Document:

EX-10.2

Exhibit 10.2

Execution Copy

     REPLACEMENT CAPITAL COVENANT, dated as of October 17, 2008 (this “Replacement Capital
Covenant”), by The Hartford Financial Services Group, Inc., a Delaware corporation (together
with its successors and assigns, the “Corporation”), in favor of and for the benefit of
each Covered Debtholder (as defined below).

RECITALS

     A. On the date hereof, the Corporation is issuing $1,750,000,000 aggregate principal amount of
its 10% Junior Subordinated Debentures due 2068 (together with any other 10% Junior Subordinated
Debentures due 2068 issued after the date of this Replacement Capital Covenant pursuant to the
related indenture, the “Debentures”).

     B. The Corporation is entering into and disclosing the content of this Replacement Capital
Covenant in the manner provided below with the intent that the covenants provided for in this
Replacement Capital Covenant be enforceable by each Covered Debtholder and that the Corporation be
estopped from disregarding the covenants in this Replacement Capital Covenant, in each case to the
fullest extent permitted by applicable law.

     C. The Corporation acknowledges that reliance by each Covered Debtholder upon the covenants in
this Replacement Capital Covenant is reasonable and foreseeable by the Corporation and that, were
the Corporation to disregard its covenants in this Replacement Capital Covenant, each Covered
Debtholder would have sustained an injury as a result of its reliance on such covenants.

     NOW, THEREFORE, the Corporation hereby covenants and agrees as follows in favor of and for the
benefit of each Covered Debtholder.

          SECTION 1. Definitions. Capitalized terms used in this Replacement Capital Covenant
(including the Recitals) have the meanings set forth in Annex I hereto.

          SECTION 2. Limitations on Redemption and Purchase of Debentures. The Corporation
hereby promises and covenants to and for the benefit of each Covered Debtholder that the
Corporation shall not repay, redeem, defease or repurchase, and shall cause each Subsidiary of the
Corporation not to purchase, all or any part of the Debentures prior to October 15, 2048, except to
the extent that the principal amount repaid or defeased or the applicable redemption or purchase
price does not exceed the sum of the Applicable Percentages of the following amounts:

   (i) the aggregate amount of (a) the net cash proceeds the Corporation and its
Subsidiaries shall have received from the sale of Common Stock and rights to acquire Common
Stock to Persons other than the Corporation and its Subsidiaries and (b) the Market Value of
any Common Stock (determined as of the date of delivery) that the Corporation and its
Subsidiaries shall have delivered to Persons other than the Corporation and its Subsidiaries
in connection with the conversion of any convertible or exchangeable securities, other than
securities for which the Corporation or any of its Subsidiaries shall have received equity
credit from any NRSRO, in each case during the relevant Measurement Period (without double
counting proceeds received in any prior Measurement Period); plus

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   (ii) the aggregate amount of net cash proceeds the Corporation and its Subsidiaries
shall have received during the relevant Measurement Period (without double counting proceeds
received in any prior Measurement Period) from the sale of Qualifying Replacement
Securities, Mandatorily Convertible Preferred Stock and Debt Exchangeable for Common Equity
to Persons other than the Corporation and its Subsidiaries,

provided that the limitations in this Section 2 shall not restrict (i) the repayment,
redemption or other purchase of any Debentures that the Corporation shall have previously defeased
in accordance with this Replacement Capital Covenant or (ii) the exchange or purchase of the
Debentures for consideration that consists solely of Common Stock or (iii) the exchange or purchase
of the Debentures for consideration that consists solely of an aggregate principal amount or
liquidation preference of Replacement Capital Securities other than Common Stock not to exceed 100%
of the aggregate principal amount of Debentures that are exchanged plus an amount in cash equal to
accrued but unpaid Distributions on the Debentures, other than any deferred Distributions.
Notwithstanding anything to the contrary in this Replacement Capital Covenant, Debentures shall no
longer be subject to this Replacement Capital Covenant if such Debentures have been remarketed by
the Company pursuant to arrangements between any Holder of such Debentures and the Company, and the
net proceeds of such remarketing have been used by such Holder to acquire Common Stock, either
directly, through the exercise of warrants or otherwise.

          SECTION 3. Covered Debt. (a) The Corporation represents and warrants that the Initial
Covered Debt is Eligible Debt.

