordinated Loan Obligations were not subordinated to the Senior Loan Obligations and the Senior Subordinated Loan Obligations shall be paid by Company, or by Lender,
if received by Lender, first, directly to the Senior Lenders on account of Senior Loan Obligations to the extent necessary to make payment in full in cash or Cash Equivalents of all Senior Loan
Obligations, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders with respect to Senior Loan Obligations, and second, directly to the Senior
Subordinated Lenders to the extent necessary to make payment in full in cash or Cash Equivalents of all Senior Subordinated Loan Obligations, after giving effect to any concurrent payment or
distribution to or for the benefit of the Senior Subordinated Lenders with respect to Senior Subordinated Loan Obligations. 

        (2)   Lender
shall duly and promptly take such action as any Senior Subordinated Lender may reasonably request (i) to collect the Junior Subordinated Loan Obligations
for the account of Senior Lenders and Senior Subordinated Lenders and to file appropriate claims or proofs of claim in respect of the Junior Subordinated Loan Obligations, (ii) to execute and
deliver to any Senior Subordinated Lender such powers of attorney, assignments, or other instruments as it may reasonably request in order to enable it to enforce any and all claims with respect to,
and any security interests and other liens securing payment of, the Junior Subordinated Loan Obligations, and (iii) to collect and receive any and all payments or distributions which may be
payable or deliverable upon or with respect to the Junior Subordinated Loan Obligations. 

        (3)   Lender
hereby irrevocably authorizes and empowers each Senior Subordinated Lender (and its representatives) to demand, sue for, collect and receive all payments and
distributions with respect to the Junior Subordinated Loan Obligations and to file and enforce claims and proofs of claims or suit and take all such other actions (including, without limitation,
voting the Junior Subordinated Loan Obligations in connection with any Proceeding) in the name of Lender or otherwise, as such Senior Subordinated Lender determines to be necessary or appropriate. If
any Senior Subordinated Lender votes any claim in accordance with the authority granted hereby, Lender shall not be entitled to change or withdraw such vote. 

        (4)   In
no event shall Lender waive, forgive or cancel any claim Lender may now or hereafter have against Company unless and until the Senior Loan Obligations and the Senior
Subordinated Loan Obligations are indefeasibly paid in full. 

        (5)   In
no event shall any Senior Subordinated Lender be liable to Lender for any failure to prove the Junior Subordinated Loan Obligations, to exercise any right with
respect thereto or to collect any sums payable thereon. 

        (6)   Unless
and until the Senior Loan Obligations and the Senior Subordinated Loan Obligations are indefeasibly paid in full, Lender shall neither commence nor join with any
other creditor of Company to commence any Proceeding against Company or commence any other action against Company to recover all or any part of the Junior Subordinated Loan Obligations. 

29

   8.3    Suspension of Payment When Senior Loan Obligations or Senior Subordinated Loan Obligations In Default;
Continued Accrual of Interest.    

        (1)   Unless
Section 8.2 is applicable, if any default in the payment when due (whether at maturity or upon acceleration or mandatory prepayment or on any scheduled
principal payment date or interest payment date, or otherwise) of any Senior Loan Obligations or any Senior Subordinated Loan Obligations (each a "Payment
Default") shall at any time occur, then at all times thereafter until such default shall have been cured, or such default or the benefits of this sentence shall have been
waived in writing by or on behalf of each Senior Lender and Senior Subordinated Lender that holds such Senior Loan Obligations or Senior Subordinated Loan Obligations, Company shall not, directly or
indirectly, make any payment, including but not limited to scheduled payments with respect to accrued interest with respect to the Junior Subordinated Loan Obligations and interest thereon shall
continue to accrue in accordance with the terms hereof. 

        (2)   Unless
Section 8.2 is applicable, upon the occurrence of an Event of Default under the Warehouse Agreement (other than for payment) or the Senior Subordinated
Loan Agreement (other than for payment) (each a "Non-payment Default") Company may, to the extent of available cash and after payment in
full of all Senior Loan Obligations and Senior Subordinated Loan Obligations then due, make scheduled payments of interest and interest shall continue to accrue in accordance with the terms hereof. 

8.4    Subrogation to Rights of Holders of Senior Loan Obligations and Senior Subordinated Loan
Obligations.    

        No
payment by Company of the Junior Subordinated Loan Obligations to which Lender would have been entitled except for the provisions of this Article Eight and which has been received by
or paid over to Senior Lenders on account of the Senior Loan Obligations or to Senior Subordinated Lenders on account of the Senior Subordinated Loan Obligations shall, as between Company and its
creditors, other than Senior Lenders, Senior Subordinated Lenders and Lender, be deemed to be a payment by Company to Senior Lenders in respect of the Senior Loan Obligations or to Senior Subordinated
Lenders in respect of the Senior Subordinated Loan Obligations, and from and after the indefeasible payment in full of all Senior Loan Obligations and Senior Subordinated Loan Obligations, Lender
shall be subrogated (without any duty on the part of Senior Lenders or Senior Subordinated Lenders to warrant, create, effectuate, preserve or protect such subrogation) to then or thereafter existing
rights of Senior Lenders to receive payments made on the Senior Loan Obligations and Senior Subordinated Lenders to receive payments made on the Senior Subordinated Loan Obligations until the Junior
Subordinated Loan Obligations shall be paid in full. 

8.5    Payments Received In Contravention of this Agreement.    

        If
Lender shall receive any payment from Company on account of the Junior Subordinated Loan Obligations that Lender is not entitled to retain under the provisions of this Article Eight,
any such payment so received shall be held in trust for Senior Lenders and Senior Subordinated Lenders and shall be paid first, to Senior Lenders on account of the Senior Loan Obligations to the
extent necessary to make payment in full in cash or Cash Equivalents of all Senior Loan Obligations, after giving effect to any concurrent payment or distribution to or for the benefit of Senior
Lenders with respect to the Senior Loan Obligations, and second, to Senior Subordinated Lenders on account of the Senior Subordinated Loan Obligations to the extent necessary to make payment in full
in cash or Cash Equivalents of all Senior Subordinated Loan Obligations, after giving effect to any concurrent payment or distribution to or for the benefit of Senior Subordinated Lenders with respect
to the Senior Subordinated Loan Obligations. 

        Notwithstanding
anything in this Article Eight to the contrary, Lender shall be entitled to retain the following distributions by Company in respect of its Junior Subordinated Loan
Obligations: 

30

 

(a) instruments,
securities or other property distributed by Company to Lender pursuant to an order of a court of competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy law if such order states that such distribution gives effect to the subordination of the Junior Subordinated Loan Obligations to the Senior Loan Obligations and Senior Subordinated Loan
Obligations provided for in this Article Eight; and (b) instruments or securities that are issued in respect of the Junior Subordinated Loan Obligations pursuant to reorganization proceedings
under any applicable bankruptcy law that are junior and subordinate at least to the extent provided in this Article Eight to the payment of all Senior Loan Obligations and Senior Subordinated Loan
Obligations then outstanding; provided that, notwithstanding clauses (a) and (b) above, it is understood and agreed that under no circumstances
shall Lender be entitled to receive or retain any cash or Cash Equivalents in respect of its Junior Subordinated Loan Obligations during the pendency of any reorganization proceedings of Company or
its Subsidiaries prior to the indefeasible payment in full in cash or Cash Equivalents of all Senior Loan Obligations and Senior Subordinated Loan Obligations. 

8.6    Subordination Rights Not Imposed by Acts or Omissions of Senior Lenders, Senior Subordinated Lenders or
Company; Further Assurances.    

        Subject
only to the provisions of the Warehouse Agreement or any other agreement creating Senior Loan Obligations, any Senior Lender may at any time and from time to time without the
consent of or notice to Lender: (a) extend, renew, modify, waive or amend the terms of the Senior Loan Obligations; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Loan Obligations; (c) release Company or any other Person liable in any manner for the Senior Loan Obligations or amend or waive the terms of any
guaranty of the Senior Loan Obligations; (d) exercise or refrain from exercising any rights against Company or any other Person; (e) apply any
sums by whomever paid or however realized to Senior Loan Obligations; and (f) take any other action that otherwise might be deemed to impair the rights of Lender. All of such actions may be
taken by Senior Lenders without incurring responsibility to Lender and without impairing or releasing the obligations of Lender to Senior Lenders under this Agreement or otherwise affecting the
subordination provisions or the relative priorities set forth in this Section 8.6. 

        Subject
only to the provisions of the Senior Subordinated Loan Agreement, any Senior Subordinated Lender may at any time and from time to time without the consent of or notice to Lender:
(a) extend, renew, modify, waive or amend the terms of the Senior Subordinated Loan Obligations; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Subordinated Loan Obligations; (c) release Company or any other Person liable in any manner for the Senior Subordinated Loan Obligations or amend or waive the terms of
any guaranty of the Senior Subordinated Loan Obligations; (d) exercise or refrain from exercising any rights against Company or any other Person; (e) apply any sums by whomever paid or
however realized to the Senior Subordinated Loan Obligations; and (f) take any other action that otherwise might be deemed to impair the rights of Lender. All of such actions may be taken by
Senior Subordinated Lenders without incurring responsibility to Lender and without impairing or releasing the obligations of Lender to Senior Subordinated Lenders under this Agreement or otherwise
affecting the subordination provisions or the relative priorities set forth in this Section 8.6. 

        No
right of any present or future Senior Lender or Senior Subordinated Lender to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of Company or anyone in custody of Company's assets or property or by any act or failure to act on the part of any Senior Lender or Senior Subordinated Lender or any
other holder of Senior Loan Obligations or Senior Subordinated Loan Obligations, or by any non-compliance by Company with the terms, provisions or covenants of this Agreement regardless of
any knowledge thereof which any such Senior Lender or Senior Subordinated Lender may have or otherwise be charged with. 

31

 

        At
any time or from time to time upon the request of Senior Lenders or Senior Subordinated Lenders, Lender shall execute and deliver such further documents and do such other acts and
things as Senior Lenders or Senior Subordinated Lenders may reasonably request as necessary to effect fully the purposes of the subordination provisions contained in this Article Eight. 

8.7    Provisions Solely to Define Relative Rights.    

        The
foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of Senior Lenders with respect to the Senior Loan Obligations, Senior
Subordinated Lenders with respect to the Senior Subordinated Loan Obligations and Lender with respect to the Junior
Subordinated Loan Obligations, respectively. Such provisions are for the benefit of Senior Lenders (and their successors and assigns) with respect to the Senior Loan Obligations and Senior
Subordinated Lenders (and their successors and assigns) with respect to the Senior Subordinated Loan Obligations and shall be enforceable by them directly against Lender (and its successors and
assigns). 

        No
payment, distribution, purchase or other action may be taken by any Subsidiary of Company with respect to the Junior Subordinated Loan Obligations if Company would be prohibited by
this Article Eight from taking such action. 

8.8    No Impairment of Obligations.    

        Nothing
contained in this Agreement, the Warehouse Agreement or the Senior Subordinated Loan Agreement is intended to or shall impair, as between Company and Lender, the obligation of
Company, which is unconditional and absolute, to fully pay and perform to Lender the Junior Subordinated Loan Obligations as and when the same shall become due in accordance with the terms of this
Agreement, or is intended to or shall affect the relative rights against Company of Lender and creditors of Company other than Senior Lenders with respect to the Senior Loan Obligations and Senior
Subordinated Lenders with respect to the Senior Subordinated Loan Obligations. The failure to make a payment on account of the Junior Subordinated Loan Obligations by reason of any provision of this
Article Eight shall not be construed as preventing the occurrence of a Potential Event of Default or an Event of Default hereunder or a Potential Event of Default or an Event of Default under and as
defined in any document evidencing the Senior Loan Obligations or Senior Subordinated Loan Obligations nor shall anything herein prevent Lender from exercising all remedies otherwise permitted by
applicable law except as expressly provided in this Article 8. 

8.9    Lender Exercising Remedies.    

        Notwithstanding
anything to the contrary set forth in this Agreement, prior to the indefeasible payment in full of the Senior Loan Obligations and the Senior Subordinated Loan
Obligations, and except as set forth in Section 8.2 or otherwise with the prior written consent of each Senior Subordinated Lender, Lender may not demand for payment of or accelerate the Junior
Subordinated Loan Obligations or take any action against Company pursuant to this Agreement (to take such actions is to "Exercise Remedies"). 

8.10    Intentionally Omitted.    

8.11    No Assignment of Junior Subordinated Loan Obligations and Other Matters.    

        Except
as provided in Section 8.2, nothing in this Agreement shall constitute an assignment to Senior Lenders or Senior Subordinated Lenders of the Junior Subordinated Loan
Obligations. 

        Lender
agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute any claim, action or other proceeding challenging the enforceability of the Senior Loan
Obligations or Senior Subordinated Loan Obligations or any liens and security interests securing the Senior Loan Obligations or Senior Subordinated Loan Obligations. 

32

 

        The
Senior Loan Obligations and Senior Subordinated Loan Obligations shall continue to be treated as Senior Loan Obligations and Senior Subordinated Loan Obligations, respectively, and
the provisions of this Section 8 shall continue to govern the relative rights and priorities of Lender, Senior Lenders and Senior Subordinated Lenders even if all or part of the Senior Loan
Obligations or Senior Subordinated Loan Obligations or the security interests securing the Senior Loan Obligations or Senior Subordinated Loan Obligations are subordinated, set aside, avoided or
disallowed in connection with any Proceeding, and this Agreement shall be reinstated if at any time any payment of any of the Senior Loan Obligations or Senior Subordinated Loan Obligations is
rescinded or must otherwise be returned by any holder of Senior Loan Obligations or Senior Subordinated Loan Obligations or any representative of such holder. 

        Nothing
in this Section 8.11 is intended to or shall relieve Lender from the obligations imposed under Section 8.5 with respect to monies or other distributions received in
violation of the provisions hereof. 

Section 9.    MISCELLANEOUS    

9.1    Assignments and Participations in Loan.    

        Lender
shall not have the right at any time to (i) sell, assign, transfer or negotiate to any other Person or (ii) sell participations to any Person in, all or any part of
the Loan or any other interest herein or in any other obligations owed to it. 

9.2    Expenses.    

        Whether
or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the
Loan Documents; (ii) all the costs of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other
Loan Documents including, without limitation, with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of
counsel to Lender in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loan and any consents, amendments, waivers or other modifications hereto
or thereto and any other documents or matters requested by Company; (iv) all other actual and reasonable costs and expenses incurred by Lender in connection with the negotiation, preparation
and execution of the Loan Documents and the transactions contemplated hereby and thereby; and (v) after the occurrence of an Event of Default, all costs and expenses, including reasonable
attorneys' fees and costs of settlement, incurred by Lender in enforcing any Junior Subordinated Loan Obligations of or in collecting any payments due from Company hereunder or under the other Loan
Documents by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out"
or pursuant to any insolvency or bankruptcy proceedings. 

9.3    Indemnity.    

        In
addition to the payment of expenses pursuant to Section 9.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend, indemnify, pay
and hold harmless Lender, and the officers, directors, employees, counsel, agents and affiliates of Lender (collectively called the "Indemnitees") from
and against all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person,
whether or not any such Indemnitee shall be designated as a party or a potential party thereto), whether direct, indirect or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including, without limitation, securities and 

33

 

commercial
laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including, without limitation, Lender's agreement
to make the Loan hereunder or the use or intended use of the proceeds of any of the Loan) (collectively called the "Indemnified Liabilities");  provided
that Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such
Indemnified Liabilities arise solely from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. To the extent that the
undertaking to defend, indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Company shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 

9.4    Amendments and Waivers.    

        No
amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, or consent to any departure by Company therefrom, shall in any event be effective
without the written concurrence of Lender and Senior Subordinated Lenders; provided that any such amendment, modification, termination, waiver or
consent that: reduces the principal amount of the Loan; postpones the scheduled final maturity date of any of the Loan; postpones the date on which any interest is payable; decreases the interest rate
borne by the Loan (other than any waiver of any increase in the interest rate applicable to the Loan pursuant to Section 2.2D); or changes in any manner the provisions contained in
Section 7 (other than any waiver of any Event of Default (other than one arising under Section 7.1)) or this Section 9.4 shall be effective only if evidenced by a writing signed
by or on behalf Lender and Senior Subordinated Lenders. In addition, no amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence
of Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle
Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 9.4
shall be binding upon Lender at the time outstanding, each future Lender and, if signed by Company, on Company. 

9.5    Independence of Covenants.    

        All
covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an
exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition
exists. 

9.6    Notices.    

        Unless
otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied,
telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telecopy or telex, or four
(4) Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto
shall be as set forth under such party's name on the signature pages hereof or such other address as shall be designated by such Person in a written notice delivered to the other parties hereto. 

9.7    Survival of Representations, Warranties and Agreements.    

        A.    All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and
the making of the Loan hereunder. 

34

 

        B.    Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company set forth in
Sections 2.4, 4.11, 9.2, 9.3 and 9.17 and the agreements of Lender set forth in Section 9.17 shall survive the payment of the Loan and the termination of this Agreement. 

9.8    Failure or Indulgence Not Waiver; Remedies Cumulative.    

        No
failure or delay on the part of Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 

9.9    Marshalling; Payments Set Aside.    

        Lender
shall be under no obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Junior Subordinated Loan Obligations. To
the extent that Company makes a payment or payments to Lender and such payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or
part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment had not
been made. 

9.10    Severability.    

        In
case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 

9.11    Headings.    

        Section
and Subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be
given any substantive effect. 

9.12    Applicable Law.    

        THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.

9.13    Successors and Assigns.    

        This
Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of
Lender (it being understood that Lender's rights of assignment are subject to Section 9.1). Neither Company's rights or obligations hereunder nor any interest therein may be assigned or
delegated by Company without the prior written consent of Lender. 

9.14    Consent to Jurisdiction and Service of Process.    

        ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY  

35

 

 AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION.

9.15    Waiver of Jury Trial.    

        EACH
OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business
relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto
further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent
to a trial by the court. 

9.16    Counterparts; Effectiveness.    

        This
Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages
may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties hereto. 

9.17    Confidentiality.    

        Each
party to this Agreement shall hold all non-public information obtained pursuant to the requirements of this Agreement that has been identified as confidential by Company
or Lender in accordance with such Person's customary procedures for handling confidential information of this nature, it being understood and agreed that in any event each party to this Agreement may
make disclosures to Affiliates of such party, disclosures to its agents, auditors, consultants and counsel who have been advised of these provisions or disclosures required or requested by any
governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court
order, each party to this Agreement shall notify the other party to this Agreement of any request by any governmental agency or representative thereof (other than any such
request in connection with any examination of the financial condition of Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such
information; and provided, further that in no event shall Lender be obligated or required to return any
materials furnished by Company or any of its Subsidiaries. 

[Remainder
of page intentionally left blank] 

36

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

	 	COMPANY:	 	 	 	 	 
	

 	

 	
 	
FALCON FINANCIAL, LLC
	

 	

 	
 	

 	

 	

 	

 
	 	 	 	By:	/s/  DAVID A. KARP      

	 	 	 	 	Name:	David A. Karp
	 	 	 	 	Title:	Chief Operating Officer
	

 	

 	
 	

Notice Address:	

 
	

 	

 	
 	

 	

 	

2015 West Main Street

Stamford, CT 06902
	 	 	 	 	 	Attn:	Vernon Schwartz

David Karp
	

 	
LENDER:	
 	

 	

 	

 	

 
	

 	

 	
 	
FALCON AUTO VENTURE LLC
	

 	

 	
 	

 	

 	

 	

 
	 	 	 	By:	/s/  DAVID A. KARP      

	 	 	 	 	Name:	David A. Karp
	 	 	 	 	Title:	Manager
	

 	

 	
 	

Notice Address:	

 
	

 	

 	
 	

 	

 	

2015 Main Street

Stamford, Connecticut 06902
	 	 	 	 	 	Attn:	David Karp

S-1

 

        ACKNOWLEDGED
AND AGREED as of the date first above written pursuant to Section 6.16 of the Senior Subordinated Loan Agreement. 

	 	 	SUNAMERICA LIFE INSURANCE COMPANY
	

 	
 	

 	

 	

 
	 	 	By:	/s/  JOHN G. LAPHAM, III      

	 	 	 	Name:	John G. Lapham, III
	 	 	 	Title:	Authorized Agent
	

 	
 	

 	

 	

 
	 	 	GOLDMAN SACHS MORTGAGE COMPANY
	

 	
 	

By:	

GOLDMAN SACHS REAL ESTATE FUNDING CORP., its general partner
	

 	
 	

 	

 	

 
	 	 	By:	/s/  ROBERT CHRISTIE      

	 	 	 	Name:	Robert Christie
	 	 	 	Title:	Vice President

S-2

   EXHIBIT I  

 [FORM OF NOTE]  

 FALCON FINANCIAL, LLC  

 JUNIOR SUBORDINATED PROMISSORY NOTE DUE OCTOBER 1, 2004  

	$500,000	 	____________, 1999

        FOR
VALUE RECEIVED, FALCON FINANCIAL, LLC, a Delaware limited liability company ("Company"), promises to pay to the order of FALCON AUTO
VENTURE LLC ("Payee"), on or before October 1, 2004, the lesser of (x) Five Hundred Thousand Dollars ($500,000) and (y) the unpaid
principal amount of the Loan under the Loan Agreement referred to below. 

        Company
also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in
accordance with the provisions of that certain Junior Subordinated Loan Agreement dated as of April 19, 1999, (as it may be amended, supplemented or otherwise modified from time to time, the
"Loan Agreement", the terms defined therein and not otherwise defined herein being used herein as therein defined) by and among Company and Lender. 

        This
Note is the Company's "Note" in the aggregate principal amount of $500,000 and is issued pursuant to and entitled to the benefits of the Loan Agreement, to which reference is hereby
made for a more complete statement of the terms and conditions under which the Loans evidenced hereby was made and is to be repaid. 

        All
payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of Payee located at 2015 Main
Street, Stamford, CT 06902, or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Loan Agreement. Each of Payee and any subsequent permitted
assignee of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof (other than by granting participations herein) it will make a notation hereon of all
principal payments previously made hereunder and of the date to which interest hereon has been paid; provided,  however, that the failure to make a notation
of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder
with respect to payments of principal of or interest on this Note. 

        Whenever
any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the payment of interest on this Note. 

        THE LOAN AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.

        Upon
the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared
to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. 

        The
terms of this Note are subject to amendment only in the manner provided in the Loan Agreement. 

        This
Note is subject to restrictions on transfer or assignment as provided in Section 9.1 of the Loan Agreement. 

I-1

 

        No
reference herein to the Loan Agreement and no provision of this Note or the Loan Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to
pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. 

        Company
promises to pay all costs and expenses, including reasonable attorneys' fees of one counsel, all as provided in Section 9.2 of the Loan Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive
diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. 

        IN
WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above. 

	 	 	FALCON FINANCIAL, LLC
	

 	
 	

 	

 	

 
	 	 	By:	    

	 	 	 	Name:

Title:	 

I-2

 
TRANSACTIONS

ON

NOTE  

	Date
	 	Amount of

Principal Paid

This Date
	 	Outstanding

Principal Balance

This Date
	 	Notation

Made By

	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 

I-3

   EXHIBIT II  

 [FORM OF INTEREST CAPITALIZATION NOTE]  

 FALCON FINANCIAL, LLC  

 PROMISSORY NOTE DUE OCTOBER 1, 2004  

	 	 	____________, 1999

        FOR
VALUE RECEIVED, FALCON FINANCIAL, LLC, a Delaware limited liability company ("Company"), promises to pay to the order of FALCON AUTO
VENTURE LLC ("Payee"), on or before October 1, 2004, the unpaid principal amount of all advances representing capitalized interest of the Loan
made by Payee to Company under the Loan Agreement referred to below. 

        Company
also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in
accordance with the provisions of that certain Junior Subordinated Loan Agreement dated as of April 19, 1999, (as it may be amended, supplemented or otherwise modified from time to time, the
"Loan Agreement", the terms defined therein and not otherwise defined herein being used herein as therein defined) by and among Company and Lender. 

        This
Note is the Company's "Interest Capitalization Note" and is issued pursuant to and entitled to the benefits of the Loan Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Loans evidenced hereby was made and is to be repaid. 

        All
payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of Payee located at 2015 Main
Street, Stamford, CT 06902, or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Loan Agreement. Each of Payee and any subsequent permitted
assignee of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof (other than by granting participations herein) it will make a notation hereon of all
principal payments previously made hereunder and of the date to which interest hereon has been paid; provided,  however, that the failure to make a notation
of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder
with respect to payments of principal of or interest on this Note. 

        Whenever
any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the payment of interest on this Note. 

        THE LOAN AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.

        Upon
the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared
to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. 

        The
terms of this Note are subject to amendment only in the manner provided in the Loan Agreement. 

        This
Note is subject to restrictions on transfer or assignment as provided in Section 9.1 of the Loan Agreement. 

II-1

 

        No
reference herein to the Loan Agreement and no provision of this Note or the Loan Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to
pay the
principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. 

        Company
promises to pay all costs and expenses, including reasonable attorneys' fees of counsel, all as provided in Section 9.2 of the Loan Agreement, incurred in the collection
and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. 

        IN
WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above. 

	 	 	FALCON FINANCIAL, LLC
	

 	
 	

 	

 	

 
	 	 	By:	    

	 	 	 	Name:

Title:	 

II-2

 
TRANSACTIONS

ON

NOTE  

	Date
	 	Amount of

Principal Paid

This Date
	 	Outstanding

Principal Balance

This Date
	 	Notation

Made By

	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 
	    	 	 	 	 	 	 

II-3

  

EXHIBIT III  

 [FORM OF COMPLIANCE CERTIFICATE]  

 COMPLIANCE CERTIFICATE  

        THE UNDERSIGNED HEREBY CERTIFY THAT: 

        (1)   We
are the duly elected [Title] and [Title] of Falcon Financial, LLC, a Delaware limited liability company
("Company"); 

        (2)   We
have reviewed the terms of that certain Junior Subordinated Loan Agreement dated as of April 19, 1999 (as it may be amended, supplemented or otherwise modified
from time to time, the "Loan Agreement", the terms defined therein and not otherwise defined in this Certificate (including Attachment No. 1
annexed hereto and made a part hereof) being used in this Certificate as therein defined), by and among Company and the Lender and the terms of the other Loan Documents, and we have made, or have
caused to be made under our supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by the attached financial
statements; and 

        (3)   The
examination described in paragraph (2) above did not disclose, and we have no knowledge of, the existence of any condition or event which constitutes an Event
of Default or Potential Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate[, except as set
forth below]. 

        [Set
forth [below] [in a separate attachment to this Certificate] are all exceptions to paragraph (3) above listing, in
detail, the nature of the condition or event, the period during which it has existed and the action which Company has taken, is taking, or proposes to take with respect to each such condition or
event: 

	

    
	

]

        The
foregoing certifications, together with the computations set forth in Attachment No. 1 annexed hereto and made a part hereof and the financial statements delivered with this
Certificate in support hereof, are made and delivered this       day of                        ,
        pursuant to Section 5.1(ii) of the Loan Agreement. 

	 	 	FALCON FINANCIAL, LLC
	

 	
 	

 	

 	

 
	 	 	By:	    

	 	 	 	Name:

Title:	 

III-1

 
 
 

ATTACHMENT NO. 1
  TO COMPLIANCE CERTIFICATE    

        This
Attachment No. 1 is attached to and made a part of a Compliance Certificate dated as of                        ,
        and pertains to the period from                        ,
        to                        ,        .
Section references herein relate to Sections of the Loan Agreement. 

	A.	Indebtedness	 	 	 
	

 	

1.	

Indebtedness permitted under Section 6.1(v):	
 	
$	

 
	

 	

2.	

Maximum permitted under Section 6.1(v):	
 	
$	

 
	

 	

3.	

Indebtedness permitted under Section 6.1(vi):	
 	
$	

 
	

 	

4.	

Maximum permitted under Section 6.1(vi):	
 	
$	

 
	
B.	

Consolidated Capital Expenditures	
 	
 	

 
	

 	

1.	

Consolidated Capital Expenditures for Fiscal Year-to-date:	
 	
$	

 
	

 	

2.	

Maximum amount of Consolidated Capital Expenditures permitted under Section 6.7 for Fiscal Year:	
 	
$	

 
	
C.	

Leases	
 	
 	

 
	

 	

1.	

Maximum Consolidated Rental Payments in effect during current Fiscal Year or any period of 12 consecutive calendar months:	
 	
$	

 
	

 	

2.	

Maximum permitted under Section 6.8:	
 	
$	

 

III-2

QuickLinks

EXHIBIT 10.12

ATTACHMENT NO. 1 TO COMPLIANCE CERTIFICATEExhibit 4.1

 

 

 

 

 

LONGS DRUG STORES CALIFORNIA, INC.

EMPLOYEE SAVINGS AND PROFIT SHARING
PLAN

 

 

 

 

 

Longs Drug
Stores California, Inc.

Employee Savings and Profi Sharing Plan

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE
  I

  	
  DEFINITIONS

  	
  1

  
	
   

  	
  1.1

  	
  “Account”

  	
  1

  
	
   

  	
  1.2

  	
  “Actual Deferral Percentage”

  	
  1

  
	
   

  	
  1.3

  	
  “Adjustment
  Factor”

  	
  1

  
	
   

  	
  1.4

  	
  “Administrator” or
  “Plan Administrator”

  	
  1

  
	
   

  	
  1.5

  	
  “Allocation Date”

  	
  1

  
	
   

  	
  1.6

  	
  “Beneficiary”

  	
  1

  
	
   

  	
  1.7

  	
  “Board of
  Directors”

  	
  1

  
	
   

  	
  1.8

  	
  “Catch-up
  Contributions”

  	
  1

  
	
   

  	
  1.9

  	
  “Catch-up Eligible
  Participant”

  	
  1

  
	
   

  	
  1.10

  	
  “Catch-up Limit”

  	
  1

  
	
   

  	
  1.11

  	
  “Code”

  	
  1

  
	
   

  	
  1.12

  	
  “Company”

  	
  1

  
	
   

  	
  1.13

  	
  “Compensation”

  	
  2

  
	
   

  	
  1.14

  	
  “Contribution
  Percentage”

  	
  2

  
	
   

  	
  1.15

  	
  “Contribution Percentage
  Test”

  	
  2

  
	
   

  	
  1.16

  	
  “Deferral
  Election”

  	
  2

  
	
   

  	
  1.17

  	
  “Deferred Salary
  Contribution”

  	
  2

  
	
   

  	
  1.18

  	
  “Deferred
  Income Account”

  	
  2

  
	
   

  	
  1.19

  	
  “Direct
  Rollover”

  	
  2

  
	
   

  	
  1.20

  	
  “Disability”

  	
  2

  
	
   

  	
  1.21

  	
  “Distributee”

  	
  3

  
	
   

  	
  1.22

  	
  “Diversified Investment
  Fund”

  	
  3

  
	
   

  	
  1.23

  	
  “Effective Date”

  	
  3

  
	
   

  	
  1.24

  	
  “Eligible
  Employee”

  	
  3

  
	
   

  	
  1.25

  	
  “Eligible
  Retirement Plan”

  	
  3

  
	
   

  	
  1.26

  	
  “Eligible Rollover Distribution”

  	
  3

  
	
   

  	
  1.27

  	
  “Employee”

  	
  4

  

 

 

i

 

	
   

  	
   

  	
  Page

  
	
   

  	
  1.28

  	
  “Employer”

  	
  4

  
	
   

  	
  1.29

  	
  “Employer
  Contributions”

  	
  4

  
	
   

  	
  1.30

  	
  “Employment Commencement
  Date”

  	
  5

  
	
   

  	
  1.31

  	
  “Employer
  Stock Account”

  	
  5

  
	
   

  	
  1.32

  	
  “Entry Date”

  	
  5

  
	
   

  	
  1.33

  	
  “ERISA”

  	
  5

  
	
   

  	
  1.34

  	
  “Fiscal Year”

  	
  5

  
	
   

  	
  1.35

  	
  “Funds”

  	
  5

  
	
   

  	
  1.36

  	
  “Hardship”

  	
  5

  
	
   

  	
  1.37

  	
  “Highly Compensated
  Employee”

  	
  5

  
	
   

  	
  1.38

  	
  “Holding
  Company”

  	
  6

  
	
   

  	
  1.39

  	
  “Hour of Service”

  	
  6

  
	
   

  	
  1.40

  	
  “Leased
  Employee”

  	
  8

  
	
   

  	
  1.41

  	
  “Leave of
  Absence”

  	
  8

  
	
   

  	
  1.42

  	
  “Loan Fund”

  	
  8

  
	
   

  	
  1.43

  	
  “Longs Drug
  Stores”

  	
  9

  
	
   

  	
  1.44

  	
  “Longs
  Drug Stores Stock”

  	
  9

  
	
   

  	
  1.45

  	
  “Longs Drug Stores
  Stock Account”

  	
  9

  
	
   

  	
  1.46

  	
  “Longs Drug Stores Stock
  Fund”

  	
  9

  
	
   

  	
  1.47

  	
  “Matching
  Contribution”

  	
  9

  
	
   

  	
  1.48

  	
  “Matching Contribution
  Account”

  	
  9

  
	
   

  	
  1.49

  	
  “Normal
  Retirement Age”

  	
  9

  
	
   

  	
  1.50

  	
  “One-Year
  Break in Service”

  	
  9

  
	
   

  	
  1.51

  	
  “Participant”

  	
  9

  
	
   

  	
  1.52

  	
  “Plan Administrator”

  	
  9

  
	
   

  	
  1.53

  	
  “Plan”

  	
  9

  
	
   

  	
  1.54

  	
  “Plan Rules”

  	
  9

  
	
   

  	
  1.55

  	
  “Plan Year”

  	
  9

  
	
   

  	
  1.56

  	
  “Profit
  Sharing Account”

  	
  10

  
	
   

  	
  1.57

  	
  “Profit Sharing
  Contribution”

  	
  10

  

 

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
  1.58

  	
  “Qualified Military Service”

  	
  10

  
	
   

  	
  1.59

  	
  “Qualified
  Nonelective Contribution”

  	
  10

  
	
   

  	
  1.60

  	
  “Reemployed
  Veteran”

  	
  10

  
	
   

  	
  1.61

  	
  “Retirement”

  	
  10

  
	
   

  	
  1.62

  	
  “Rollover
  Contribution”

  	
  10

  
	
   

  	
  1.63

  	
  “Rollover Contribution
  Account”

  	
  10

  
	
   

  	
  1.64

  	
  “Shares”

  	
  10

  
	
   

  	
  1.65

  	
  “Spousal
  Consent”

  	
  10

  
	
   

  	
  1.66

  	
  “Spouse” or “Surviving Spouse”

  	
  11

  
	
   

  	
  1.67

  	
  “Trust
  Agreement”

  	
  11

  
	
   

  	
  1.68

  	
  “Trust Fund”

  	
  11

  
	
   

  	
  1.69

  	
  “Trustee”

  	
  11

  
	
   

  	
  1.70

  	
  “Unallocated Stock Account”

  	
  11

  
	
   

  	
  1.71

  	
  “Unallocated
  Shares”

  	
  11

  
	
   

  	
  1.72

  	
  “Unit”

  	
  11

  
	
   

  	
  1.73

  	
  “Valuation Date”

  	
  11

  
	
   

  	
  1.74

  	
  “Year of Service”

  	
  11

  
	
  ARTICLE
  II

  	
  PARTICIPATION

  	
  12

  
	
   

  	
  2.1

  	
  Plan Entry

  	
  12

  
	
   

  	
  2.2

  	
  Participation Requirements

  	
  12

  
	
   

  	
  2.3

  	
  Period of
  Participation; Rehired Participant

  	
  13

  
	
   

  	
  2.4

  	
  Suspended
  Participation

  	
  13

  
	
   

  	
  2.5

  	
  Absence in Military Service

  	
  13

  
	
  ARTICLE III

  	
  EMPLOYEE
  CONTRIBUTIONS

  	
  14

  
	
   

  	
  3.1

  	
  Deferred Salary
  Contributions

  	
  14

  
	
   

  	
  3.2

  	
  Catch
  Up Contributions

  	
  14

  
	
   

  	
  3.3

  	
  Suspension
  of, or Change In, Deferred Salary Contribution

  	
  16

  
	
   

  	
  3.4

  	
  Special
  Deferral Limits

  	
  16

  
	
   

  	
  3.5

  	
  Rollover
  Contributions

  	
  18

  
	
  ARTICLE IV

  	
  MATCHING
  CONTRIBUTIONS

  	
  18

  

 

 

iii

 

	
   

  	
   

  	
  Page

  
	
   

  	
  4.1

  	
  Matching
  Contributions

  	
  18

  
	
   

  	
  4.2

  	
  Correction
  of Excess Matching Contributions or Excess Aggregate Contributions.

  	
  19

  
	
   

  	
  4.3

  	
  Contribution Percentage
  Test.

  	
  20

  
	
  ARTICLE V

  	
  PROFIT SHARING
  CONTRIBUTIONS

  	
  21

  
	
   

  	
  5.1

  	
  Profit Sharing
  Contributions

  	
  21

  
	
   

  	
  5.2

  	
  Allocation
  of Profit Sharing Contributions and Forfeitures

  	
  22

  
	
   

  	
  5.3

  	
  Allocation
  Limitation

  	
  22

  
	
  ARTICLE VI

  	
  PLAN CONTRIBUTION
  RULES

  	
  22

  
	
   

  	
  6.1

  	
  Time for
  Payment

  	
  22

  
	
   

  	
  6.2

  	
  Contributions in Cash
  or Property

  	
  23

  
	
   

  	
  6.3

  	
  Reversion of
  Employer Contributions

  	
  23

  
	
   

  	
  6.4

  	
  Contribution
  Limitations

  	
  23

  
	
   

  	
  6.5

  	
  Amount
  of Contributions

  	
  24

  
	
  ARTICLE VII

  	
  ACCOUNTS AND
  INVESTMENTS

  	
  24

  
	
   

  	
  7.1

  	
  Participant
  Accounts

  	
  24

  
	
   

  	
  7.2

  	
  Valuation
  of Accounts

  	
  25

  
	
   

  	
  7.3

  	
  Trust Fund

  	
  26

  
	
   

  	
  7.4

  	
  Investment
  of Profit Sharing Contributions and Forfeitures

  	
  27

  
	
   

  	
  7.5

  	
  Dividends on Longs
  Drug Stores Stock.