          (b) On or during the 30-day period immediately preceding any Redesignation Date with respect
to the Covered Debt, the Corporation shall identify the series of Eligible Debt that will become
the Covered Debt on and after such Redesignation Date in accordance with the following procedures:

   (i) the Corporation shall identify each series of its then outstanding long-term
indebtedness for money borrowed that is Eligible Debt;

   (ii) if only one series of the Corporation’s then outstanding long-term indebtedness
for money borrowed is Eligible Debt, such series shall become the Covered Debt commencing on
the related Redesignation Date;

   (iii) if the Corporation has more than one outstanding series of long-term indebtedness
for money borrowed that is Eligible Debt, then the Corporation shall identify the series
that has the latest stated final maturity date as of the date the Corporation is applying
the procedures in this Section 3(b) and such series shall become the Covered Debt on the
related Redesignation Date;

   (iv) the series of outstanding long-term indebtedness for money borrowed that is
determined to be Covered Debt pursuant to clause (ii) or (iii) above shall be the Covered
Debt for purposes of this Replacement Capital Covenant for the period commencing on

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the related Redesignation Date and continuing to but not including the Redesignation
Date as of which a new series of outstanding long-term indebtedness is next determined to be
the Covered Debt pursuant to the procedures set forth in this Section 3(b); and

   (v) in connection with such identification of a new series of Covered Debt, the
Corporation shall, as provided for in Section 3(c), give a notice and file with the
Commission a Current Report on Form 8-K (or any successor form) under the Securities
Exchange Act including or incorporating by reference this Replacement Capital Covenant as an
exhibit within the time frame provided for in such section.

          (c) Notice. In order to give effect to the intent of the Corporation described in
Recital B, the Corporation covenants that (i) simultaneously with the execution of this Replacement
Capital Covenant or as soon as practicable after the date hereof, it shall (x) give notice to the
Holders of the Initial Covered Debt, in the manner provided in the indenture relating to the
Initial Covered Debt, of its entry into this Replacement Capital Covenant and the rights granted to
such Holders hereunder and (y) file a copy of this Replacement Capital Covenant with the Commission
as an exhibit to a Current Report on Form 8-K (or any successor form) under the Securities Exchange
Act, (ii) so long as the Corporation is a reporting company under the Securities Exchange Act, the
Corporation shall include in each Annual Report on Form 10-K (or any successor form) filed with the
Commission under the Securities Exchange Act a description of the covenant set forth in Section 2
and identify the Covered Debt as of the date such Form 10-K (or any successor form) is filed with
the Commission, (iii) if a series of the Corporation’s long-term indebtedness for money borrowed
(1) becomes Covered Debt or (2) ceases to be Covered Debt, the Corporation shall give notice of
such occurrence within 30 days to the holders of such long-term indebtedness for money borrowed in
the manner provided for in the indenture, fiscal agency agreement or other instrument under which
such long-term indebtedness for money borrowed was issued and report such change in a Current
Report on Form 8-K (or any successor form), which must include or incorporate by reference this
Replacement Capital Covenant, and in the Corporation’s next quarterly report on Form 10-Q (or any
successor form) or Annual Report on Form 10-K (or any successor form), as applicable, (iv) if, and
only if, the Corporation ceases to be a reporting company under the Securities Exchange Act, the
Corporation shall (A) post on its website (or any other similar electronic platform generally
available to the public) the information otherwise required to be included in Securities Exchange
Act filings pursuant to clauses (ii) and (iii) of this Section 3(c) and (B) cause a notice of the
execution of this Replacement Capital Covenant to be posted on the Bloomberg screen for the Covered
Debt and each similar third-party vendor’s screen the Corporation reasonably believes is
appropriate (each an “Investor Screen”) and cause a hyperlink to a definitive copy of this
Replacement Capital Covenant to be included on the Investor Screen for the Covered Debt, in each
case to the extent permitted by Bloomberg or such similar third-party vendor, as the case may be,
and (v) promptly upon request by any Holder of Covered Debt, the Corporation shall provide such
Holder with a copy of this Replacement Capital Covenant as executed.

          (d) The Corporation agrees that, if at any time the Covered Debt is held by a trust (for
example, where the Covered Debt is part of an issuance of trust preferred securities), a holder of
the securities issued by such trust may enforce (including by instituting legal proceedings) this
Replacement Capital Covenant directly against the Corporation as though such

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holder owned Covered Debt directly, and such holder shall be deemed to be a holder of
“Covered Debt” for purposes of this Replacement Capital Covenant for so long as the
indebtedness held by such trust remains Covered Debt hereunder.