  	
  27

  
	
   

  	
  7.6

  	
  Investment
  Choices of Participants Age 52 or Over with Respect to Longs Drug Stores
  Stock Accounts

  	
  28

  
	
  ARTICLE
  VIII

  	
  VESTING

  	
  28

  
	
   

  	
  8.1

  	
  Vesting

  	
  28

  
	
   

  	
  8.2

  	
  Special Vesting
  Considerations

  	
  29

  
	
   

  	
  8.3

  	
  Forfeitures

  	
  29

  
	
  ARTICLE IX

  	
  BENEFICIARY
  DESIGNATIONS

  	
  31

  
	
   

  	
  9.1

  	
  Designation of Beneficiary

  	
  31

  
	
  ARTICLE X

  	
  DISTRIBUTION OF BENEFITS

  	
  31

  
	
   

  	
  10.1

  	
  Distribution
  of Accounts on Retirement, Termination or Disability

  	
  31

  
	
   

  	
  10.2

  	
  Distributions
  On Termination - Small Accounts

  	
  32

  

 

 

iv

 

	
   

  	
   

  	
  Page

  
	
   

  	
  10.3

  	
  Distribution
  on Termination - Large Accounts

  	
  32

  
	
   

  	
  10.4

  	
  Form of Payment

  	
  33

  
	
   

  	
  10.5

  	
  Allocations
  Subsequent to Distribution.

  	
  33

  
	
   

  	
  10.6

  	
  Distributions
  of Stock

  	
  33

  
	
   

  	
  10.7

  	
  Distribution
  Limitations

  	
  33

  
	
  ARTICLE XI

  	
  DEATH OF A
  PARTICIPANT

  	
  34

  
	
   

  	
  11.1

  	
  Death Benefit

  	
  34

  
	
   

  	
  11.2

  	
  Payment
  of Death Benefit

  	
  34

  
	
  ARTICLE XII

  	
  WITHDRAWALS
  WHILE EMPLOYED

  	
  34

  
	
   

  	
  12.1

  	
  Hardship
  Withdrawals

  	
  34

  
	
   

  	
  12.2

  	
  Criteria for Hardship
  Withdrawals

  	
  35

  
	
   

  	
  12.3

  	
  In-Service
  Distributions

  	
  36

  
	
   

  	
  12.4

  	
  Plan Administrator Approval

  	
  36

  
	
  ARTICLE XIII

  	
  LOANS TO
  PARTICIPANTS

  	
  36

  
	
   

  	
  13.1

  	
  General Loan Requirements

  	
  36

  
	
   

  	
  13.2

  	
  Loan
  Application

  	
  37

  
	
   

  	
  13.3

  	
  Collateralization

  	
  37

  
	
   

  	
  13.4

  	
  Interest Rate

  	
  37

  
	
   

  	
  13.5

  	
  Repayment

  	
  37

  
	
   

  	
  13.6

  	
  Forwarding of
  Loan Payments to Trustee

  	
  38

  
	
   

  	
  13.7

  	
  Separation from Employment

  	
  38

  
	
   

  	
  13.8

  	
  Additional
  Rules

  	
  38

  
	
  ARTICLE XIV

  	
  ADMINISTRATION
  OF THE PLAN

  	
  38

  
	
   

  	
  14.1

  	
  Plan Sponsor and
  Plan Administrator

  	
  38

  
	
   

  	
  14.2

  	
  Powers of the Plan
  Administrator

  	
  38

  
	
   

  	
  14.3

  	
  Selection
  of Professional Counselors Other Than Investment Manager

  	
  39

  
	
   

  	
  14.4

  	
  Claim Procedure

  	
  40

  
	
   

  	
  14.5

  	
  Source of Payment of
  Expenses

  	
  41

  
	
   

  	
  14.6

  	
  Compensation of
  the Plan Administrator

  	
  41

  
	
   

  	
  14.7

  	
  Fiduciary
  Liability Insurance and Indemnification of Fiduciaries

  	
  41

  

 

 

v

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE XV

  	
  AMENDMENT OR
  TERMINATION

  	
  42

  
	
   

  	
  15.1

  	
  Board of Directors
  Right to Amend

  	
  42

  
	
   

  	
  15.2

  	
  Termination
  of Plan; Discontinuance of Contributions

  	
  42

  
	
   

  	
  15.3

  	
  Allocation of
  Assets on Plan Termination

  	
  43

  
	
  ARTICLE XVI

  	
  GENERAL PROVISIONS

  	
  43

  
	
   

  	
  16.1

  	
  No
  Employment Rights Conveyed by Participation in Plan

  	
  43

  
	
   

  	
  16.2

  	
  Benefits
  Not Assignable

  	
  43

  
	
   

  	
  16.3

  	
  Incompetence of Beneficiary

  	
  44

  
	
   

  	
  16.4

  	
  Limitation
  of Employer Responsibility for Benefits

  	
  44

  
	
   

  	
  16.5

  	
  Who May Serve in
  Fiduciary Capacity

  	
  45

  
	
   

  	
  16.6

  	
  Intent
  to Comply with Section 401(a) of the Code

  	
  45

  
	
   

  	
  16.7

  	
  Governing Law

  	
  45

  
	
   

  	
  16.8

  	
  Forms

  	
  45

  
	
   

  	
  16.9

  	
  Communications

  	
  45

  
	
   

  	
  16.10

  	
  Agent for Service of
  Process

  	
  46

  
	
   

  	
  16.11

  	
  Construction
  of Plan

  	
  46

  
	
   

  	
  16.12

  	
  Plan
  Charges and Losses; Errors and Omissions

  	
  46

  
	
   

  	
  16.13

  	
  Escheat.

  	
  46

  
	
  ARTICLE XVII

  	
  TOP HEAVY PROVISIONS

  	
  47

  
	
   

  	
  17.1

  	
  Top-Heavy
  Plan Defined

  	
  47

  
	
   

  	
  17.2

  	
  Other
  Definitions

  	
  47

  
	
   

  	
  17.3

  	
  Top-Heavy
  Contributions

  	
  48

  
	
   

  	
  17.4

  	
  Top-Heavy
  Vesting.

  	
  49

  
	
  ARTICLE XVIII

  	
  DIRECT
  ROLLOVER OF BENEFITS

  	
  50

  
	
   

  	
  18.1

  	
  Right
  to Direct Rollover

  	
  50

  
	
   

  	
  18.2

  	
  Limitations on Direct
  Rollover

  	
  50

  
	
   

  	
  18.3

  	
  Election of Direct Rollover

  	
  50

  
	
   

  	
  18.4

  	
  Payment of Direct Rollover

  	
  50

  
	
  ARTICLE XIX

  	
  RIGHTS OF REEMPLOYED
  VETERANS

  	
  51

  
	
   

  	
  19.1

  	
  In
  General

  	
  51

  

 

 

vi

 

	
   

  	
   

  	
  Page

  
	
   

  	
  19.2

  	
  Crediting
  of Period of Qualified Military Service

  	
  51

  
	
   

  	
  19.3

  	
  “Make-up”
  Contributions

  	
  51

  
	
   

  	
  19.4

  	
  Restoration
  of Profit Sharing Contributions.

  	
  52

  
	
   

  	
   

  	
   

  

 

 

vii

 

LONGS
DRUG STORES CALIFORNIA, INC.

EMPLOYEE
SAVINGS AND PROFIT SHARING PLAN

 

PREAMBLE

The “Longs Drug Stores California, Inc. Employee Savings and Profit
Sharing Plan” (hereinafter referred to as the “Plan”), shall become effective,
except as otherwise indicated in the Plan, as of January 1, 2002 (hereinafter
referred to as the “Effective Date”), and constitutes a merger, amendment,
restatement and continuation of the Longs Drug Stores California, Inc. Employee
Profit Sharing Plan, in effect as of December 31, 2001 and the Longs Drug
Stores California, Inc. Variable Investment Plan, in effect as of December 31,
2001 (hereinafter referred to as the “Prior Plans”).  The Plan is intended to be a profit sharing plan, and the portion
of the Plan allocated to the Longs Drug Stores Stock Account and the Employer
Stock Account are intended to be invested primarily in the common stock of
Longs Drug Stores and to qualify as an employee stock ownership plan.

Except as otherwise 
specifically provided in the Plan, the rights of Participants who  terminated their employment prior to January
1, 2002 shall be determined solely in accordance with the applicable provisions
of the Prior Plans.

 

 

ARTICLE I

DEFINITIONS

The following terms when used in the Plan shall have the following
designated meaning and masculine, feminine and neuter gender shall be deemed to
include the other unless a different meaning is plainly required by the
context:

1.1                                 “Account”
means a Participant’s Deferred Income Account, Matching Contribution Account,
Rollover Contribution Account, Profit Sharing Account, Employer Stock Account,
and/or Longs Drug Stores Stock Account, as the context may require.  Participants’ Accounts are credited with
contributions for the Participant and charged with distributions, credited or
debited with investment gains or losses, and commingled for investment
purposes, as provided elsewhere in the Plan.

1.2                                 “Actual
Deferral Percentage” means Actual Deferral Percentage as defined in
Section 3.4.

1.3                                 “Adjustment
Factor”  means the cost of living factor prescribed by the
Secretary of Treasury under Code Section 415(d) as applied to such items and in
such manner as the Secretary shall prescribe.

1.4                                 “Administrator”
or “Plan Administrator” means Longs Drug Stores California, Inc.

1.5                                 “Allocation Date” means the
last  day of each Plan Year.

1.6                                  “Beneficiary”
means the person or persons designated by a Participant, in accordance with
Article IX, who is entitled to receive any death benefit which may become
payable under the Plan.

1.7                                 “Board of
Directors” means the Board of Directors of Longs Drug Stores
California, Inc.

1.8                                 “Catch-up
Contributions” means Catch-up Contributions as defined in Section 3.2.

1.9                                 “Catch-up
Eligible Participant” means Catch-up Eligible Participant as defined in
Section 3.2.

1.10                           “Catch-up Limit”
means Catch-up Limit as defined in Section 3.2.

1.11                           “Code” means the
Internal Revenue Code of  1986 as
amended from time to time.  Reference to
a specific section of the Code shall include such section, any valid regulation
promulgated thereunder, and any pertinent provision of any future legislation
amending, supplementing or superseding such section.

1.12                           “Company” means Longs
Drug Stores California, Inc., and any successor thereto.

1

 

1.13                           “Compensation”
means the total cash compensation paid to the Participant in the period in
question for services rendered to the Employer as an Employee while an active
Participant, including bonuses, promotional money, overtime pay, incentive pay,
vacation pay, and commissions, where applicable and excluding stock
awards.  Compensation shall include (i)
the earnings deferred by an Employee pursuant to the salary reduction
arrangement under this or any other cash or deferred plan which is maintained
by the Employer and which is qualified under Code Section 401(k) and (ii) any
deferrals under a cafeteria plan qualified under Code Section 125 or a
transportation benefit arrangement under Code Section 132(f)(4).  The annual compensation of each Participant
taken into account in determining allocations for any plan year shall not
exceed $200,000 (multiplied by the Adjustment Factor).  The cost-of-living adjustment in effect for
a calendar year applies to annual compensation for the determination period
that begins with or within such calendar year.

1.14                           “Contribution
Percentage” means the Contribution Percentage as defined in Section
4.3.

1.15                           “Contribution
Percentage Test” means the Contribution Percentage Test as defined in
Section 4.3.

1.16                           “Deferral
Election” means the portion of the enrollment process in which a
Participant authorizes and elects the percentage of his Compensation to be
withheld and contributed on his behalf to his Deferred Income Account.

1.17                           “Deferred
Salary Contribution” means the amount contributed on behalf of a
Participant pursuant to Section 3.1.

1.18                           “Deferred
Income Account” shall mean the Account of a Participant to which his
Deferred Salary Contributions made pursuant to Article 3, and the gains and losses
thereon, are credited or debited respectively.

1.19                           “Direct
Rollover” shall mean a payment by the Plan of all or any portion
of an Eligible Rollover Distribution to an Eligible Retirement Plan designated
by a Distributee.

1.20                           “Disability”
shall mean a physical or mental condition which, in the judgment of the Plan
Administrator, totally and permanently prevents the Participant from engaging
in any substantial gainful employment. 
A determination that a Disability exists and the date thereof shall be made
by the Plan Administrator upon receipt of a certificate of a medical examiner
satisfactory to the Employer certifying such condition and that such condition
is likely to be permanent.  However, a
Participant automatically shall be treated as “disabled” if such physical or
mental condition entitles him or her to long-term disability benefits under the
long-term disability plan maintained by the Company, if any, or results in a
determination by the Social Security Administration that he or she is totally disabled.

2

 

1.21                           “Distributee”
shall mean any Participant, former Participant, surviving Spouse of any
Participant or any alternate payee under a qualified domestic relations order.

1.22                           “Diversified
Investment Fund” means the fund established pursuant to Article VII
which offers the Participants an opportunity to invest a portion of their
Accounts in a variety of investment funds, including equity and fixed income
obligations.

1.23                           “Effective Date”
means January 1, 2002.

1.24                           “Eligible
Employee” means every Employee, other than an Employee who is a member
of a collective bargaining unit, covered by a collective bargaining agreement
which does not specifically provide for participation in this Plan, provided that
eligibility for participation has been available as a subject of good faith
bargaining between the Employer and the Employee’s bargaining agent.

1.25                           “Eligible
Retirement Plan” shall mean any of the following:

(a)                                  an individual retirement account described
in Section 408(a) of the Code;

(b)                                 an individual retirement annuity
described in Section 408(b) of the Code;

(c)                                  an annuity plan described in Section
403(a) of the Code;

(d)                                 a qualified plan described in Section
401(a) of the Code;

(e)                                  an annuity contract described in Section
403(b) of the Code;

(f)                                    an eligible plan under Section 457(b) of
the Code which is maintained by a state, political subdivision of a state, or
any agency or instrumentality of a state or political subdivision of a state
and which agrees to separately account for amounts transferred into such plan
from this plan.

1.26                           “Eligible
Rollover Distribution” shall mean any distribution of all or a portion
of the balance to the credit of a Distributee, except that such term shall not
include:

(a)                                  any distribution that is one of a series
of substantially equal periodic payments made (not less frequently than
annually) for either:

(1)                                  the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the Distributee
and the Distributee’s Beneficiary, or

(2)                                  a specified period of ten years or more.

(b)                                 any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code;

(c)                                  returns of Employee Contributions that
are returned as a result of the limitations contained in Section 415 of the
Code;

3

 

(d)           corrective distributions of Deferred
Salary Contributions or Matching Contributions and the income allocable thereto
in accordance with Articles III and IV of the Plan, respectively;

(e)           loans that are treated as deemed
distributions pursuant to Section 72(p) of the Code and distributions that
result from offset against a Participant’s Account balances in the event of
default;

(f)            any amount that is distributed on
account of hardship pursuant to Section 12.1 of the Plan; and

(g)           any other type of distribution or
similar item designated by the Internal Revenue Service as exempt from the
definition of Eligible Rollover Distribution.

1.27                           “Employee”
means an individual who is employed by the Employer, in the status of
“employee” as that term is used in Section 3121(d)(1) or (2) of the Code,
except that Employee shall not include a nonresident alien who receives no
earned income (within the meaning of Code Section 911(b)) from the Company
which constitutes income from sources within the United States (within the
meaning of Code Section 861(a)(3)).  To
the extent permitted by law, Employee shall not include a person who is a
Leased Employee.  A director of the
Employer shall not be considered an Employee solely by reason of his or her
status as a director.  Employee shall
not include a person who is classified as an independent contractor, including
any such person who is later reclassified as a common law employee for such
period of time.

1.28                           “Employer”
means the Company and any subsidiary or affiliated corporation, if any, which
(with the written approval of the Company and subject to such conditions as the
Board of Directors may impose), adopts this Plan, and any successor or
successors of any of them.

Solely
for the purpose of determining an Hour of Service for the purposes of
determining an Employee’s eligibility to participate in the Plan and the
vesting of benefits, the term “Employer” shall include any other company which,
together with the Company, is a member of a “controlled group of corporations”
or under “common control” as defined in Section 414(b) and (c), and any other
trade or business, as defined in Section 414(m) of the Code, (whether or not
incorporated), which is under common control with the Employer.  Such other company or organization shall be
included within the definition of “Employer,” but only for the period during
which such other company or organization and the Employer are members of such
controlled group of corporations or are under common control.

1.29                           “Employer
Contributions” means Employer contributions to the Plan on behalf of a
Participant other than Deferred Salary Contributions or Rollover Contributions.

4

 

1.30                           “Employment
Commencement Date” means the date on which an Employee first performs
an Hour of Service for an Employer.

1.31                           “Employer
Stock Account” means the account maintained for shares of Longs Drug
Stores Stock  which originally were
contributed under the Longs Drug Stores California, Inc. Variable Investment
Plan, together with expenses chargeable thereto and earnings on those
contributions.

1.32                           “Entry Date”
means the first business day on which an Eligible Employee is a Participant.

1.33                           “ERISA” means
Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as
amended from time to time.  Reference to
a specific section of ERISA shall include such section, any valid regulation
promulgated thereunder, and any pertinent provision of any future legislation
amending, supplementing or superseding such section.

1.34                           “Fiscal Year”
means the accounting period adopted by the Employer for Federal income tax
purposes.

1.35                           “Funds” means
one or more of the Longs Drug Stores Stock Fund, the Special Investment Fund or
the Loan Fund as the context may require.

1.36                           “Hardship”
means immediate and heavy financial need of a Participant that meets the
criteria of Section 12.2 of the Plan.

1.37                           “Highly
Compensated Employee” means

Any Eligible Employee who

(1)                                  is a “five-percent (5%) owner”, as
defined in Section 416(i) of the Code, at any time during the current or
preceding Plan Year, or

(2)                                  has compensation of more than $85,000
(multiplied by the Adjustment Factor) for the preceding Plan Year, and is among
the top one-fifth (1/5) of all Employees ranked by Compensation, provided that
in determining the number of Employees in the top one-fifth (1/5), the
Employees specified in Section 414(q)(5) of the Code shall not be included.

For purposes of this
Section, compensation shall mean compensation as defined under Section
415(c)(3) of the Code paid to the Employee by the Employer.

A former Employee who was
a Highly Compensated Employee (1) at any time after attaining age fifty-five
(55) or (2) when the Employee separated from service with the Employer, shall
be a Highly Compensated Employee.

5

 

Any reference to a
non-Highly Compensated Employee shall mean an Eligible Employee who is not a
Highly Compensated Employee.

1.38                           “Holding
Company” means Longs Drug Stores Corporation, a Maryland Corporation,
and any corporation into which it may be merged or with which it may be
consolidated or any corporation which may result from any merger, consolidation
or reorganization to which it may be a party, or any corporation to which it
may transfer all or substantially all its assets.

1.39                           “Hour of Service”
means:

(a)                                  Each hour for which an Employee is
directly or indirectly paid or entitled to payment for the performance of
duties for an Employer; these hours shall be credited to the computation period
in which the duties are performed, and

(b)                                 Each hour for which an Employee is
directly or indirectly paid or entitled to payment by the Employer on account
of a period of time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to vacation, holiday,
illness, incapacity, disability, layoff, jury duty, military duty or leave of absence
including each hour for which an Employee receives severance pay; except that

(1)                                  not more than five hundred and one (501)
Hours of Service shall be credited in each single computation period during
which the Employee performs no duties (whether or not such period occurs in a
single computation period) and

(2)                                  Hours of Service shall not be counted
where such payment is made or is due:

(i)                                     under a plan maintained solely for the
purpose of complying with applicable workmen’s compensation, unemployment or
disability insurance laws, or

(ii)                                  solely to reimburse an Employee for
medical or medically related expenses; (hours credited under this Paragraph (b)
shall be credited to the computation period(s) in which the period during which
no duties were performed occurred), and

(c)                                  Each hour for which back pay,
irrespective of payment due to mitigation of damages, is either awarded or
agreed to by the Employer; these hours shall be credited to the computation
period(s) to which the award or agreement for back pay pertains rather than to
the computation period in which the award, agreement or payment is made;
provided, however, that the limits under Paragraph (b) above are applicable and
that an Employee shall not be entitled to additional Hours of Service under this
Paragraph

6

 

(c) for the same Hours of
Service credited under Paragraph (a) or (b) above.

(d)                                 For purposes of determining whether a
One-Year Break in Service has occurred for participation and vesting purposes,
an individual must be credited with service up to a total of no more than 501
Hours of Service for certain periods of absence from work.   This rule applies to an individual who is
absent from work by reason of:

(1)                                  pregnancy of the individual

(2)                                  birth of a child of the individual

(3)                                  placement of a child in connection with
the adoption of the child by the individual, or

(4)                                  caring for the child during the period
immediately following the birth or placement for adoption.

The
Hours of Service required to be credited under this provision are the Hours of
Service which otherwise would normally have been credited to the Employee but
for such absence, or in any case where the Administrator is unable to determine
such hours, eight (8) Hours of Service per day of absence.  Any hours to which the Employee shall be
entitled must be credited only (a) in the Plan Year in which the absence begins
for one of the reasons, if the crediting is necessary to prevent a One-Year Break
in Service in that year, or, if the Employee already has 501 hours in such
year, (b) in the following Plan Year.

If
the absence from work is not an approved leave of absence, credit will not be
granted during such absence unless the Employee informs the Employer on a
timely basis that the leave was taken for one of the permitted reasons listed
above.

Hours
of Service hereunder shall be calculated and credited in a manner consistent
with Department of Labor Regulation Sections 2530.200b-2(b) and (c), which are
incorporated by reference hereunder.

In
the case of Hours of Service to be credited to an Employee in connection with a
period of no more than thirty-one (31) days which extends beyond one
computation period, all such Hours of Service may be credited to the first
computation period or the second computation period in a manner applied
consistently with respect to all Employees within reasonably defined job
classifications.

In
determining Hours of Service for the purposes of determining an Employee’s
eligibility to participate in the Plan and the vesting of benefits, the term
“Employer” shall include any other corporation which is a

7

 

member
of a controlled group of corporations (determined in accordance with Section
414(b) of the Internal Revenue Code of 1986, as amended) of which the Employer
is a member, and any other trade or business (whether or not incorporated)
which is under common control with the Employer; but only for the period during
which such other corporation and the Employer are members of such controlled
group of corporations or are under common control.

For
purposes of determining an Employee’s eligibility to participate in the Plan
and vesting of benefits, an Hour of Service shall also include an Hour of
Service with a company heretofore or hereafter merged or consolidated or
otherwise absorbed by an Employer, or all or a substantial part of the assets
or business of which have been or shall be acquired by an Employer (hereafter,
“Predecessor Company”):

(i)                                     if the Employer continues to maintain an
employee benefit plan of such Predecessor Company (hereinafter “Predecessor
Plan”); or

(ii)                                  if, and to the extent, such employment
with the Predecessor Company is required to be treated as employment with the
Employer under regulations prescribed by the Secretary of the Treasury; or

(iii)                               if, and to the extent, approved by the
Board of Directors of the Employer in its sole discretion effected on a
nondiscriminatory basis as to all persons similarly situated.

(e)                                  Each hour to the extent and for the
purpose it is required to be counted under the Family and Medical Leave Act.

1.40                           “Leased
Employee” means any person who provides services to the Employer if:

(a)                                  such services are provided pursuant to an
agreement between the Employer and any other person;

(b)                                 such person has performed such services
for the Employer (or the Employer and related persons) on a substantially
full-time basis for a period of at least one (1) year; and

(c)                                  such services are performed under primary
direction or control by the Employer.

1.41                           “Leave of
Absence” means a period of absence as defined in Section 2.3.

1.42                           “Loan Fund”
means the fund established pursuant to the Plan to which are credited
Participant loans pursuant to Article XIII.

8

 

1.43                           “Longs Drug
Stores” means Longs Drug Stores California, Inc., a California
corporation.

1.44                           “Longs
Drug Stores Stock” means common stock issued by the Holding Company.

1.45                           “Longs
Drug Stores Stock Account” means the account maintained for a
Participant to which are credited the amounts invested on such Participant’s
behalf in the Longs Drug Stores Stock Fund (other than amounts attributable to
the Employer Stock Account).

1.46                           “Longs
Drug Stores Stock Fund” means the fund established pursuant to Article
V which invests (on a leveraged or non-leveraged basis) entirely in Longs Drug
Stores Stock, including amounts  attributable to the Employer Stock
Account, and if applicable, the Matching Contribution Account).

1.47                           “Matching
Contribution” means the amount contributed by the Employer pursuant to
Section 4.1.

1.48                           “Matching
Contribution Account” means the Account of a Participant to which his
Matching Contributions made pursuant to Article IV, and the gains and losses
thereon, are credited or debited respectively.

1.49                           “Normal
Retirement Age” means the first day of the month next following the
fifty-fifth (55th) birthday of the Participant.

1.50                           “One-Year
Break in Service” means as to any Employee, a Plan Year during which
such Employee has not completed more than five hundred (500) Hours of Service.

1.51                           “Participant”
means an Employee who becomes a Participant pursuant to Article II and who
continues to be entitled to any benefits under the Plan.

1.52                           “Plan
Administrator” means Longs Drug Stores California, Inc.

1.53                           “Plan” means the
“Longs Drug Stores California, Inc. Employee Savings and Profit Sharing Plan”
as herein set forth and as it may be amended from time to time.  The Plan is a profit sharing plan with an
employee stock ownership plan feature within the meaning of Section 4975(e)(7)
of the Code (consisting of the Longs Drug Stores Stock Fund, the Employer Stock
Fund, and the portion of any Matching Contribution made in shares of Longs Drug
Stores Stock ) and a cash or deferred arrangement within the meaning of Section
401(c) of the Code.

1.54                           “Plan Rules”
means such rules as are adopted by the Plan Administrator for administration,
interpretation or application of the plan.

1.55                           “Plan Year”
means the twelve-month period commencing each January 1st and ending each
December 31st.

9

 

1.56                           “Profit
Sharing Account” means the account maintained for a Participant to
which are credited the Profit Sharing Contributions allocated to such Participant,
exclusive of any portion of the Profit Sharing Contribution allocated to the
Longs Drug Stores Stock Fund, and the gains and losses thereon.

1.57                           “Profit
Sharing Contribution” means the amount contributed by the Employer
pursuant to Section 5.1.

1.58                           “Qualified
Military Service” means service in the uniformed services (as defined
in chapter 43 of title 38, United States Code) performed by a Reemployed
Veteran whose entitlement to reemployment rights pursuant to USERRA arose with
respect to such service.

1.59                           “Qualified Nonelective Contribution”
means a contribution made by the Employer in order to satisfy the Contribution
Percentage Test pursuant to Section 4.2.

1.60                           “Reemployed
Veteran” means an Eligible Employee who left the employ of the Employer
in order to perform service in the Armed Services of the United States, and
subsequently was eligible for reemployment rights, and was reemployed by the
Employer, pursuant to USERRA.

1.61                            “Retirement”
means a Participant’s termination of employment on or after attaining age
fifty-five (55).

1.62                           “Rollover
Contribution” means the amount contributed by the Participant pursuant
to Section 3.5.

1.63                           “Rollover
Contribution Account” means the Account of a Participant to which
Rollover Contributions made pursuant to Section 3.5, and the gains and losses
thereon, are credited or debited.

1.64                           “Shares” means
common stock issued by the Holding Company.

1.65                           “Spousal
Consent” means the irrevocable consent of the Participant’s spouse
witnessed by a Plan representative or a notary public provided that such
consent shall not  be required if it is
established to the satisfaction of a Plan representative that such consent
cannot be obtained because (1) there is no spouse, or (2) the spouse cannot be
located, or (3) such other circumstances exist as may be prescribed by
applicable regulation, including but not limited to Section 417(a)(4) of the
Code.  Any such Spousal Consent or
establishment that consent cannot be obtained shall be effective only with
respect to that spouse.  Such consent
shall acknowledge the designated Beneficiary and the effect of such
consent.  Such consent may be limited to
the designation of a specified Beneficiary only or may expressly permit
additional Beneficiary designations without requiring a new Spousal Consent.

10

 

1.66                           “Spouse” or
“Surviving Spouse” means the Participant’s then current spouse or surviving
spouse under applicable law, provided, however, that a former spouse will be
treated as a spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in Section 414(p) of the Code
and procedures adopted by the Employer.

1.67                           “Trust
Agreement” means the trust agreement or agreements between the Company
and a Trustee, a custodial account agreement between the Company and a bank,
insurance company or other financial institution (as provided for in Section
401(f) of the Code), or an annuity contract between the Company and an
insurance company (as provided for in Section 401(f) of the Code) established
for the purpose of funding benefits under the Plan, or any successor trust
agreement, custodial account agreement, or annuity contract or agreement as the
case may be.

1.68                           “Trust Fund”
means all such money or other property which is held by the Trustee, custodian,
or insurance company pursuant to the terms of the Trust Agreement.

1.69                           “Trustee”
means the trustee, custodian or insurance company, or any successor or
successors, acting as such pursuant to the Trust Agreement.

1.70                           “Unallocated
Stock Account” means the account established as part of the Longs Drug
Stores Stock Fund pursuant to Article V in which all Unallocated Shares are
held.

1.71                           “Unallocated
Shares” means Longs Drug Stores Stock acquired by the Trust Fund that
has not been allocated to Accounts under the Plan.

1.72                           “Unit” means a
unit as described and defined in Section 5.2.

1.73                           “Valuation Date”
means each business day, or such less frequent basis (such as monthly or
quarterly) as determined by the Plan Administrator by written
interpretation.  In no event shall there
be less than one Valuation Date per Plan Year.

1.74                           “Year of Service”
means for purposes of vesting of Participant’s Accounts, a Plan Year in which
an Employee is credited with not less than 1,000 Hours of Service; provided,
however, that Years of Service shall not include Years of Service prior to the
Effective Date, if such service would have been disregarded under the
provisions of the prior Plan governing breaks in service as in effect on the
day prior to the Effective Date.

11

 

ARTICLE II

PARTICIPATION

2.1                                 Plan Entry

Each Eligible Employee who
was a participant in the Longs Drug Stores California, Inc. Employee Profit
Sharing Plan on the Effective Date shall continue to be a Participant in this
Plan under Section 2.2(a) on the Effective Date.

Each Eligible Employee who was a participant in the Longs Drug Stores
California, Inc. Variable Incentive Plan on the Effective Date shall continue
to be a Participant in the Plan under Section 2.2(b) and (c), if applicable, on
the Effective Date.

Each other Eligible Employee
who completes the requirements specified in Section 2.2 after the Effective
Date shall become a Participant as of the Entry Date coinciding with or next
following satisfaction of the requirements of Section 2.2.

2.2                                 Participation
Requirements

(a)                                  For purposes of becoming a Participant
for purposes of receiving an allocation of the Profit Sharing Contribution,
there is no minimum age or service requirement for an Eligible Employee.

(b)                                 For purposes of becoming a Participant to
make Deferred Salary Contributions only, an Eligible Employee must enroll with
the Company, including making an election to defer a percentage of compensation
and authorizing the withholding of Deferred Salary Contributions from his
compensation, in accordance with Section 3.1 of the Plan.  There is no minimum age or service
requirement to make Deferred Salary Contributions.

(c)                                  An Eligible Employee who satisfied the
preceding requirements of Section 2.2 but who terminated employment prior to
becoming a Participant shall be entitled to become a Participant on the date he
is reemployed by the Employer as an Eligible Employee.

(d)                                 For purposes of becoming a Participant to
receive Matching Contributions, an Eligible Employee may become a Participant
with the first payroll period that commences on or after the expiration of
ninety (90) days from the Eligible Employee’s Employment Commencement Date or the
date a former Participant is reemployed by the Employer.

12

 

2.3                                 Period of Participation; Rehired Participant

(a)                                  Participation in the Plan shall continue
until a Participant terminates by severance of employment, Retirement, death or
Disability, or receives a total distribution of the vested portion of his
account balance.  A Participant whose
membership in the Plan has ceased shall again become a Participant of the Plan
in accordance with Section 2.2.

(b)                                 A Participant’s employment is not
considered terminated for purposes of the Plan if the employee has been on
Leave of Absence with the consent of the Employer, provided that he returns to
the employ of the Employer at the expiration of such leave.  For purposes of this section, “Leave of
Absence” means a leave granted by the Employer for reasons of health or public
service or for reasons determined by the Employer to be in its best
interests.  A Participant who does not
make himself available to return to the employ of the Employer on the day
following the end of the Leave of Absence shall be deemed for the purposes of
receiving an allocation under the Plan to have terminated his employment as of
the date when the leave began (unless such failure to return was the result of
death, Disability or Retirement of such Employee during the period of such
Leave of Absence).

2.4                                 Suspended Participation

A Participant who ceases to
be an Eligible Employee but who has not terminated from the service of the
Employer shall become a suspended Participant. 
During the period of suspension, no amounts shall be credited to the
Accounts of a Participant which are based on his or her Compensation paid in
periods following the date of suspension. 
Amounts previously credited to a suspended Participant’s Accounts shall
continue to vest; such Accounts shall be valued in the same manner as other
Accounts; and the Participant shall be entitled to benefits in accordance with
the other provisions of the Plan throughout the period during which the
Participant is on suspended status.  The
suspension shall be removed when the Participant again becomes an Eligible
Employee.

2.5                                 Absence
in Military Service

Any Participant who has
entered or enters the Armed Forces of the United States, or one of its allies,
shall be on Leave of Absence from the Employer without termination of his
employment for purposes of the Plan, provided he makes himself available to
return to the employ of the Employer within ninety (90) days (or such longer
period of time as may be prescribed by law) after the date on which he shall
have the right to release from such service; provided, however, that if such
Participant indicates in writing his desire to return to the Employer within
said ninety (90) day period, but a service-connected physical or mental
condition temporarily disables him from returning to such employ, then the
period of such disability shall be added to said ninety (90) day period.  If such Participant does

13

 

not return to the employ
of the Employer as above provided, his employment shall be deemed for the
purposes of receiving an allocation under the Plan to have terminated as of the
date of entry into such forces (unless such failure to return was the result of
death, Disability or Retirement of such Employee during the period of such
Leave of Absence).

ARTICLE III

EMPLOYEE
CONTRIBUTIONS

3.1                                 Deferred
Salary Contributions

(a)                                  Subject to the limitations established by
this Article, each Participant shall be entitled to elect to have his Employer
contribute, in one percent increments, from one percent (1%) to twenty percent
(20%) of the Participant’s Compensation payable in any pay period, directly to
the Plan instead of paying such amount to the Participant in cash, provided
that (1) the Administrator may issue an interpretation increasing or decreasing
the maximum percentage contribution, and (2) the maximum percentage
contribution of a Highly Compensated Employee shall be eight percent (8%),
unless the Administrator issues an interpretation increasing or decreasing the
maximum percentage contribution of a Highly Compensated Employee.   Contributions made in this manner are
called Deferred Salary Contributions.  A
Participant’s Deferred Salary Contributions shall be credited to his Deferred
Income Account.

(b)                                 For Federal tax purposes (and wherever
permitted, for state tax purposes), Deferred Salary Contributions shall be
deemed Employer Contributions to the Plan, and a Participant’s election to
enroll in the Plan shall constitute an election to have his taxable
compensation reduced by the amount of all such 
contributions.

(c)                                  Deferred Salary Contributions in any year
may not exceed the maximum limitation in Section 402(g) and are subject to the
limitations in Sections 3.4 and Article VI (relating to Code Section 404 and
415 limits).

(d)                                 A Participant who receives a hardship
withdrawal pursuant to Section 12.1 of the Plan shall not make any Deferred
Salary Contributions to the Plan for a period of time following the date he
receives such distribution in accordance with the requirements, if any,
specified by the Secretary of the Treasury for “safe harbor” hardship
distributions.

3.2                                 Catch
Up Contributions

(a)                                  Notwithstanding anything herein contained
to the contrary, Catch-up Eligible Participants may defer an additional amount
of their compensation, up to the Catch Up Limit for the Plan Year, in excess of
the limits described in Section 3.1 hereof (“Catch Up Contributions”).

14

 

(b)                                 For purposes of this Section 3.2, a
“Catch-up Eligible Participant” means any Participant who is eligible to make
Deferred Salary Contributions, who is age 50 or older and with respect to whom
no other Deferred Salary Contributions (without regard to this Section 3.2) may
be made to the Plan by reason of the application of any limitations or
restrictions described in Code Sections 401(k), 402(g), 404(a), 415, or
comparable limitations or restrictions described under Section 3.1 of the Plan.  For purposes of this subsection (b), a
Participant who will attain age 50 at any time during a Plan Year will be
deemed to have attained age 50 as of the first day of such Plan Year.

(c)                                  The “Catch-up Limit” shall be determined
in accordance with Section 414(v) of the Code which provides the following
schedule:

	
  Plan Year

  	
   

  	
  Catch-Up
  Limit

  
	
   

  	
   

  	
   

  
	
  2002

  	
   

  	
  $

  	
  1,000

  
	
   

  	
   

  	
   

  
	
  2003

  	
   

  	
  $

  	
  2,000

  
	
   

  	
   

  	
   

  
	
  2004

  	
   

  	
  $

  	
  3,000

  
	
   

  	
   

  	
   

  
	
  2005

  	
   

  	
  $

  	
  4,000

  
	
   

  	
   

  	
   

  
	
  2006

  	
   

  	
  $

  	
  5,000

  

For Plan Years commencing on or after January 1, 2007,
the Catch-up Limit shall be increased by the Adjustment Factor in accordance
with Code Section 414(v)(2)(C).

(d)                                 Catch-up Contributions deferred in
accordance with this Section 3.2 shall not be counted for purposes of
calculating the Actual Deferral Percentage of a Participant as described in
Section 3.4 hereof.

(e)                                  For purposes of determining the amount of
Catch-up Contributions deferred by a Participant in a particular Plan Year, all
Catch-up Contributions deferred by the Participant under this Plan and any
other qualified plan maintained by the Employer must be taken into account and
the aggregate Catch-up contributions must not exceed the Applicable Dollar
Catch-up Limit for such Plan Year.  If
the aggregate Catch-up Contributions for any Participant exceed the Catch-up Limit
Contribution for the Plan Year, all Catch-up Contributions in excess of the
Catch-up Limit shall be returned to the Participant.  The Plan Administrator shall have the sole discretion to
determine under which plan the excess Catch-up Contributions were made.