          SECTION 4. Termination, Amendment and Waiver. (a) The obligations of the Corporation
pursuant to this Replacement Capital Covenant shall remain in full force and effect until the
earliest date (the “Termination Date”) to occur of (i) October 15, 2048, or, if earlier,
the date on which the Debentures are otherwise repaid, redeemed, defeased, remarketed, satisfied
and discharged or purchased in full (in compliance with the terms of this Replacement Capital
Covenant), (ii) the date, if any, on which the Holders of at least a majority of the then
outstanding principal amount of the Covered Debt consent or agree in writing to the termination of
this Replacement Capital Covenant and the obligations of the Corporation hereunder, (iii) the date
on which the Corporation ceases to have any series of outstanding Eligible Senior Debt or Eligible
Subordinated Debt (in each case without giving effect to the rating requirement in clause (b) of
the definition of each such term) and (iv) the date on which the Debentures become accelerated due
to the occurrence of an event of default. From and after the Termination Date, the obligations of
the Corporation pursuant to this Replacement Capital Covenant shall be of no further force and
effect.

          (b) This Replacement Capital Covenant may be amended or supplemented from time to time by a
written instrument signed by the Corporation with the consent of the Holders of at least a majority
of the then outstanding principal amount of the Covered Debt, provided that this Replacement
Capital Covenant may be amended or supplemented from time to time by a written instrument signed
only by the Corporation (and without the consent of the Holders of the Covered Debt) if any of the
following apply (it being understood that any such amendment or supplement may fall into one or
more of the following): (i) the effect of such amendment or supplement is solely to impose
additional restrictions on, or to eliminate certain of, the types of securities qualifying as
Replacement Capital Securities and an officer of the Corporation has delivered to the trustee or
agent for such Covered Debt in the manner provided for in the indenture, fiscal agency agreement or
other instrument with respect to such Covered Debt a written certificate to that effect, (ii) such
amendment or supplement is not adverse to the rights of the Covered Debtholders hereunder and an
officer of the Corporation has delivered to the trustee or agent for such Covered Debt in the
manner provided for in the indenture, fiscal agency agreement or other instrument with respect to
such Covered Debt a written certificate stating that, in his or her determination, such amendment
or supplement is not adverse to the Covered Debtholders, or (iii) such amendment or supplement
eliminates Common Stock, rights to acquire Common Stock, Debt Exchangeable for Common Equity and/or
Mandatorily Convertible Preferred Stock as Replacement Capital Securities if, in the case of this
clause (iii), an accounting standard or interpretive guidance of an existing accounting standard
issued by an organization or regulator that has responsibility for establishing or interpreting
accounting standards used to prepare the Corporation’s financial statements becomes effective,
which, as a result, causes the Corporation to believe that there is more than an insubstantial risk
that the failure to eliminate Common Stock, rights to acquire Common Stock, Debt Exchangeable for
Common Equity and/or Mandatorily Convertible Preferred Stock as Replacement Capital Securities
would result in a reduction in the Corporation’s earnings per share as calculated for financial
reporting purposes. For the purpose of clause (ii) in the preceding sentence, an

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amendment or supplement that adds new types of securities qualifying as Replacement Capital
Securities or modifies the requirements of securities qualifying as Replacement Capital Securities
will not be deemed materially adverse to the Covered Debtholders if, following such amendment or
supplement, the replacement capital covenant would constitute a Qualifying Replacement Capital
Covenant.

          (c) For purposes of Sections 4(a) and 4(b), the Holders whose consent or agreement is required
to terminate, amend or supplement the obligations of the Corporation under this Replacement Capital
Covenant shall be the Holders of the Covered Debt as of a record date established by the
Corporation that is not more than 30 days prior to the date on which the Corporation proposes that
such termination, amendment or supplement becomes effective.

          SECTION 5. Miscellaneous. (a) This Replacement Capital Covenant shall be governed by
and construed in accordance with the laws of the State of New York.