15

 

3.3                                 Suspension of, or Change In, Deferred Salary Contribution

(a)                                  A Participant may elect to suspend all
Deferred Salary Contributions at any time by giving at least fifteen (15) days
notice to the Administrator in the manner prescribed for that purpose by the
Administrator.  Any such election shall
be effective as of the first pay period coinciding with or next following the
expiration of such notice period.  By
giving the Company at least fifteen (15) days advance notice, a Participant who
has suspended all Deferred Salary Contributions may resume such Contributions
as of any future payroll period in accordance with Plan Rules.

(b)                                 A Participant may elect to change the
amount of his Deferred Salary Contribution as many times in each Plan Year as
determined by the Plan Administrator in a written interpretation (but no fewer
than two times) as of any future payroll period in accordance with Plan
Rules.  To make such election,  the Participant shall give such notice as is
prescribed by the Administrator on in the manner prescribed for that purpose by
the Administrator.  The new Salary
Deferral Contribution shall become effective as of the first paycheck issued following
the effective date of change.

3.4                                 Special
Deferral Limits

(a)                                  This subsection shall apply if the Actual
Deferral Percentage of Highly Compensated Employees for a Plan Year exceeds or
is expected to exceed the maximum deferral rate permissible under subsection
(b).  In the event of the Plan is
expected to have such excessive contributions, the Plan Administrator (at its
sole discretion and to the extent permitted under applicable Treasury
regulations), may reduce the amount to be deferred by Highly Compensated
Employees in a fair and equitable manner so as to cause their Actual Deferral
Percentage not to exceed the maximum rate allowable under subsection (b).

In addition, to the extent
permitted by law and applicable Treasury regulations, the Plan Administrator
shall have the power and authority to (i) recharacterize as Catch-up
Contributions, or (ii) return to the Participant, the “excess” Deferred Salary
Contributions of one or more Highly Compensated Employees.  The amount of any excess contribution shall
be determined by reducing the Deferred Salary Contributions of the Highly
Compensated Employee(s) with the highest amount of Deferred Salary
Contributions (“Deferral Amount”) until such Employee’s Deferral Amount equals
the Deferral Amount of the Highly Compensated Employee with the next highest
Deferral Amount.  Reductions of Deferred
Salary Contributions shall continue until the Plan satisfies the Actual
Deferral Percentage test (described in subsection (b)).  In no event shall an Employee’s Deferred
Salary Contributions be reduced by an amount in excess of that necessary for
the Plan to satisfy the Actual Deferral

16

 

Percentage test.  The amount of excess contributions returned
to a Highly Compensated Employee shall be reduced by the amount of any Deferred
Salary Contributions returned to such Employee because they exceeded the limit
described in paragraph (d).  A Highly
Compensated Employee’s excess contributions for a Plan Year shall be distributed
with a fraction of the income allocated to his Deferred Income Account for such
Plan Year; the numerator of the fraction is the excess contributions and the
denominator of the fraction is the sum of the Employee’s Deferred Income
Account on the first day of such Plan Year, the Employee’s Deferred Salary
Contributions for such year and the Employee’s allocation of any Qualified
Nonelective Contributions under Section 4.2 for the Plan Year.  No income will be distributed for the period
commencing after the close of the Plan Year and ending with the date of
distribution of the excess contributions. 
Excess contributions shall be returned no later than the close of the
immediately succeeding Plan Year.

(b)                                 For any Plan Year, the Actual Deferral
Percentage of Participants who are Highly Compensated Employees shall not
exceed the Actual Deferral Percentage of Participants who are non-Highly
Compensated Employees by more than the applicable amount set forth in the
following table:

	
  If the eligible non-Highly

  	
   

  	
  The actual Deferral

  
	
  Compensated Employees

  	
   

  	
  Percentage of the eligible

  
	
  have an Actual Deferral

  	
   

  	
  Highly Compensated

  
	
  Percentage of

  	
   

  	
  Employees may not exceed

  
	
   

  	
   

  	
   

  
	
  less
  than 2%

  	
   

  	
  2.0
  times the Actual Deferral Percentage for the non-Highly Compensated
  Employees.

  
	
   

  	
   

  	
   

  
	
  2%
  to 8%

  	
   

  	
  The
  actual Deferral Percentage for the non-Highly Compensated Employees plus 2%

  
	
   

  	
   

  	
   

  
	
  More
  than 8%

  	
   

  	
  1.25
  times the Actual Deferral Percentage for the non-Highly Compensated Employees

  

 

(c)                                  For purposes of this subsection, the
Actual Deferral Percentage during a Plan Year for a group of Participants shall
be the percentage determined by averaging the deferral rates of each member of
the group.  A Participant’s deferral
rate shall be determined by dividing

(1)                                  the amount of the Participant’s Deferred
Salary Contributions under Section 3.1, if any, for the Plan Year plus, at the
Employer’s discretion (and to the extent permitted by the applicable Treasury
regulations) any Qualified Nonelective Contributions made 

17

 

pursuant to Section 4.2
and any Matching Contributions made pursuant to Section 4.1, as of the last day
of the Plan Year following the Plan Year in question) by

(2)                                  his “compensation” for the Plan Year, as
defined by Code Section 415(c)(3).

(d)                                 No Participant shall be permitted to have
elective deferrals made under this Plan, or any other qualified plan maintained
by the employer during any taxable year, in excess of the dollar limitation
contained in Section 402(g) of the Code in effect for such taxable year, except
to the extent permitted under Section 19.3 hereof and Section 414(v) of the
Code, if applicable.

(e)                                  No Participant shall be allowed by the
Employer to make Deferred Salary Contributions to the extent it would cause the
Plan to violate the limitations in Section 6.4 (relating to  Code Section 415) as to that Participant.

(f)                                    A Participant who has received a hardship
withdrawal pursuant to Section 12.1 of the Plan in the current calendar year or
the immediately preceding calendar year shall have his or her Salary Deferral
Contributions for the period, if any, restricted in accordance with Treasury
rules for “safe harbor” hardship distributions.

3.5                                 Rollover
Contributions

A Participant may transfer
assets accumulated under another tax-qualified retirement plan by a tax-deferred
rollover directly from such plan to the Trust Fund; provided that the Plan
Administrator receives satisfactory evidence of such transferring plan’s tax
qualification under the Code, provided, however, a participant may not rollover
funds from an individual retirement account (unless it is a conduit account for
a prior distribution from a tax-qualified plan) or funds which would not be
taxable upon distribution.  A
Participant’s Rollover Contributions shall be credited to his Rollover
Contribution Account.

ARTICLE IV

MATCHING
CONTRIBUTIONS

4.1                                 Matching
Contributions:

(a)                                  For each Plan Year, the Employer may
contribute to the Plan on behalf of each Participant, who is eligible under
Article II to receive Matching Contributions, a discretionary Matching
Contribution equal to a percentage of the Participant’s Deferred Salary
Contributions made under Section 3.1; provided, however, that the Matching
Contribution shall not

18

 

match any Deferred Salary
Contribution which exceeds either a percentage of a Participant’s Compensation
and/or a fixed dollar amount.  The
Company, by action of its Board of Directors, shall determine the amount, if
any, of the Matching Contribution, including the percentage and/or dollar
limitation of the preceding sentence. 
The Board of Directors may also suspend or reduce Matching Contributions
under this Section for any Plan Year. 
Notwithstanding the foregoing, no Matching Contribution shall be made in
connection with any Deferred Salary Contributions made during any payroll
period that commences prior to the expiration of ninety (90) days from either a
Participant’s Employment Commencement Date or the date a former Participant is
reemployed by the Employer.

(b)                                 Matching Contributions shall be paid, if
at all, to the Trustee not less frequently than annually and shall be credited
to the Participant’s Matching Contribution Account.  In any Plan Year, the Employer may, in its sole discretion, pay
an amount equal to Matching Contributions under this Section 4.1 to the Trustee
more frequently than annually.

(c)                                  Matching Contributions may be invested in
the manner prescribed under Article VII.

4.2                                 Correction of Excess Matching Contributions or Excess
Aggregate Contributions.

(a)                                  If after the close of the Plan Year the
Administrator determines that the Plan may not satisfy the Contribution
Percentage Test of Section 401(m)(2) of the Code, as defined in Section 4.3
hereof, then the Employer may make Qualified Nonelective Contributions sufficient
to satisfy the Contribution Percentage Test. 
If the Employer does not make Qualified Nonelective Contributions in
order to satisfy the Contribution Percentage Test, the Administrator shall
reduce the Matching Contributions of Highly Compensated Employees to the extent
necessary to satisfy the test.

(b)                                 In order to satisfy the Contribution
Percentage Test, the Employer may, in its sole discretion, make Qualified
Nonelective Contributions on behalf of any Participants who are not Highly
Compensated Employees, as deemed appropriate by the Administrator, in an amount
sufficient to satisfy the nondiscrimination test of Section 4.3.  The Employer may, in its sole discretion,
make such Qualified Nonelective Contributions as either a percentage of
Compensation or an additional Matching Contribution.

(c)                                  If the Administrator reduces the Matching
Contributions of Highly Compensated Employees to the extent necessary to
satisfy the Contribution Percentage Test, the reduction shall be made in
accordance with the terms of this paragraph. 
First, the Highly Compensated Employee (or Highly Compensated Employees
if more than one has the same Matching Contributions for that Plan Year) with
the highest

19

 

Matching Contribution for
that Plan Year shall have his or her Matching Contribution reduced until his or
her Matching Contribution equals the Matching Contribution of the Highly
Compensated Employee(s) with the next highest Matching Contribution for that
Plan Year.  If the test is not satisfied
by this initial reduction, then the Highly Compensated Employees with the
highest Matching Contributions for that Plan Year shall have their Matching
Contributions reduced until their Matching Contributions equal the Matching
Contributions of the Highly Compensated Employee(s) with the next highest
Matching Contributions for that Plan Year. 
Such reductions shall continue in the same manner until the test is
satisfied.  No income will be
distributed for the period commencing after the close of the Plan Year and
ending with the date of distribution of the amount of Matching Contributions
reduced.  The amount of Matching
Contributions reduced in accordance with this Section 4.2(c) shall be returned
to the appropriate Highly Compensated Employees no later than the close of the
immediately succeeding Plan Year.

4.3                                 Contribution Percentage Test.

For
purposes of Section 4.2 “Contribution Percentage Test” shall mean a test which
is satisfied if either one of the following two tests are satisfied:  (a) the Contribution Percentage for the
Highly Compensated Employees is not more than the Contribution Percentage for
all other Eligible Employees multiplied by 1.25; or (b) the excess of the
Contribution Percentage for the Highly Compensated Employees over the
Contribution Percentage for all other Eligible Employees is not more than two
percent (2%), and the Contribution Percentage for the Highly Compensated
Employees is not more than the Contribution Percentage for all other Eligible
Employees multiplied by 2.

For
purposes of this Section 4.3, the “Contribution Percentage” for Highly
Compensated Employees or for all other Participants for the applicable Plan
Year shall mean the average of the ratios, calculated separately for each
Employee in such group, of the amount of the Matching Contribution under the
Plan paid on behalf of such Employee for such Plan Year to the Employee’s
compensation, as defined under Section 415(c)(3) of the Code, for such Plan
Year.  The applicable Plan Year for the
Contribution Percentage for Highly Compensated Employees shall be the current
Plan Year.  The applicable Plan Year for
the Contribution  Percentage for
Eligible Employees other than Highly Compensated Employees shall be the current
Plan Year.

20

 

ARTICLE V

PROFIT
SHARING CONTRIBUTIONS

5.1                                 Profit
Sharing Contributions

The Profit Sharing
Contribution of the Employer to the Plan shall be in such amount as the
Employer may determine, within the limits and subject to the conditions
hereinafter stated:

(a)                                  The amount of the contribution, or the
formula for determining such amount, shall be communicated to the Participants
within 210 days after the end of the Plan Year for which such contribution is
made.

(b)                                 The Plan Year for which each contribution
is made shall be designated at the time of such contribution.

(c)                                  The amount of the contribution shall be
such amount of Net Income (as defined in e below) as Longs Drug Stores
determines, except that in no event shall such contribution be less than ten
percent (10%) of the Contribution Base (defined in paragraph d below).  Such amount shall be reduced by (1) the
forfeited amounts and earnings thereon which are reallocated among the Participants
as of the last day of the Plan Year for which such contribution is made and (2)
the amount of the Employer’s contributions to any pension or profit-sharing
arrangement, or as a matching contribution or under any collective bargaining
agreement, which are deductible for its Fiscal Year immediately following the
end of such Plan Year.

(d)                                 The “Contribution Base” is the Net Income
of the Employer for the Fiscal Year, reduced by a sum equal to six and
one-tenth percent (6.1%) of the shareholders’ equity in the Employer at the
beginning of the Fiscal Year.

(e)                                  “Net Income” of the Employer for a Fiscal
Year means consolidated net income before taxes on income, as shown in the
financial statements of the Employer, adjusted to:

(1)                                  Increase net income by the amount shown
on the financial statements as the contribution of the Employer to the Plan;

(2)                                  Decrease net income by the amount of
income, franchise and similar taxes, as shown on the Employer’s books of
account, imposed by any state, territory or possession of the United States;
and

(3)                                  Exclude from net income the amount of
gain or loss from nonrecurring transactions which are both significantly
different from the customary business activities of the Employer and of
sufficient material impact to be classified as extraordinary items

21

 

under accounting
principles established by the American Institute of Certified Public
Accountants.

5.2                                 Allocation of Profit Sharing Contributions and
Forfeitures

Subject to Section 5.4 below, the Profit
Sharing Contributions, and forfeitures thereof, for a Plan Year shall be
allocated among the Accounts of those Participants who are in the employ of the
Employer on the last day of the Plan Year and who have completed 1,000 Hours of
Service during the Plan Year, in the proportion that each Participant’s Units
bear to the total Units credited to all Participants to whom an allocation is
made for the Plan Year.  In the event
that any dividends on Longs Drug Stores Stock allocated to a Participant’s
Account are used to pay principal or interest on a loan described in Section
5.4, allocations of Shares in relation to the dividends so used may be made on
a quarterly basis regardless of whether the Participant was employed on the
last day of the Plan Year or completed 1,000 Hours of Service.  For purposes of the allocation, each
Participant shall be credited with one “Unit” for each full $100 of
Compensation for the Plan Year; provided, however, that no Participant shall be
credited with Units in excess of one thousand (1,000).  No person who terminates employment with the
Employer during the Plan Year and receives a distribution of his or her entire
vested Account during the Plan Year or consents to receive a distribution of
his or her entire vested Account in the immediately succeeding Plan Year (as a
result of such termination of employment) shall be entitled to an allocation
for the current Plan Year.

5.3                                 Allocation
Limitation

If the Employer
contributes an amount for any Participant during any Fiscal Year to a pension
or profit-sharing plan under a collective bargaining agreement, such amount
shall  reduce the allocation of the
Profit Sharing Contribution (if any) made for such Participant under this Plan
for the Plan Year most closely preceding the end of such Fiscal Year; provided,
however, that such deduction shall not exceed the amount of the allocation
which would otherwise be made for such Participant.  The amounts so reduced shall be treated as forfeitures and shall
be allocated among the Accounts of Participants for whom the Employer did not
reduce allocations pursuant to this Section.

ARTICLE VI

PLAN
CONTRIBUTION RULES

6.1                                 Time for
Payment

All
contributions made by the Employer under the Plan shall be paid, delivered, or
conveyed directly to the Trustee not later than the time prescribed by law for
filling the Employer’s Federal income tax return for the Fiscal Year, including
any extensions of such time.

22

 

6.2                                 Contributions
in Cash or Property

Any contribution made under the Plan may, at
the contributing party’s option, be made wholly or partly in cash or wholly or
partly in property acceptable to the Trustee. 
Such property may consist in whole or in part of “qualifying employer securities”
as such term is defined in Section 407(d) of ERISA.  The fair market value of any property contributed by the Employer
shall, when added to any cash contributed, equal the amount of the Employer
contribution.  For the purposes of the
Plan, the fair market value of any contribution made in property shall be
determined as of the close of business on the last business day immediately
preceding the making of the contribution. 
Such determination shall be conclusive and binding on all persons.

6.3                                 Reversion of Employer Contributions

Except
as provided in the following paragraphs (a), (b), and Section 6.4(c), the
assets of the Plan shall never inure to the benefit of any Employer, and shall
be held for the exclusive purposes of providing benefits to Participants and/or
their Beneficiaries, and for defraying the expenses of administering the Plan.

(a)                                  In the case of an Employer Contribution
which is made by virtue of a mistake of fact, this Section shall not prohibit
the return of such contribution to the Employer within one (1) year after the payment
of the contribution.

(b)                                 If an Employer Contribution is
conditioned upon the deductibility of the contribution under Section 404 of the
Code,  then to the extent  the deduction of such contribution is disallowed,
this Section shall not prohibit the return to the Employer of such contribution
(to the extent disallowed), within one (1) year after such disallowance of the
deduction.  The Employer’s contributions
to the Plan are expressly conditioned upon the deductibility of each such
contribution.

6.4                                 Contribution
Limitations

(a)                                  The maximum contribution limitations of
Section 415 of the Code are incorporated herein by reference and terms used in
this Section 6.4 shall have the meaning defined in that section of the
Code.  For purposes of this Section, the
limitation year shall be the calendar year.

(b)                                 If the annual additions with respect to a
Participant under any other defined contribution plan and welfare benefit plans
maintained by the Employer are less than the limitation imposed by Section 415
of the Code for the limitation year and the Employer Contributions that would
otherwise be allocated the Participant’s account under this Plan would cause
annual additions for the limitation year to exceed such limitations, the amount
allocated hereunder shall be reduced so that annual additions under all such
plans will equal such limitations.

23

 

(c)                                  If as of the Allocation Date the annual
addition hereunder for a Participant would exceed the amount provided for in
Section 6.4 as a result of  a reasonable
error in estimating a Participant’s compensation, or under other limited facts
and circumstances which the Commissioner of Internal Revenue finds justifies
this method of allocation, then such excess amounts shall not be deemed annual
additions in that limitation year and shall be treated as follows:

(1)                                  The excess amounts in the Participant’s
Account consisting of Deferred Salary Contributions and any increment
attributable thereto shall be returned to the Participant as soon as
administratively feasible.

The excess amounts in the
Participant’s Account consisting of Employer Contributions shall be used to
reduce Employer Contributions for the next limitation year (and succeeding
limitation years, as necessary) and allocated and reallocated in the next
limitation year to all of the then Participants in the Plan (subject to the
limitations of Code section 415) before any Contributions which would
constitute additions may be made to the Plan for that limitation year.  For purposes of this subdivision, except as
provided in (c)(1), such excess amounts may not be distributed to Participants
or former Participants.

(2)                                  In the event of termination of the Plan
the suspense account described in (2) above shall revert to the Employer to the
extent it may not then be allocated to any Participants’ Accounts.

6.5                                 Amount
of Contributions

The
contribution of the Employer may be made in any amount, provided, however, that
in no event shall such contribution, when added to any contribution made by the
Employer to another defined contribution plan, exceed twenty-five percent (25%)
of the total compensation, as defined in Code Section 415(c)(3), paid by the
Employer to all of the Participants for the taxable year.

ARTICLE VII

ACCOUNTS
AND INVESTMENTS

7.1                                 Participant
Accounts

The
Employer shall maintain one or more of the following Accounts for a
Participant, as required by the nature of the contributions:

•                                            Deferred Income Account;

•                                            Matching Contribution Account;

•                                            Rollover Account;

 

24

 

 

•                                            Employer Stock Account;

•                                            Profit Sharing Account; and

•                                            Longs Drug Stores Stock Account.