          (b) This Replacement Capital Covenant shall be binding upon the Corporation and its successors
and assigns and shall inure to the benefit of the Covered Debtholders as they exist from
time-to-time (it being understood and agreed by the Corporation that any Person who is a Covered
Debtholder shall retain its status as a Covered Debtholder for so long as the series of long-term
indebtedness for borrowed money owned by such Person is Covered Debt and, if such Person initiates
an action, claim or proceeding to enforce its rights under this Replacement Capital Covenant after
the Corporation has violated its covenants in Section 2 and before the series of long-term
indebtedness for money borrowed held by such Person is no longer Covered Debt, such Person’s rights
under this Replacement Capital Covenant shall not terminate by reason of such series of long-term
indebtedness for money borrowed no longer being Covered Debt). Other than the Covered Debtholders
as provided in the previous sentence, no other Person shall have any rights under this Replacement
Capital Covenant or be deemed a third party beneficiary of this Replacement Capital Covenant.

          (c) All demands, notices, requests and other communications to the Corporation under this
Replacement Capital Covenant shall be deemed to have been duly given and made if in writing and (i)
if served by personal delivery upon the Corporation, on the day so delivered (or, if such day is
not a Business Day, the next succeeding Business Day) or (ii) if delivered by registered post or
certified mail, return receipt requested, or sent to the Corporation by a national or international
courier service, on the date of receipt by the Corporation (or, if such date of receipt is not a
Business Day, the next succeeding Business Day), and in each case to the Corporation at the address
set forth below, or at such other address as the Corporation may thereafter notify to Covered
Debtholders or post on its website (or any other similar electronic platform generally available to
the public) as the address for notices under this Replacement Capital Covenant:

The Hartford Financial Services Group, Inc.

One Hartford Plaza

Hartford, Connecticut 06155

Attention: General Counsel

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     IN WITNESS WHEREOF, the Corporation has caused this Replacement Capital Covenant to be
executed by its duly authorized officer, as of the day and year first above written.

	 	 	 	 	 
	 	THE HARTFORD FINANCIAL 

      SERVICES GROUP, INC.

 	 
	 	By:  	/s/
John N. Giamalis 	 
	 	 	Name:  	John N. Giamalis 	 
	 	 	Title:  	Senior Vice President and Treasurer 	 
	 

Replacement Capital Covenant

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Annex I

DEFINITIONS

     “Alternative Payment Mechanism” means, with respect to any securities or combination
of securities (together in this definition, “securities”), provisions in the related
transaction documents requiring the Corporation to issue (or use Commercially Reasonable Efforts to
issue) one or more types of APM Qualifying Securities for the purpose of raising eligible proceeds
at least equal to the deferred and unpaid Distributions on such securities and apply the net
proceeds to pay such Distributions on such securities, commencing on the earlier of (x) the first
Distribution Date after commencement of a deferral period on which the Corporation pays current
Distributions (which the Corporation may pay from any source of funds) on such securities and (y)
the fifth anniversary of the commencement of such deferral period if on such date such deferral
period has not ended, and that:

          (a) define “eligible proceeds” to mean, for purposes of such Alternative Payment
Mechanism, the net proceeds (after underwriters’ or placement agents’ fees, commissions or
discounts and other expenses relating to the issuance or sale of the relevant securities, and
including the fair market value of property received by the Corporation or any of its Subsidiaries
as consideration for such securities) that the Corporation or any of its Subsidiaries shall have
received during the 180 days prior to the relevant Distribution Date from the sale of APM
Qualifying Securities, provided that in the case of APM Qualifying Securities that are Qualifying
Preferred Stock or Mandatorily Convertible Preferred Stock the amount of net proceeds included in
eligible proceeds shall not exceed the Preferred Cap;

          (b) permit the Corporation to pay current Distributions on any Distribution Date out of any
source of funds but (i) require the Corporation to pay deferred Distributions only out of eligible
proceeds and (ii) prohibit the Corporation from paying deferred Distributions out of any source of
funds other than eligible proceeds unless an event of default with respect to such securities has
occurred;

          (c) if deferral of Distributions continues for more than one year (or such shorter period as
provided for in the terms of such securities), require the Corporation and its Subsidiaries not to
repay, redeem or purchase any of its securities ranking junior to or equally with any APM
Qualifying Securities on the liquidation, dissolution or winding-up of the Corporation, the
proceeds of which were used to pay deferred interest during the relevant deferral period until at
least one year after all deferred Distributions have been paid (“Repurchase Restriction”), other
than the following (none of which shall be restricted or prohibited by a Repurchase Restriction):

   (i) purchases, redemptions or other acquisitions of Common Stock in connection with any
employment contract, benefit plan or other similar arrangement with or for the benefit of
employees, officers, directors or consultants;

   (ii) purchases of Common Stock pursuant to a contractually binding requirement to buy
Common Stock entered into prior to the beginning of the related deferral period, including
under a contractually binding stock repurchase plan;

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   (iii) as a result of any exchange, redemption or conversion of any class or series of
the Corporation’s capital stock (or any capital stock of one of the Corporation’s
Subsidiaries) for any class or series of the Corporation’s capital stock or of any class or
series of the Corporation’s indebtedness for any class or series of the Corporation’s
capital stock;

   (iv) the purchase of or payment of cash in lieu of fractional interests in the
Corporation’s capital stock in accordance with the conversion or exchange provisions of such
capital stock or the security being converted or exchanged; or

   (v) the redemption or repurchase of rights in accordance with any stockholders’ rights
plan;

          (d) limit the obligation of the Corporation to issue (or to use Commercially Reasonable
Efforts to issue) APM Qualifying Securities that are Common Stock or Qualifying Warrants, prior to
the fifth anniversary of any deferral period, to the extent that the number of shares of Common
Stock issued or issuable upon the exercise of such Qualifying Warrants plus the number of shares of
Common Stock previously issued or issuable on the exercise of Qualifying Warrants previously issued
during the applicable deferral period would exceed 2% of the total number of issued and outstanding
shares of Common Stock set forth in the Corporation’s most recent publicly available financial
statements (the “Common Cap”);

          (e) limit the right of the Corporation to issue APM Qualifying Securities that are Qualifying
Preferred Stock or Mandatorily Convertible Preferred Stock, to the extent that the net proceeds of
any issuance of such Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock applied,
together with the net proceeds of all prior issuances of Qualifying Preferred Stock and any
still-outstanding Mandatorily Convertible Preferred Stock applied during the current and all prior
deferral periods, to pay deferred Distributions on the securities would exceed 25% of the
liquidation or principal amount of the securities that are the subject of the related Alternative
Payment Mechanism (the “Preferred Cap”);

          (f) notwithstanding the Common Cap and the Preferred Cap, permit the Corporation, at its
option, to impose a limitation on the Corporation’s obligation to issue APM Qualifying Securities
consisting of Common Stock and Qualifying Warrants to a maximum issuance cap to be set at the
Corporation’s discretion and otherwise substantially similar to the Share Cap, provided that such
limitation will be subject to the Corporation’s agreement to use Commercially Reasonable Efforts
(i) to increase such limitation when reached to enable the Corporation to simultaneously satisfy
its future fixed or contingent obligations under such securities and other securities and
derivative instruments that provide for settlement or payment in shares of Common Stock or (ii) if
the Corporation cannot increase such limitation as contemplated in the preceding clause, by
requesting its board of directors to adopt a resolution for a stockholder vote at the next annual
meeting of stockholders of the Corporation to increase the number of shares of the Corporation’s
authorized Common Stock for purposes of satisfying the Corporation’s obligations to pay deferred
Distributions;

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          (g) in the case of securities other than Qualifying Preferred Stock, include a Bankruptcy
Claim Limitation Provision; and

          (h) permit the Corporation, at its option, to provide that if the Corporation is involved in a
merger, consolidation, amalgamation, binding share exchange or conveyance, business combination,
recapitalization, transfer or lease of assets substantially as an entirety to any other Person or a
similar transaction (a “Business Combination”) where immediately after the consummation of
the Business Combination more than 50% of the voting stock of the surviving or resulting entity or
the Person to whom all or substantially all of the Corporation’s property or assets are conveyed,
transferred or leased in such Business Combination is owned by the stockholders of the other party
to the Business Combination or Person to whom all or substantially all of the Corporation’s
property or assets are conveyed, transferred or leased, then clauses (a), (b) and (c) above will
not apply to any deferral period that is terminated on the next Distribution Date following the
date of consummation of the Business Combination;

provided (and it being understood) that:

     (1) the Corporation shall not be obligated to issue (or to use Commercially Reasonable Efforts
to issue) APM Qualifying Securities for so long as a Market Disruption Event has occurred and is
continuing;

     (2) if, due to a Market Disruption Event or otherwise, the eligible proceeds are not
sufficient to pay all deferred Distributions on any Distribution Date, the Corporation will apply
the eligible proceeds to pay accrued and unpaid deferred Distributions on such Distribution Date in
chronological order, subject to the Common Cap, Preferred Cap and Share Cap, as applicable; and

     (3) if the Corporation has outstanding more than one class or series of securities under which
it is obligated to sell a type of APM Qualifying Securities and apply some part of the proceeds to
the payment of deferred Distributions, then on any date and for any period the amount of net
proceeds received by the Corporation from those sales and available for payment of deferred
Distributions on such securities (in accordance with clauses (d) and (e) of this definition) shall
be applied to such securities on a pro rata basis in proportion to the total amounts that are due
on such securities.