 

7.2                                 Valuation
of Accounts

Each Account shall be
revalued at fair market value as of each Valuation Date, before the allocation
of Employer contributions and forfeitures, if any, for the period with respect
to which the revaluation is made.  By
this revaluation, the balance in each Account shall be increased or decreased
by each Participant’s share of the income, gains and losses of the fund since
the preceding Valuation Date.

The Plan Administrator
shall determine the fair market value of Trust Fund assets in compliance with
this Section and the principles of Section 3(26) of ERISA and regulations
issued pursuant thereto.  Valuation
shall be based upon information reasonably available to the Plan Administrator,
including data from, but not limited to, newspapers and financial publications
of general circulation, statistical and valuation services, records of securities
exchanges, appraisals by qualified persons, transactions and bona-fide offers
in assets of the type in question and other information customarily used in the
valuation of property for purposes of the Internal Revenue Code.  The Plan Administrator may elect to value
any bank deposit, certificate of deposit, bond, interest-bearing insurance
contract, promissory note or other evidence of indebtedness at its  unpaid face value, with interest accrued to
the Valuation Date, if the obligation is not in default.  In determining the value of the Plan’s
investment in any collective investment fund, separate account, mutual fund,
partnership or similar entity, the Plan Administrator may (but need not) rely
on the most recent prior valuation of units or interests in the fund, separate
account, partnership or entity made by or on behalf of the fund, separate
account, partnership or entity.  With
respect to securities for which there is a generally recognized market, the
published selling prices on or nearest to such Valuation Date shall establish
the fair market value of such security. 
Fair market value so determined shall be conclusive for all purposes of
the Plan and Trust.

Administrative expenses
which are paid or payable by the Plan shall be accounted for in the manner
specified by the Plan Administrator.  In
valuing the Trust Fund, the Plan Administrator may elect to treat as a Plan
asset the unamortized amount of capitalized administrative expenditures paid by
the Plan.

25

 

7.3                                 Trust Fund

Contributions made to the Plan, and all other
assets of the Plan, shall be held in trust under one or more Trust Agreements
entered into by the Employer and the Trustee. 
Such Trust Agreements are hereby incorporated herein as a part of the
Plan.

(a)                                  All contributions to the Plan and all
amounts received from prior profit-sharing and 401(k) plans shall be held and
invested by the Trustee as part of the Trust Fund in accordance with the
provisions of this Plan and Trust Agreement.

(b)                                 The Trust Fund shall consist of:  the Diversified Investment Fund,  the
Longs Drug Stores Stock Fund, and the Loan Fund.  These investment funds may be changed, or new funds may be added,
as the Plan Administrator may provide without the need for Plan amendment.

(c)                                  Each Participant may elect to invest any
whole multiple of 1 percent (or such other amount as determined by the Plan
Administrator by written interpretation) of the portion of his or her Deferred
Income Account, Matching Contribution Account, Profit Sharing Account, or
Rollover Contribution Account in the Diversified Investment Fund.  Investment directions shall be made, and
changed, in the manner specified by the Plan Administrator and in accordance
with applicable Plan Rules.  In
the absence of a Participant’s election under this subsection, or if an
election is incomplete, has been lost or misfiled, the affected portion of a
Participant’s Account shall be invested in an investment option designed to
preserve capital until such time as the Participant files proper investment
directions in accordance with Plan Rules. 
All partial distributions shall be charged proportionately to each
investment fund (other than the Longs Stock Fund) in which the Participant’s
account is invested at the date of such distribution.

(d)                                 The Longs Drug Stores Stock Fund shall be
invested in Longs Drug Stores Stock and shall consist of all Longs Drug Stores
Stock held by the Trustee and all cash held by the Trustee which is derived
from dividends on Longs Drug Stores Stock Employer contributions to be invested
in Longs Drug Stores Stock and sales of Longs Drug Stores Stock or warrants or
rights to purchase Longs Drug Stores Stock. Pending investment in Longs Drug
Stores Stock, the Trustee is expressly authorized and directed to invest any
uninvested cash in the Longs Drug Stores Stock Fund in short-term,
interest-bearing bills, notes, certificates of deposit, commercial paper or
similar investments or to deposit such cash in a savings account with the
Trustee or any other bank or savings and loan association.  For 
a  reasonable period of time,
pending investment or the payment of benefits or expenses, cash held in the
Longs Drug Stores Stock Fund may be held uninvested without obligation for
interest thereon.

26

 

(e)                                  The Diversified Investment Fund shall be
invested in assets selected by the Administrator in such a manner as to permit
Participants to diversify the investment of their Accounts.  The Diversified Investment Fund may consist
entirely or partially of bank-pooled or common trust funds, or one or more
mutual funds.

(f)                                    The Loan Fund shall be invested in loans
to the Participants in accordance with Article XIII.

7.4                                 Investment of Profit Sharing Contributions and Forfeitures

(a)                                  Effective with respect to Profit Sharing
Contributions made on behalf of the 2001 Plan Year, each Profit Sharing
Contribution made by the Employer in the form of cash shall be credited to the
Diversified Investment Fund and to the Longs Drug Stores Stock Fund, or either
of them, in the proportion determined by the Employer, acting as the Plan’s
sponsor, and shall be allocated among the Participant’s accounts in such
Funds.  Without material exception, the
Longs Drug Stores Stock Fund shall at all times be invested in Longs Drug
Stores Stock.

(b)                                 Effective with respect to Profit Sharing
Contributions made on behalf of the 2001 Plan Year, all contributions made by
the Employer in the form of Longs Drug Stores Stock, whether as a Profit
Sharing Contribution or a Matching Contribution, shall be credited to the Longs
Drug Stores Stock Fund and allocated among the Participants’ Longs Drug Stores
Stock Accounts in the proportions described above.

(c)                                  All forfeitures which Longs Drug Stores
determines to reallocate to Participants pursuant to Section 8.3 shall be
reallocated among the Participants in the proportions described in Section 5.2
and shall be credited to such Accounts as Longs Drug Stores shall
determine.  Forfeitures arising in one
Fund need not remain in such Fund and may be transferred to another Fund at
Longs Drug Stores’ discretion.

7.5                                 Dividends on Longs Drug Stores Stock.  At the
election of the Participant, cash dividends paid on Longs Drug Stores Stock
allocated to the Participant’s Account in which the Participant has a vested
interest may be distributed directly to the Participant.  Elections to receive distributions of cash
dividends shall be made at the time and in the manner determined in the sole
discretion of the Plan Administrator. 
Cash dividends from Longs Drug Stores Stock which are not distributed to
Participants, other income from the Longs Drug Stores Stock Fund, together with
all proceeds from the sale of Longs Drug Stores Stock, shall be reinvested in
the Longs Drug Stores Stock Fund.  The
Trustee is expressly authorized and directed to invest in and hold common stock
of the Holding Company as part of the Longs Drug Stores Stock Fund.

27

 

7.6                                 Investment Choices of Participants Age 52 or Over with
Respect to Longs Drug Stores Stock Accounts

A Participant who has
attained age fifty-two (52) may elect to have a portion of his or her existing
Longs Drug Stores Stock Account and Employer Stock Account transferred to his
or her Profit Sharing Account in any whole multiple of one percent (1%) or such
other multiple determined by the Plan Administrator.

Any
such election shall be made in the prescribed manner.  Thereafter, the Participant can change his or her investments
within the Profit Sharing Account on the forms and at the times prescribed by
the Plan Administrator.  The election
may be made on the day after the day the Participant attains age 52.

ARTICLE VIII

VESTING

8.1                                 Vesting

(a)                                  The value of a Participant’s Accounts
shall be fully vested and nonforfeitable when the Participant’s employment by
the Employer terminates by retirement after attaining Normal Retirement Age, by
death, or by reason of Disability.

(b)                                 A Participant’s Deferred Income Account,
Matching Contribution Account, Employer Stock Account, and Rollover Account
shall be fully vested and nonforfeitable at all times.

(c)                                  If a Participant’s employment is
terminated prior to attaining his Normal Retirement Age (and for any reason
other than death or Disability), he shall vest and have a nonforfeitable
interest in the value of his Profit Sharing Account in accordance with the
following schedule:

	
   

  	
   

  	
  Percentage
  of

  
	
  Years of Service

  	
   

  	
  Accounts Vested

  
	
  Less than 3 years

  	
   

  	
  0%

  
	
  3 years

  	
   

  	
  30%

  
	
  4 years

  	
   

  	
  60%

  
	
  5 years

  	
   

  	
  100%

  

 

28

 

 

8.2                                 Special
Vesting Considerations

In computing service under the Plan for the
purpose of determining a Participant’s vested percentage under Section 8.1(c)
above, all of the Participant’s Years of Service with the Employer shall be
taken into account, except as follows:

(a)                                  Years of Service before January 1, 1971,
shall be disregarded unless the Employee has had at least three (3) Years of
Service after December 31, 1970.

(b)                                 Years of Service before January 1, 1976,
shall be disregarded if such service would have been disregarded under the
rules of the Plan with regard to breaks in service, as in effect on the
applicable date.

(c)                                  In the case of a Participant who has a
One Year Break in Service, Years of Service before such Break in Service shall
not be taken into account until the Participant has thereafter completed one
Year of Service.

(d)                                 In the case of a Participant who does not
have any vested right under Section 8.1(c), and incurs at least five (5)
consecutive One-Year Breaks in Service, then (i) Years of Service prior to such
Breaks in Service shall not be taken into account for purposes of determining
the vested portion of his Accounts which accrue after such Breaks in Service,
and (ii) Years of Service after such Breaks in Service shall not be taken into
account for purposes of determining the vested portion of Accounts which
accrued before such Breaks in Service.

(e)                                  In the case of a Participant with vested
rights under Section 8.1(c) who has five consecutive One Year Breaks in
Service, Years of Service thereafter shall not be taken into account for
purposes of determining the vested portion of his Accounts which accrued before
such five consecutive One Year Breaks in Service.

(f)                                    In the case of a Participant who receives
a distribution of his entire nonforfeitable Account following termination of
employment, Years of Service prior to such termination of employment shall not
be taken into account for purposes of determining the vested portion of any
Accrued Benefits unless the Participant repays such distribution in accordance
with Section 8.3.

8.3                                 Forfeitures

(a)                                  In the case of a Participant who incurs
five consecutive One Year Breaks in Service, any portion of his Account in
which he does not have a nonforfeitable interest shall be forfeited.

(b)                                 If a Participant whose employment is
terminated elects not to receive a distribution of the nonforfeitable portion
of his Account pursuant to

29

 

Article X, then the
portion of his Account which is not vested shall be reallocated as a forfeiture
at the end of the Plan Year in which his employment terminated.  If such a Participant subsequently is
rehired prior to incurring five (5) consecutive One-Year Breaks in Service, the
portion of his Account previously reallocated as a forfeiture shall be restored
as if the Participant’s employment had not terminated.

(c)                                  If a Participant whose employment is
terminated receives a distribution of the value of the nonforfeitable portion
of his Account, any portion of his Account in which the Participant does not
have a nonforfeitable interest shall be forfeited and shall be either applied
to reduce the Employer contribution for the Plan Year in which the termination
of employment occurs or shall be reallocated among members as part of a Profit
Sharing Contribution pursuant to paragraph (d) of this Section.

If such Participant shall
again become an Eligible Employee prior to incurring five (5) consecutive
One-Year Breaks in Service, the Employer shall restore (as of the Participant’s
reemployment) the dollar  value of his
account which was forfeited, unadjusted for any gains or losses which occurred
during said break in service period (and the period provided hereinafter for
repayment).  The value of any such
forfeited amounts previously invested in the Participant’s Longs Drug Stores
Stock Account (unadjusted as provided in the preceding sentence) shall be
reinvested in such Account, and the remainder of the amounts restored to a Participant’s
Account shall be reinvested in the Participant’s Profit Sharing Account.  Restoration of the amount forfeited
hereunder will be provided only if the Participant repays the amount of any
prior distribution within five years of the date of his rehire or, if earlier,
before the close of the first period of five consecutive One-Year Breaks in
Service beginning with the year in which the distribution occurred.  Repayment of any amounts, previously
invested in the Participant’s Longs Drug Stores Stock Account shall be
reinvested in such Account.  Other sums
repaid by the Participant shall be reinvested in the Participant’s Profit
Sharing Account.  The provisions of this
Section regarding the reinvestment of amounts repaid or restored to a
Participant’s Account shall apply to each Participant or former Participant who
has been reemployed by the Employer, whether before or after the Effective
Date.

(d)                                 Longs Drug Stores shall have the
discretion to determine the amount, if any, of any forfeitures resulting from
the operation of this Article, or any other provision of the Plan, which in the
Plan Year in which the forfeiture occurs, or any later plan year, shall be used
(1) to pay administrative costs, (2) 
reduce Employer contributions, or (3) to be reallocated among the
Participants as an additional Profit Sharing Contribution.

30

 

ARTICLE IX

BENEFICIARY
DESIGNATIONS

9.1                                 Designation
of Beneficiary

(a)                                  Each Participant shall, at or after the
time he becomes a Participant, designate one or more persons as Beneficiary of
his Account.  If more than one
Beneficiary is named, the Participant may specify the sequence and/or
proportion in which payments shall be made to each Beneficiary.  The designation shall be made in the manner
prescribed by the Administrator and shall, subject to the provisions of
Paragraph (b), become effective when filed with the Administrator.  A Participant may from time to time, subject
to the provisions of Paragraph (b), change his Beneficiary by filing a new
designation form with the Administrator.

(b)                                 Should the Participant designate a person
other than (or in addition to) his Spouse as Beneficiary and not obtain  Spousal Consent, then any benefits payable
under the Plan upon the Participant’s death shall be paid entirely to the
Participant’s surviving Spouse.  In
addition, the designation of a Beneficiary or any revocation or change in
Beneficiary which has the effect of designating a person as Beneficiary who is
not the Participant’s spouse will not be valid unless accompanied by, or in
accordance with a previously filed, Spousal Consent.

(c)                                  Should the Participant die without having
any effectively-designated surviving Beneficiary, then the Beneficiary shall be
the Spouse of the Participant, if then living. 
If there is no surviving Spouse, then the Beneficiary shall be the
Participant’s estate.

(d)                                 In the event of the death of any duly
designated Beneficiary subsequent to the death of the Participant, the right to
receive the value of the Accounts included in the designation shall (unless the
Participant shall have instructed otherwise) pass under such duly designated
Beneficiary’s will, or by the laws of descent and distribution applicable to
such Beneficiary.

ARTICLE X

DISTRIBUTION
OF BENEFITS

10.1                           Distribution of Accounts on Retirement, Termination or Disability

(a)                                  A Participant’s Account shall be
available for distribution to him or her in the event of his or her termination
of employment for any reason including Retirement or Disability.  Distribution of a Participant’s Accounts
shall be in one lump sum cash payment unless the Participant elects to receive
his or her Accounts in another form pursuant to Section 10.4.

(b)                                 No distribution shall be made on account
of a termination of employment of a Participant who has not attained age 59 1⁄2
until 60 days have expired 

31

 

from the date of
termination, and if the Participant is reemployed by the Employer during such
60-day period, no distribution shall be made on account of such termination of
employment.

(c)                                  If a Participant or former Participant is
rehired as an Employee sixty (60) days or more after termination of employment,
and such Participant or former Participant did not request to receive a
distribution prior to his or her reemployment date, the Participant’s Account
no longer shall be available for distribution based upon the prior termination
of employment.

(d)                                 Unless the Participant otherwise elects,
a Participant’s Plan benefit shall, under no circumstances, be distributed
commencing later than the sixtieth (60th) day after the latest of the close of
the Plan Year in which:

(1)                                  occurs the date on which a Participant
attains Normal Retirement Age,

(2)                                  occurs the tenth (10th) anniversary of
the year in which a Participant commenced participation in the Plan, or

(3)                                  a Participant terminates his service with
an Employer.

10.2                           Distributions On Termination - Small Accounts

If,
on termination of employment, a Participant’s nonforfeitable interest in the
value of his Account (determined as of the Valuation Date next following the
date of termination of employment) is not greater than $5,000, and as of the
date of any previous distribution never exceeded $5,000, all nonforfeitable
amounts in the Participant’s Account as of such Valuation Date shall be
distributed to the Participant in a single lump sum in cash.  For purposes of this determination, the
value of a Participant’s nonforfeitable Account balance shall be determined
without regard to that portion of the Account that is attributable to Rollover
Contributions (and earnings allocable thereto) within the meaning of Sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the
Code.  If the value of a Participant’s
Vested Account is zero, the Participant shall be deemed to have received a
distribution of such nonforfeitable interest.

10.3                           Distribution on Termination - Large Accounts

If, on termination of
employment, a Participant’s nonforfeitable interest in the value of his Account
(determined as of the Valuation Date next following the date of termination of
employment) is greater than $5,000 and such Participant fails to consent to a
distribution, all amounts credited to the Participant’s Account shall be
retained in the funds until:

(1)                                  forfeited and applied as permitted under
Section 16.13; or

(2)                                  consented to and distributed under the
provisions of Section 10.1.

32

 

10.4                           Form of
Payment

The nonforfeitable portion
of the Participant’s Account shall be paid in a single distribution, in (a)
cash, or (b) shares of an open-ended registered investment company (“mutual
fund”) in which such Accounts are invested, (c) in shares of Longs Drug Stores
Stock under Section 10.6, or (d) a combination thereof.  In the event the Participant fails to make
an affirmative election, the distribution shall be in cash.  The value of the vested balances of such
Accounts shall be determined as of the Valuation Date coinciding with or
immediately following the date the Plan receives the consent of the Participant
to the distribution.

10.5                           Allocations Subsequent to Distribution.

If any contribution is
allocated to a Participant’s Account after a complete distribution of the
Participant’s Account is made, the amount allocated to a Participant’s Account
shall be paid to the Participant as soon as administratively feasible in cash
in one lump sum unless the Participant previously elected to receive one or
more Accounts in kind.

10.6                           Distributions
of Stock

Notwithstanding anything
to the contrary in this Plan, pursuant to a proper election by the Participant,
the vested interest of a Participant’s Longs Drug Stores Stock Account and/or
Employer Stock Account shall be distributed in the form of cash or one or more
whole shares of Longs Drug Stores Stock (and cash for any fractional shares) at
the same time or times as the Participant’s other Accounts are distributed.  If the Administrator is not in
receipt of a proper election at the time of distribution, the Participant will
be deemed to have elected a distribution in the form of cash.

10.7                           Distribution
Limitations

Notwithstanding any
provision in this Plan to the contrary, distributions under the Plan shall
comply with Section 401(a)(9) of the Code and regulations promulgated
thereunder.  Accordingly, unless
otherwise permitted by law, a Participant’s benefits shall be distributed to
him no later than April 1 of the calendar year following the later of (1) the
calendar year in which he attains age seventy and one-half (701⁄2) or (2) in the
case of a Participant other than a “five percent owner,” the calendar year in
which he retires.  “Five percent owner”
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the capital or
profits interest in the Employer.  Any
Participant who commenced receiving minimum benefit distributions under the
prior plans prior to January 1, 2002 and 

33

 

is not a five percent owner
may elect to stop receiving such distributions.  Any
distribution under this provision will be made in a lump sum payment.