     “APM Qualifying Securities” means, with respect to an Alternative Payment Mechanism or
a Mandatory Trigger Provision, one or more of the following (as designated in the transaction
documents for the securities that include an Alternative Payment Mechanism or a Mandatory Trigger
Provision, as applicable):

     (a) Common Stock;

     (b) Qualifying Warrants;

     (c) Qualifying Preferred Stock; and/or

     (d) Mandatorily Convertible Preferred Stock,

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provided (and it being understood) that (i) if the APM Qualifying Securities for any
Alternative Payment Mechanism or Mandatory Trigger Provision include both Common Stock and
Qualifying Warrants, such Alternative Payment Mechanism or Mandatory Trigger Provision may permit,
but need not require, the Corporation to issue Qualifying Warrants, (ii) such Alternative Payment
Mechanism or Mandatory Trigger Provision may permit, but need not require, the Corporation to issue
Mandatorily Convertible Preferred Stock and (iii) the Corporation may, without the consent of the
holders of the Qualifying Replacement Securities, amend the definition of APM Qualifying Securities
to eliminate Common Stock or Qualifying Warrants, but not both, and any other security from the
definition if an accounting standard or interpretive guidance of an existing standard issued by an
organization or regulator that has responsibility for establishing or interpreting accounting
standards used to prepare the Corporation’s financial statements filed with the Securities and
Exchange Commission becomes effective, which, as a result, causes the Corporation to believe there
is more than an insubstantial risk that the failure to do so would result in a reduction in the
Corporation’s earnings per share as calculated for financial reporting purposes.

     “Applicable Percentage” means:

          (a) in the case of any shares of the Corporation’s Common Stock or rights to acquire Common
Stock, (i) 133% with respect to any repayment, redemption, defeasance or purchase prior to October
15, 2018, (ii) 200% with respect to any repayment, redemption, defeasance or purchase on or after
October 15, 2018 and prior to October 15, 2038 and (iii) 400% with respect to any repayment,
redemption, defeasance or purchase on or after October 15, 2038.

          (b) in the case of any Mandatorily Convertible Preferred Stock, Debt Exchangeable for Common
Equity and any Qualifying Replacement Securities described in clause (a) of the definition of such
term, (i) 100% with respect to any repayment, redemption, defeasance or purchase prior to October
15, 2038 and (ii) 300% with respect to any repayment, redemption, defeasance or purchase on or
after October 15, 2038;

          (c) in the case of any Qualifying Replacement Securities described in clause (b) of the
definition of such term, (i) 100% with respect to any repayment, redemption, defeasance or purchase
prior to October 15, 2038 and (ii) 200% with respect to any repayment, redemption, defeasance or
purchase on or after October 15, 2038; and

          (d) in the case of any Qualifying Replacement Securities described in clause (c) of the
definition of such term, 100%.

     “Bankruptcy Claim Limitation Provision” means, with respect to any securities or
combination of securities that have an Alternative Payment Mechanism or a Mandatory Trigger
Provision (together in this definition, “securities”), provisions in the terms thereof or of the
related transaction agreements that, upon any liquidation, dissolution, winding-up or
reorganization or in connection with any insolvency, receivership or proceeding under any
bankruptcy law with respect to the issuer, limit the claim of the holders of such securities to
Distributions that accumulate during (a) any deferral period, in the case of securities that have
an

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Alternative Payment Mechanism but no Mandatory Trigger Provision or (b) any period in which
the issuer fails to satisfy one or more financial tests set forth in the terms of such securities
or related transaction agreements, in the case of securities that have a Mandatory Trigger
Provision, to:

   (i) in the case of securities having an Alternative Payment Mechanism or Mandatory
Trigger Provision with respect to which the APM Qualifying Securities do not include
Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock, 25% of the stated or
principal amount of such securities then outstanding; and

   (ii) in the case of any other securities, the amount of accumulated and deferred
Distributions (including compounded amounts) that relate to the earliest two years of the
portion of the deferral period for which Distributions have not been paid.