ARTICLE XI

DEATH OF
A PARTICIPANT

11.1                           Death Benefit

If
a Participant dies prior to the date he terminates employment with the Employer,
then such deceased Participant’s Account shall be paid to his Beneficiary,
within a reasonable time after the Participant’s death, in a single lump sum
payment.  The payment shall be in cash,
including the cash value of the whole Shares and fractional Shares which the
Participant’s Account is invested in the Longs Drug Stores Stock Fund, unless
the Beneficiary otherwise elects to receive the whole Shares in-kind at any
time prior to the distribution of such deceased Participant’s benefits.

11.2                           Payment
of Death Benefit

If
there is doubt as to the right of any Beneficiary to receive any portion of a
deceased Participant’s Account, the Administrator may retain such amount until
the rights thereto are determined, or may pay such amount into any court of
appropriate jurisdiction, in either of which events neither the Plan
Administrator, Employer, Longs Drug Stores or Trustees shall be under any other
liability to any person in respect of such amount.  Prior to the Participant’s death, no designated Beneficiary shall
acquire any interest in the benefit amount included in the designation.

ARTICLE
XII

WITHDRAWALS
WHILE EMPLOYED

12.1                           Hardship
Withdrawals

A Participant (including a
suspended Participant) may request, (1) that any dollar value (but in no event
more than the Account balance as of the applicable Valuation Date) of his
Deferred Income Account standing to his credit as of December 31, 1988 plus all
Deferred Salary Contributions and Catch-up Contributions (but not earnings
thereon) subsequently allocated to his Deferred Income Account be canceled as
of the Valuation Date immediately following receipt of such request by the Plan
Administrator, and (2) that the dollar value as of said Valuation Date be paid
to him in cash.  Funds withdrawn
hereunder shall be withdrawn from the investment funds in the same proportion
as the Account is invested as of said Valuation Date (excluding the Longs Drug
Stores Stock Fund).

34

 

12.2                           Criteria for Hardship Withdrawals

(a)                                  A Participant’s request, pursuant to
Section 12.1, may be approved by the Plan Administrator, if such Plan
Administrator determines that the distribution is necessary in light of
immediate and heavy financial needs of the Participant.  In making its determination the Plan
Administrator shall review the Participant’s Hardship, and may request such
verification or financial information as it deems necessary and
appropriate.  The amount approved
hereunder may not exceed the amount required to meet the immediate financial
need created by the Hardship, and not reasonably available from other sources
of the Participant.  The Plan
Administrator’s determination of the existence of Hardship and the amount
required to meet the need created by the Hardship shall be made in a uniform
and nondiscriminatory manner with respect to all Participants.

(b)                                 The Plan Administrator shall not approve
a withdrawal hereunder unless a Participant satisfies paragraph 1 and 2 hereof:

(1)                                  The Participant must submit an
application to the Plan Administrator stating that the withdrawal is necessary
to:

 

(A)                              Pay for Medical expenses described in
Section 213(d) of the Code incurred by the Participant, his spouse or his
dependents (as defined in Section 152 of the Code) or necessary for these
persons to obtain medical care described in Section 213(d) of the Code;

 

(B)                                purchase the Participant’s principal
residence (excluding expenses for mortgage payments or repair, remodeling,
refinancing or leasing such residence);

 

(C)                                pay tuition related educational fees, and
room and board for the next twelve (12) months of post-secondary education for
the employee, the employee’s spouse or the employee’s dependents (as defined in
Section 152 of the Code);

 

(D)                               prevent the Participant’s eviction from his
principal residence or the foreclosure on the mortgage of the Participant’s
principal residence; or

 

(E)                                 meet such other needs as the Commissioner
of the Internal Revenue Service may deem to be an immediate and heavy financial
need, through publication of revenue rulings, notices and other documents of
general applicability.

 

(2)                                  In the application for withdrawal the
Participant must:

 

35

 

(A)                              represent that his financial need cannot
be met through reimbursement or compensation from insurance, by reasonable
liquidation of the Participant’s assets (to the extent such liquidation would
not itself cause a hardship), by cessation of Deferred Salary Contributions, by
other distributions or nontaxable loans currently available under all
tax-qualified and non-qualified plans sponsored by the Company, or by borrowing
from commercial sources on commercially reasonable terms; or

 

(B)                                satisfy such other conditions as the
Commissioner of the Internal Revenue Service specifies, through publication of
revenue rulings, notices and other documents of general applicability, are
necessary to have a hardship deemed to be for an immediate and heavy financial
need.

 

12.3                           In-Service
Distributions.

A Participant in active
employment with the Employer who has attained age fifty-nine and one-half (591⁄2)
may, by submitting an election to the Plan Administrator, elect to withdraw all
or any portion of his Account not previously withdrawn, including all earnings
thereon, if any.  The dollar value or
amount specified in the Participant’s withdrawal request shall be paid to him
in cash or in kind in accordance with Section 10.4.  Unless otherwise directed by the Participant, funds withdrawn
hereunder shall be withdrawn from the investment funds in the same proportion
as the Participant’s Account is invested as of said Valuation Date.

 

12.4                           Plan
Administrator Approval

All withdrawals made
pursuant to this Article shall be subject to approval by the Plan Administrator
and shall be in such increments or minimum amounts as shall be determined by
the Plan Administrator from time to time.

ARTICLE XIII

LOANS TO
PARTICIPANTS

13.1                           General
Loan Requirements

(a)                                  A Participant, (including a suspended
Participant) may request a loan from the Trust Fund.  The amount of the loan shall not exceed the lesser of (1) $50,000
reduced by the difference (if any) of (x) the highest outstanding balance of
plan loans during the one-year period ending on the day preceding the day of
the Plan loan minus (y) the outstanding balance of Plan loans on the date the
loan is made, or (2) one-half (1⁄2) the value of the Participant’s
non-forfeitable Account balance or (3) the value of the Participant’s
non-forfeitable Account balance attributable to Deferred 

36

 

Salary Contributions,
Catch-up Contributions, Matching Contributions and Rollover Contributions.

(b)                                 Subject to the restrictions of paragraph
A above, in no event shall any loan be made in an amount which is less than
$500 or such other minimum amount as the Plan Administrator shall determine
from time to time.

(c)                                  Loans shall be made available to all
Participants who are actively employed by the Employer, as well as any other
Participant or Beneficiary who is a party-in-interest as defined in Section
3(14) of ERISA, provided such class of Participants or Beneficiaries does not
discriminate in favor of Highly Compensated Employees.

13.2                           Loan
Application

A Participant’s application for a loan shall
be made in the manner prescribed by the Plan Administrator.  If the loan is approved, the Trustee shall
establish a special loan fund as a sub-account in the Participant’s Account by
liquidating  a portion of the
investments of the Participant’s Account in the amount of the loan and establishing
such amount as the value of the special loan fund.  The Trustees shall then issue a check to the Participant in the
amount of the loan from the special loan fund.

13.3                           Collateralization

Each
loan shall be made against collateral, such collateral being the assignment of
fifty percent (50%) of the borrower’s entire right, title and interest in his
nonforfeitable Participant’s Account, supported by the borrower’s collateral
promissory note for the amount of the loan, including interest, payable to the
order of the Trustee.

In
the event the borrower defaults on his loan, the Trustee shall not foreclose on
the collateral until the earlier of the date the employee attains age 59-1/2,
severs from employment, retires, dies or becomes disabled, the Plan is
terminated or another distribution event qualified under Section 401(k)(2) or
(10) of the Code.

13.4                           Interest Rate

Each
loan agreement shall provide for the payment of interest at an annual
percentage rate to be fixed by the Plan Administrator, provided that such rate
shall not violate any applicable usury law. 
The Plan Administrator shall not discriminate among Participants in the
matter of interest rates; but loans granted at different times may bear
different interest rates.

13.5                           Repayment

The
repayment of any loan granted pursuant to this Article shall be in accordance
with the terms and conditions determined by the Plan Administrator; provided, 

37

 

however,  every loan shall be repaid in substantially level
periodic installments (not less frequently than quarterly) in accordance with a
schedule over a period not to exceed five (5) years, unless such loan was for
the purpose of acquiring the Participant’s principal residence, in which case
the period of repayment shall not exceed ten (10) years.   A loan may not be refinanced, but a
Participant may have up to two loans outstanding at a time.  There shall be no penalty for prepayment of
any loan.  A borrower who is on a Leave
of Absence without pay from the Company may request that the quarterly payments
be suspended for that period, but in no event in excess of one year.

13.6                           Forwarding of Loan Payments to Trustee

The
Plan Administrator shall forward all interest payments and principal payments
to the Trustee for investment as soon as administratively possible.

13.7                           Separation
from Employment

Upon
a Participant’s severance of employment, whether by reason of retirement,
death, Disability or termination of employment, any outstanding loan balance
shall be immediately due and payable. 
The Plan Administrator shall then foreclose on the loan and deduct any
outstanding balance from the Participant’s Account value prior to distribution.

13.8                           Additional
Rules

All
loans shall be subject to such further rules and regulations as the Plan
Administrator shall from time to time prescribe and administer in a
non-discriminatory manner.

ARTICLE XIV

ADMINISTRATION
OF THE PLAN

14.1                           Plan Sponsor and Plan Administrator

The
Company is the “Plan Sponsor” and the “Plan Administrator” and shall be
considered the “named fiduciary” for the purposes of ERISA and the Code.

14.2                           Powers
of the Plan Administrator

The
Plan Administrator shall have the power and the duty to take all actions and to
make all decisions necessary or proper to carry out the provisions of the
Plan.  The Plan Administrator shall have
the discretionary authority to determine any question involving the general
administration and interpretation of the Plan and the Plan Administrator’s
determination shall be final, conclusive and binding.  Without limiting the generality of the foregoing, the Plan
Administrator shall have the following powers and duties:

38

 

(a)                                  To require any person to furnish such
information as it may request for the purpose of the proper administration of
the Plan as a condition to receiving any benefits under the Plan;

(b)                                 To make and enforce such rules and
regulations and prescribe the use of such forms as it shall deem necessary for
the efficient administration of the Plan;

(c)                                  To authorize all disbursements by the
Trustee from the Trust;

(d)                                 To maintain all records necessary for the
administration of the Plan, other than those maintained by the Trustee;

(e)                                  To interpret the Plan, and to resolve
ambiguities, inconsistencies and omissions, which findings shall be binding,
final and conclusive;

(f)                                    To decide on questions concerning the
Plan and the eligibility of any Employee to participate in the Plan, in
accordance with the provisions of the Plan;

(g)                                 To determine the amount of benefits which
shall be payable to any person in accordance with the provisions of the Plan
and to determine all claims for benefits under the Plan;

(h)                                 To determine, compute and certify to the
Trustee the amount and kind of benefits payable to the Participants and
Beneficiaries;

(i)                                     To designate persons to carry out any
duty or power which would otherwise be a fiduciary responsibility of the Plan
Administrator under the terms of the Plan;

(j)                                     To appoint and to replace the Trustee.  Except as may otherwise be provided, the
Trustee shall have exclusive authority and discretion to manage and control the
assets of the Plan, and no power conferred upon the Plan Administrator under
this Section shall confer any responsibility or authority upon the Plan
Administrator with respect to the management or control of such assets; and

(k)                                  To exercise all other powers or duties
granted to the Plan Administrator by other provisions of the Plan or Trust
Agreement.

14.3                           Selection of Professional Counselors Other Than
Investment Manager

The
Plan Administrator may employ  one or
more attorneys, accountants,  actuaries,
consultants and such clerical, medical and other accounting services as it may
require in carrying out the provisions of the Plan or in complying with
requirements imposed by ERISA and the Code.

39

 

14.4                           Claim
Procedure

(a)                                  Any claim for a Plan benefit hereunder
shall be filed by a Participant or Beneficiary (claimant) of this Plan on the form
prescribed for such purpose with the Plan Administrator, or in lieu thereof, by
written or electronic communication which is made by the claimant or the
claimant’s authorized representative which is reasonably calculated to bring
the claim to the attention of the Plan Administrator.

(b)                                 If a claim for a Plan benefit is wholly
or partially denied, notice of the decision shall be furnished to the claimant
by the Plan Administrator within a reasonable period of time after receipt of
the claim by the Plan Administrator.

(c)                                  Any claimant who is denied a claim for
benefit shall be furnished notice setting forth:

(1)                                  the specific reason or reasons for the
denial;

(2)                                  specific reference to the pertinent Plan
provisions upon which the denial is based;

(3)                                  a description of any additional material
or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and

(4)                                  an explanation of the Plan’s claim review
procedure.

(d)                                 In order that a claimant may appeal
denial of a claim, a claimant or his duly authorized representative:

(1)                                  may request a review by written
application to the Plan Administrator not later than sixty (60) days after
receipt by the claimant of notification of denial of a claim;

(2)                                  may review pertinent documents; and

(3)                                  may submit issues and comments in
writing.

(e)                                  A decision on review of a denied claim
shall be made not later than sixty (60) days after the Plan’s receipt of a
request for review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered within a reasonable
period of time, but not later than one hundred twenty (120) days after receipt
of a request for review.

The decision on review shall
be in writing and shall include the specific reason(s) for the decision and the
specific reference(s) to the pertinent Plan provisions on which the decision is
based.

40

 

14.5                           Source
of Payment of Expenses

All
expenses prior to the termination of the Plan that shall arise in connection
with the administration of the Plan, including but not limited to, the
compensation of the Trustee, administrative expenses and proper charges and
disbursements of the Trustee, and compensation and other expenses and charges
of any counsel, accountant, specialist or other person who shall be employed by
the Plan Administrator in connection with the administration thereof, may be
paid from the Trust Fund to the extent not paid by the Employer, except that
expenses attributable to investments earmarked to a Participant’s Account may
be charged to that Participant’s Account.

14.6                           Compensation of the Plan Administrator

The
Plan Administrator shall serve without compensation from the Plan for such
services, but all reasonable expenses incurred in the performance of its duties
shall, to the extent not paid by the Employer, be paid from the Trust
Fund.  Unless otherwise determined by
the Plan Administrator or unless required by any Federal or  State law, the Plan Administrator shall not
be required to give any bond or other security in any jurisdiction.

14.7                           Fiduciary Liability Insurance and Indemnification of
Fiduciaries

The
Plan Administrator shall, to the extent permitted by law, procure and pay (from
assets of the Plan or the Employer) insurance premiums for fiduciary liability
insurance covering the Board of Directors, the Plan Administrator and other
such Employees of the Employer as the Plan Administrator shall in its
discretion determine.

To the extent such insurance
is not obtained and to the fullest extent permitted by law, the Employer shall
indemnify and save harmless the Board of Directors, the Plan Administrator, and
any individual Employee or member of the Board of Directors delegated a duty pursuant
to Section 14.2, against any and all expenses, liabilities and claims
(including legal fees incurred to defend against such liabilities and claims)
arising out of their discharge in good faith of responsibilities under or
incident to the Plan.  Expenses and
liabilities arising out of willful misconduct shall not be covered under this
indemnity.  This indemnity shall not
preclude such further indemnities as may be available under insurance purchased
by the Employer or provided by the Employer under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, as such indemnities are
permitted under applicable law. 
Payments with respect to any indemnity and payment of expenses or fees
shall be made only from assets of the Employer and shall not be made directly
or indirectly from Trust assets.

41

 

ARTICLE XV

AMENDMENT
OR TERMINATION

15.1                           Board
of Directors Right to Amend

The Company reserves the right at any time
and from time to time (and retroactively if deemed necessary or appropriate to
meet the requirements of the Code or ERISA) to modify or amend, in whole or in
part, any or all of the provisions of the Plan.  The Plan Administrator may adopt amendments to the Plan which do
not significantly affect the cost of the Plan and which may be necessary or
appropriate to qualify for maintaining the Plan, the Trust and any contract
with an insurance carrier which may form a part of the Plan, as a plan and
trust meeting the requirements of Sections 401(a) and 501(a) of the Code.  No modification or amendment shall make it
possible for any part of the corpus or income of the Trust Fund to be used for,
or diverted to, purposes other than for the exclusive benefit of Participants
and their Beneficiaries under the Plan prior to the satisfaction of all
liabilities with respect thereto. 
Moreover, no amendment or modification shall make it possible to deprive
any Participant of a previously accrued benefit, except to the extent permitted
by the Code and ERISA.

In
the event of any merger or consolidation with, or transfer of assets or
liabilities to, any other plan, each Participant shall be entitled to receive a
benefit if the Plan were to terminate immediately after the merger,
consolidation, or transfer, which is not less than the benefit he would have
been entitled to receive if the Plan had terminated immediately before the
merger, consolidation, or transfer.

15.2                           Termination of Plan; Discontinuance of Contributions

(a)                                  The Plan is intended to be a permanent
program, but the Company may terminate the Plan at any time, and an Employer
shall have the right at any time to declare the Plan terminated completely as
to it or as to any of the Employer’s divisions, facilities, or operational
units.

(b)                                 If the Plan Administrator determines in
its sole discretion that the Plan has been terminated partially or completely,
within the meaning of regulations under Code Section 411, the Plan
Administrator shall determine the date of such termination and who has been
affected by the termination, and the Accounts of the affected Participants
shall be fully vested in accordance with Code Section 411.  The Accounts of the affected Participants
shall remain payable under the terms set forth in the Plan, except as provided
in subsection (c).

(c)                                  In connection with a termination or
partial termination of the Plan or thereafter, the Plan Administrator may elect
to discharge all of the Plan’s obligations to affected Participants.  In such event, the Plan Administrator shall
direct the Trustee to liquidate the necessary portion of the Trust Fund

42

 

and distribute the
Accounts of the affected Participants, less proportionate shares of the
expenses of termination, to the persons entitled thereto.

(d)                                 An Employer shall have the right at any
time to discontinue contributions to the Plan completely or as to any of the
Employer’s divisions, facilities or operational units.  A complete discontinuance of contributions
shall constitute a plan termination and the rules of paragraphs (a), (b), and
(c) shall apply.

15.3                           Allocation of Assets on Plan Termination

Anything in the Plan to the
contrary notwithstanding, no Employer, upon any termination or partial
termination of the Plan, shall have any obligation or liability whatsoever to
make any further contributions (including all or any part of any contributions
payable prior to any termination of the Plan), to the Plan.  Neither the Trustee, the Board of Directors,
the  Plan Administrator, nor any
Participant, Employee,  or Beneficiary
shall have any right to compel an Employer to make any payment on behalf of the
Plan after the termination or partial termination of the Plan.

ARTICLE XVI

GENERAL PROVISIONS

16.1                           No Employment Rights Conveyed by Participation in Plan

This Plan shall not be deemed to constitute a
contract between the Employer and any Employee or other person whether or not
in the employ of the Employer, nor shall anything herein contained be deemed to
give any Employee or other person, whether or not in the employ of the
Employer, any right to be retained in the employ of the Employer, or to
interfere with the right of the Employer to discharge any Employee at any time
and to treat him without regard to the effect which such treatment might have
upon him as a Participant of the Plan.

16.2                           Benefits
Not Assignable

Except
as may otherwise be provided by law and by the following paragraph, no
distribution or payment under the Plan to any Participant or Beneficiary, shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, whether voluntary or involuntary,
and any attempt to so anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge the same shall be void. 
No distribution or payment from the Plan shall be, in any way, liable
for, or subject to, the debts, contracts, liabilities, engagements or torts of
any person entitled to such distribution or payment.  If any Participant, or Beneficiary is adjudicated bankrupt or
purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any such distribution or payment, voluntarily or involuntarily, the Plan
Administrator, in its discretion, may hold or cause to be held or applied, such
distribution or payment  or any part
thereof to or 

43

 

for
the benefit of such Participant, Beneficiary, or joint annuitant in such manner
as the Plan Administrator shall direct.

Notwithstanding the
foregoing, (a) the right to a benefit payable with respect to a Participant
pursuant to a “qualified domestic relations order” (as defined in Section
414(p) of the Code) may be created, assigned or recognized, and the Plan
Administrator shall establish reasonable procedures to determine the qualified
status of domestic relations orders and to administer distributions under such
qualified orders in a manner consistent with Section 414(p) of the Code; (b) a
Participant or Beneficiary may direct the Plan to pay all, or any portion, of a
benefit payment to a third party (which may include the Employer) if:  (i) it is revocable at any time by the
Participant or Beneficiary;  (ii) the
third party files a written acknowledgement with the Administrator stating that
the third party has no enforceable right in, or to, any benefit payment or
portion thereof (except to the extent of payments actually received pursuant to
the terms of the arrangement).  A
blanket written acknowledgement for all Participants and Beneficiaries who are
covered under this arrangement with the third party is sufficient.  The written acknowledgement shall be filed
with the Administrator not later than 90 days after the arrangement is entered
into; and (iii) all assignments by the Participant or Beneficiary do not, in
the aggregate, exceed ten percent (10%) of any benefit payment, and are neither
for the purpose nor have the effect of 
defraying plan administration costs; and (c) the Plan may make any of
the following arrangements: (i) any arrangement for the withholding of federal,
state or local taxes from benefit payments; (ii) any arrangement for the
recovery by the Plan of overpayments of benefits previously made to a
Participant or Beneficiary; (iii) any arrangement for the transfer of benefit
rights from the Plan to another plan; or (iv) any arrangement for the direct
deposit of benefit payments in an account with a bank, savings and loan
association or credit union, provided that such arrangement is not part of an
arrangement constituting an assignment or alienation.

16.3                           Incompetence
of Beneficiary

If
the Administrator determines that any person entitled to payments under the
Plan is a minor or is incompetent by reason of physical or mental disability,
it may cause all payments thereafter becoming due to such person to be made to
any other person for his benefit, without responsibility to follow application
of amounts so paid.  Payments made
pursuant to this provision shall completely discharge the Plan, the Employer,
the Plan Administrator and the Trustee from liability with respect to such
payments.

16.4                           Limitation of Employer Responsibility for Benefits

The
Trust Fund shall be the sole source of benefits under this Plan, and each
Employee, Participant, Beneficiary, or any other person who shall claim the
right to any payment or benefit under this Plan shall be entitled to look only
to the Trust Fund for payment of benefits. 
Except as may be otherwise provided by 

44

 

ERISA
or other applicable law, the Employer shall have no liability to make or
continue from its own funds the payment of any benefit under the Plan.

16.5                           Who May Serve in Fiduciary Capacity

Any person or group of persons may serve in
more than one fiduciary capacity with respect to the Plan and any Trust
Agreement which provides for the Trust Fund.

16.6                           Intent to Comply with Section 401(a) of the Code

The
Employer intends that the Plan (including the Trust Agreement forming a part
thereof) shall be a qualified employee plan of an Employer for the exclusive
benefit of its Employees or their Beneficiaries as provided for in Section
401(a) of the Code (or as may be provided for in any similar provisions of
subsequent revenue laws) and that the Trust Agreement shall be a qualified
trust and exempt from taxation under Section 501(a) of the Code (or as may be
provided for in any similar provisions of subsequent revenue laws).

16.7                           Governing Law

The
provisions of the Plan shall be construed, administered and governed according
to ERISA, other applicable Federal laws, and the laws of the State of
California.

16.8                           Forms

All
elections, designations, requests, notices, instructions, and other
communications from Participants and their Beneficiaries or other persons to
the Plan Administrator required or permitted under the Plan shall be in such
form or manner as is prescribed from time to time by the Plan Administrator,
shall be delivered in the manner and to such location as shall be specified by
the Plan Administrator, and shall be deemed to have been given and delivered to
the Plan or Administrator only upon actual receipt thereof by the Plan
Administrator at such location.

16.9                           Communications

All
notices, statements, reports and other communications from the Company or the
Plan Administrator to Employees, Participants and their Beneficiaries or other
persons required or permitted under the Plan shall be deemed to have been duly
given when delivered to such person, personally or electronically, or when
mailed by first-class mail, postage prepaid and addressed to such person at his
address last appearing on the records of the Plan Administrator.

45

 

16.10                     Agent
for Service of Process

The Secretary of the Company or such other
person as may from  time to time be
designated by the Plan Administrator shall 
be the agent for service of process under the Plan.

16.11                     Construction
of Plan

Headings to the Articles, Sections or
subsections of the Plan  have been
supplied for convenience only and are not to be   taken as limiting or extending the meanings of any of the   provisions of the Plan.

16.12                     Plan Charges and Losses; Errors and Omissions

In the event the Plan or any Plan Participant
incurs a brokerage commission charge, investment commission or load, market
revaluation loss or charge, or similar items, or   incurs a loss as a result, either directly or indirectly, of an
error or omission of the Company, the Plan Administrator, the Trustee or any
agent of said parties, the Company may contribute to the Plan an amount which it
determines in its sole and absolute discretion will fully or partially pay for
such charge or loss, and may allocate such contribution among the individual
accounts of the Plan Participants in any manner which the Company may determine
in its sole discretion to be equitable, including an allocation by the amount
of the loss or charge or by account balance, regardless of whether or not the
Company is legally liable for such loss or whether or not such payment may be
deductible on the Company’s federal income tax return.

16.13                     Escheat.  If the Plan Administrator cannot ascertain
the whereabouts of any person to whom a payment is due under the Plan and if,
after three years from the date such payment is due, a notice of such payment
due is mailed to the last known address of such person, as shown on the records
of the Plan Administrator or the Company, and if within three months after such
mailing such person has not made claim therefor, then the Plan Administrator
may direct that such payment and all remaining payments otherwise due to such
person be forfeited and cancelled on the records of the Plan.  Upon such event, the Plan Administrator may,
at his discretion, either (i) direct that such amount escheat to the State of
California pursuant to that state’s law of escheat, or (ii) direct that such
amount be treated as a Forfeiture in accordance with the provisions of Section
8.3.  Upon such forfeiture, the Plan and
the Trust shall have no further liability therefor, except that, in the event
such person later notifies the Plan Administrator of his whereabouts and
requests the payment or payments due him under the Plan, the amount so applied
shall be paid to him as provided in the Plan.

46

 

ARTICLE XVII

TOP HEAVY
PROVISIONS

17.1                           Top-Heavy
Plan Defined

This Article shall apply  to any Plan Year for which the Plan is a
“Top-Heavy.”  The Plan shall be a
“Top-Heavy” in a Plan Year if, as of the “Determination Date” (as defined in
Section 15.2), the value of the “Accumulated Account” (as defined in Section
15.2) of “Key Employees” (as defined in Section 15.2) exceeds sixty percent
(60%) of the present value of the “Accumulated Account” under the Plan of all
Employees (as defined in Section 15.2) and Key Employees.

In
determining whether this Plan is a Top-Heavy Plan, all employers that are
aggregated under Section 414(b), (c) and (m) of the Code shall be treated as a
single employer.  In addition, all plans
that are part of the “Required Aggregation Group” (as defined in Section 15.2)
shall be treated as a single plan.

17.2                           Other
Definitions

For
the purposes of this Article, the following terms shall have the following
meanings:

(a)                                  “Accumulated Account” means the total
value of an Employee’s Accounts under the Plan and the accounts, or present
value of accrued benefits, under any other plan in the Required Aggregation
Group, as of the Valuation Date which coincides with or immediately precedes
the Determination Date.  Accumulated
Accounts includes:

(1)                                  amounts attributable to Employee
contributions (other than deductible Employee contributions),

(2)                                  amounts rolled over or transferred
directly from a plan sponsored by an unrelated employer (within the meaning of
Code Section 414(b), (c) or (m)), but only if received by the Plan before
January 1, 1984,

(3)                                  amounts rolled over or transferred
directly from a plan sponsored by a related employer (within the meaning of
Code Section 414(b), (c) or (m)), without regard to when received by the Plan,

(4)                                  distributions to former Employees during
the one (1) year period ending on the Determination Date; and

(5)                                  distributions to Employees, prior to
their termination of employment, during the five (5) year period ending on the
Determination Date.

47

 

Accumulated Accounts will
not include any distribution rolled over or transferred directly to a related
employer (within the meaning of Code Section 414(b), (c) or (m)).

(b)                                 “Compensation” means the Participant’s
compensation as defined in Section 415(c)(3) of the Code.

(c)                                  “Determination Date” means the last day
of the preceding Plan Year.

(d)                                 “Employee” means (1) a current employee
or (2) a former employee who  has
performed services for the Employer during the one (1) year period preceding
the Determination Date.  If any
individual has not performed services for the Employer at any time during the
one (1) year period ending on the Determination Date, the Account of such
individual shall not be taken into account.

(e)                                  “Key Employee” means any employee or
former employee (including any deceased employee) who at any time during the
plan year that includes the determination date was an officer of the employer
having annual compensation greater than $130,000 (as adjusted under section
416(i)(1) of the Code for plan years beginning after December 31, 2002), a
5-percent owner of the employer, or a 1-percent owner of the employer having
annual compensation of more than $150,000. 
For this purpose, annual compensation means compensation within the meaning
of section 415(c)(3) of the Code.  The
determination of who is a key employee will be made in accordance with section
416(i)(1) of the Code and the applicable regulations and other guidance of
general applicability issued thereunder.

(f)                                    “Required Aggregation Group” means

(1)                                  Each stock bonus, pension, or profit
sharing plan of the Employer in which a Key Employee participates and which is
intended to qualify under Section 401(a) of the Code; and

(2)                                  Each other such stock bonus, pension or
profit sharing plan of an Employer which enables any plan in which a Key
Employee participates to meet the requirements of Section 401(a)(4) or Section
410 of the Code.

17.3                           Top-Heavy
Contributions

With
respect to any Participant who is an Employee as of the last day of the Plan
Year in which the Plan is Top Heavy, who is not a Key Employee and who is not
covered by a defined benefit plan of the Employer which provides the minimum
benefit required by Section 416(c)(1) of the Code, the aggregate Employer
Contributions and forfeitures allocated to each such Participant under the Plan
and

48

 

any
other defined contribution plan maintained by the Employer shall be equal to
not less than the lesser of:

(a)                                  Three percent (3%) of such Participant’s
Compensation in the Plan Year, or

(b)                                 The percentage of such Participant’s
Compensation in the Plan Year which is equal to the percentage at which
contributions (including Deferred Salary Contributions) and forfeitures are
made to the Key Employee for whom such percentage is the highest for the year.

The
percentage referred to in subparagraph (b) above shall be determined by
dividing the contribution and forfeitures allocated to the Key Employee by such
Key Employee’s Compensation.  The
Employer shall make such additional contribution to the Plan as shall be
necessary to make the allocation described above.  An adjustment shall be made to this section, as permitted under
Treasury Regulations, in the event an employee is also entitled to an increased
benefit in any other Top Heavy plan while it is in the Required Aggregation
Group with this Plan.

17.4                           Top-Heavy
Vesting. 
If the Plan is Top-Heavy in a Plan Year, the non-forfeitable percentage
of the Account for such Plan Year of a Participant who is credited with an Hour
of Service in such Plan Year shall be determined in accordance with the
schedule shown below or the vesting schedule otherwise shown in Article IX of
the Plan, whichever is more favorable to the Participant:

	
  Years of
  Service 

  	
   

  	
  Non-Forfeitable
  Percentage

  
	
  0

  	
   

  	
  0%

  
	
  1

  	
   

  	
  0%

  
	
  2

  	
   

  	
  20%

  
	
  3

  	
   

  	
  40%

  
	
  4

  	
   

  	
  60%

  
	
  5

  	
   

  	
  100%

  

A Participant’s
non-forfeitable benefit shall not be less than the value of his Account
attributable to his non-forfeitable benefit determined as of the last day of
the last Plan Year in which the Plan was a Top-Heavy Plan.  If the Plan ceases to be Top-Heavy, each
Participant with three (3) or more Years of Service (determined as of the first
day of the Plan Year in which the Plan ceases to be Top-Heavy) shall have the
right to have his vested benefit determined in accordance with the schedule
contained in this Section or the vesting schedule contained in Article IX of
the Plan.  Each such Participant shall
have the right to elect the applicable schedule in accordance with regulations
issued under Section 411(a)(10) of the Code.

49

 

ARTICLE XVIII

DIRECT
ROLLOVER OF BENEFITS

18.1                           Right
to Direct Rollover

Except
as otherwise provided, any Distributee may elect, in accordance with the provisions
of this Article 18, to have all or a designated portion of an Eligible Rollover
Distribution paid directly to a specified Eligible Retirement Plan in a Direct
Rollover.

18.2                           Limitations
on Direct Rollover

(a)                                  Aggregate Distributions of Less than $200. 
If all of the Eligible Rollover Distributions paid to a Distributee
during a Plan Year have a total aggregate value of less than $200, or are
reasonably expected to total less than $200 for the Plan Year, the Distributee
shall not be entitled to elect a Direct Rollover of such Eligible Rollover
Distributions.

(b)                                 Apportionment of Eligible Rollover
Distributions.  A Distributee may elect to have only a
portion of an Eligible Rollover Distribution transferred directly to an
Eligible Retirement Plan in a Direct Rollover, and the remaining portion paid
directly to him or her, provided that the portion of the Eligible Rollover
Distribution designated by the Distributee for Direct Rollover is equal to or
greater than $500.  Eligible Rollover
Distributions of less than $500 may not be apportioned.  A Distributee may elect only one Direct
Rollover for each Eligible Rollover Distribution.

18.3                           Election
of Direct Rollover

A
Distributee may elect a Direct Rollover of an Eligible Retirement Distribution
by filing the appropriate forms with the Committee.  The Administrator is entitled to reasonably rely on the
information provided on such forms by a Distributee in making a Direct
Rollover.  In the event that a
Distributee does not provide all of the information requested, or fails to
submit the appropriate authorization to the Administrator, the Administrator
will directly pay the amount of the Eligible Rollover Distribution to the
Distributee in accordance with the provisions of Article X.

18.4                           Payment
of Direct Rollover

If
a Distributee elects a Direct Rollover of his or her Eligible Rollover
Distribution in a manner which complies with Section 18.3 hereof, such Eligible
Rollover Distribution may be accomplished by any reasonable means of direct
payment to the designated Eligible Retirement Plan.  Reasonable means of direct payment shall include at the
discretion of the Administrator:

50

 

(a)                                  Mailing of a check, negotiable only by
the trustee or custodian of the designated Eligible Retirement Plan, to the
trustee or custodian of such plan.

(b)                                 Wire transfer directed exclusively to the
trustee or custodian of the designated Eligible Retirement Plan.

(c)                                  Providing the Distributee with a check
for delivery to the designated Eligible Retirement Plan so long as:

(1)                                  the check is endorsed ‘[name of trustee
or custodian] as trustee of [name of Eligible Retirement Plan],’  and

(2)                                  the check explicitly states that it is
for the benefit of the Distributee whose Eligible Rollover Distribution is to
be transferred in a Direct Rollover.

ARTICLE XIX

RIGHTS OF
REEMPLOYED VETERANS

19.1                           In General

To
the extent required by the Uniformed Services Employment and Reemployment
Rights Act of 1994 (“USERRA”) and Section 414(u) of the Code, effective with
respect to Reemployed Veterans hired after December 12, 1994, and in accordance
with this Article 19, a Reemployed Veteran shall be entitled to the restoration
of certain benefits under the Plan that would have accrued, or that he or she
would have received, under the Plan but for his or her absence from the employ
of the Employer due to Qualified Military Service.

19.2                           Crediting of Period of Qualified Military Service

To
the extent required by USERRA and Section 414(u) of the Code, a  Reemployed Veteran, for all purposes under
the Plan, shall be credited with Hours of Service, as applicable, for the
period of his or her absence from employment with the Employer due to Qualified
Military Service, in accordance with the final regulations of the Internal
Revenue Service.  In no event shall such
Reemployed Veteran’s absence due to Qualified Military Service constitute a
suspension of participation under Section 2.4 or One-Year Break in Service
under Section 1.47.

19.3                           “Make-up”
Contributions

(a)                                  Employee “Make-up” Contributions. 
To the extent required by USERRA and Section 414(u) of the Code, a
Reemployed Veteran shall be permitted, pursuant to Article III, to make
additional Deferred Salary Contributions during the period which (1) begins on
the Reemployed Veteran’s date of reemployment with the Employer, and (2) has
the same length as the lesser of:

51

 

(1)                                  the period of Qualified Military Service
multiplied by 3, or

(2)                                  five (5) years.

The
maximum amount of additional Deferred Salary Contributions that the Reemployed
Veteran is permitted to make is the maximum amount of such contributions that
the Reemployed Veteran would have been permitted to make pursuant to Article
III had he or she continued to be employed by the Employer during the period of
Qualified Military Service and received compensation.  In addition, a Reemployed Veteran who makes Deferred Salary
Contributions for the period of his or her Qualified Military Service shall be
entitled to receive Matching Contributions under Article IV as if such Deferred
Salary Contributions were made during such period of Qualified Military
Service.  Compensation for purposes of
this Subsection (a) and (b), below, shall be based on the rate of pay that the Reemployed
Veteran would have received during the period of Qualified Military Service had
he or she remained employed by the Employer. 
If such rate of pay was not reasonably certain, such Compensation shall
be based on the Reemployed Veteran’s average Compensation from the Employer
during (1) the twelve (12) month period immediately preceding the Qualified
Military Service, or (2) if shorter, the period of employment immediately
preceding the Qualified Military Service.

(b)                                 Application of Annual Limitations to
“Make-up” Contributions.  To the extent permitted by
USERRA and Section 414(u) of the Code, any “make-up” contributions made
pursuant to (a) above, shall not be treated as subject to the annual
limitations on contributions set forth in Article V for the Plan Year in which
such contributions are made, but such “make-up” contributions shall be treated
as subject to such annual limitations for the Plan Year to which such
contributions relate, in accordance with the regulations or other rules
provided by the Internal Revenue Service.

19.4                           Restoration of Profit Sharing Contributions.  To the
extent required by USERRA and Section 414(u) of the Code and in accordance with
the regulations or other rules provided by the Internal Revenue Service, the
Reemployed Veteran shall have paid to his or her Account Profit Sharing
Contributions that he or she would have received under the Plan but for his or
her absence from the employ of the Employer due to Qualified Military
Service.  Units for purposes of Section
5.2 and this Section 19.4 shall be based on the rate of pay that the Reemployed
Veteran would have received during the period of Qualified Military Service had
he or she remained employed by the Employer. 
If such rate of pay was not reasonably certain, such compensation shall
be based on the Reemployed Veteran’s average Compensation from the Employer
during (1) the twelve (12) month period immediately preceding the Qualified
Military Service, or (2) if shorter, the period of employment immediately
preceding the Qualified Military Service.

52

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}]]