     “Business Combination” has the meaning specified in clause (h) of the definition of
Alternative Payment Mechanism.

     “Business Day” means each day other than (a) a Saturday or Sunday or (b) a day on
which banking institutions in The City of New York, New York are authorized or required by law or
executive order to remain closed.

     “Commercially Reasonable Efforts” means, for purposes of issuing APM Qualifying
Securities, commercially reasonable efforts to complete the offer and sale of APM Qualifying
Securities to third parties that are not Subsidiaries of the Corporation in public offerings or
private placements. The Corporation shall not be considered to have made Commercially Reasonable
Efforts to issue APM Qualifying Securities if it determines not to pursue or complete such issuance
solely due to pricing, coupon, dividend rate or dilution considerations.

     “Commission” means the United States Securities and Exchange Commission or any
successor agency.

     “Common Cap” has the meaning specified in clause (d) of the definition of Alternative
Payment Mechanism.

     “Common Stock” means the common stock of the Corporation (including treasury shares of
common stock), common stock issued pursuant to any dividend reinvestment plan or any of the
Corporation’s employee benefit plans, any security of the Corporation that ranks upon the
liquidation, dissolution or winding-up of the Corporation junior to the Qualifying Preferred Stock
and equally with the Corporation’s common stock and that tracks the performance of, or relates to
the results of, a business, unit or division of the Corporation, and any shares of common stock or
equivalent equity interests of the surviving or resulting entity issued in exchange therefor in
connection with a Business Combination.

     “Corporation” has the meaning specified in the introduction to this Replacement
Capital Covenant.

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     “Covered Debt” means (a) at the date of this Replacement Capital Covenant and
continuing to but not including the first Redesignation Date, the Initial Covered Debt and (b)
thereafter, commencing with each Redesignation Date and continuing to but not including the next
succeeding Redesignation Date, the Eligible Debt identified pursuant to Section 3(b) as the Covered
Debt for such period.

     “Covered Debtholder” means each Person (whether as a Holder or a beneficial owner
holding through a participant in a clearing agency) to the extent that Person holds Covered Debt,
provided that, except as provided in Section 5(b), a Person who has sold all of its right,
title and interest in Covered Debt shall cease to be a Covered Debtholder at the time of such sale
if, at such time, the Corporation has not breached or repudiated, or threatened to breach or
repudiate, its obligations hereunder.

     “Debentures” has the meaning specified in Recital A.

     “Debt Exchangeable for Common Equity” means a security or combination of securities
(together in this definition, “securities”) that:

          (a) gives the holder a beneficial interest in (i) debt securities of the Corporation that are
not redeemable prior to the settlement date of the stock purchase contract referred to in subclause
(ii) hereof and (ii) a fractional interest in a stock purchase contract obligating the holder to
purchase Common Stock of the Corporation that will be settled in three years or less, with the
number of shares of Common Stock purchasable pursuant to such stock purchase contract to be within
a range established at the time of issuance of such debt securities and subject to customary
anti-dilution adjustments;

          (b) provides that the holders directly or indirectly grant to the Corporation a security
interest in such debt securities and their proceeds (including any substitute collateral permitted
under the transaction documents) to secure the holders’ direct or indirect obligation to purchase
Common Stock of the Corporation pursuant to the stock purchase contract referred to in subclause
(a)(ii) hereof;

          (c) includes a remarketing feature pursuant to which such debt securities of the Corporation
are remarketed to new investors not later than the settlement date of the stock purchase contract
referred to in subclause (a)(ii) hereof; and

          (d) provides for the proceeds raised in the remarketing to be used to purchase shares of
Common Stock of the Corporation under the stock purchase contract referred to in subclause (a)(ii)
hereof and, if there has not been a successful remarketing by the settlement date of such stock
purchase contract, provides that such stock purchase contract will be settled by the Corporation
exercising its remedies as a secured party with respect to the debt securities or other collateral
directly or indirectly pledged by holders of the Debt Exchangeable for Common Equity.

     “Distribution Date” means, as to any securities or combination of securities, the
date(s) on which Distributions on such securities are scheduled to be made.

12

 

     “Distribution Period” means, as to any securities or combination of securities, each
period from and including a Distribution Date for such securities to but not including the next
succeeding Distribution Date for such securities.

     “Distributions” means, as to a security or combination of securities, dividends,
interest or other income distributions to the holders or beneficial owners thereof that are not
Subsidiaries of the Corporation.

     “Eligible Debt” means, at any time, Eligible Subordinated Debt or, if no Eligible
Subordinated Debt is then outstanding, Eligible Senior Debt.

     “Eligible Senior Debt” means, at any time in respect of any issuer, each series of
outstanding unsecured long-term indebtedness for money borrowed of such issuer that ranks senior to
the Debentures and (a) upon a bankruptcy, liquidation, dissolution or winding-up of the issuer,
ranks most senior among the issuer’s then outstanding classes of unsecured indebtedness for money
borrowed, (b) is then assigned a rating by at least one NRSRO (provided that this clause
(b) shall apply on a Redesignation Date only if on such date the issuer has outstanding senior
long-term indebtedness for money borrowed that satisfies the requirements of clauses (a), (c) and
(d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount
of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or
investment banking firm or firms acting as underwriters, initial purchasers or placement or
distribution agents. For purposes of this definition as applied to securities with a CUSIP number,
each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is
held by a trust or other intermediate entity established directly or indirectly by the issuer, the
securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a
series of the issuer’s long-term indebtedness for money borrowed that is separate from each other
series of such indebtedness.

     “Eligible Subordinated Debt” means, at any time in respect of any issuer, each series
of the issuer’s then-outstanding unsecured long-term indebtedness for money borrowed that that
ranks senior to the Debentures and (a) upon a bankruptcy, liquidation, dissolution or winding-up of
the issuer, ranks subordinate to the issuer’s then outstanding series of unsecured indebtedness for
money borrowed that ranks most senior upon the issuer’s liquidation, dissolution or winding-up, (b)
is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a
Redesignation Date only if on such date the issuer has outstanding subordinated long-term
indebtedness for money borrowed that satisfies the requirements in clauses (a), (c) and (d) that is
then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less
than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment
banking firm or firms acting as underwriters, initial purchasers or placement or distribution
agents.

     For purposes of this definition as applied to securities with a CUSIP number, each issuance of
long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or
other intermediate entity established directly or indirectly by the issuer, the securities of such
intermediate entity that have) a separate CUSIP number shall be deemed to be

13

 

a series of the issuer’s long-term indebtedness for money borrowed that is separate from each
other series of such indebtedness.

     “Holder” means, as to the Covered Debt then in effect, each holder of such Covered
Debt as reflected on the securities register maintained by or on behalf of the Corporation with
respect to such Covered Debt and each beneficial owner holding through a participant in a clearing
agency.

     “Initial Covered Debt” means the Corporation’s 6.1% senior notes due 2041 (CUSIP No.
416515AP9).

     “Intent-Based Replacement Disclosure” means, as to any security or combination of
securities, that the issuer has publicly stated its intention, either in the prospectus or other
offering document under which such securities were initially offered for sale or in filings with
the Commission made by the issuer under the Securities Exchange Act prior to or contemporaneously
with the issuance of such securities, that the issuer and its subsidiaries, to the extent such
securities provide the issuer with NRSRO equity credit, will redeem, repurchase or defease such
securities only with the proceeds of replacement capital securities that have terms and provisions
at the time of redemption, repurchase or defeasance that are as or more equity-like than the
securities then being redeemed, repurchased or defeased, and which proceeds were raised within 180
days prior to the applicable redemption, purchase or defeasance date.

     “Mandatorily Convertible Preferred Stock” means preferred stock with (a) no prepayment
obligation on the part of the issuer thereof, whether at the election of the holders or otherwise,
and (b) a requirement that the preferred stock converts into common stock of the Corporation within
three years from the date of its issuance at a conversion ratio within a range established at the
time of issuance of the preferred stock, subject to customary anti-dilution adjustments.

     “Mandatory Trigger Provision” means, as to any security or combination of securities,
provisions in the terms thereof or of the related transaction agreements that:

          (a) if the issuer of such securities fails to satisfy one or more financial tests set forth in
the terms of such securities or related transaction agreements and for so long as such failure
continues, prohibits the issuer from making payments of Distributions on such securities from any
source other than from the issuance and sale of APM Qualifying Securities and require the issuer,
or in the case of Qualifying Preferred Stock, at the option of the issuer, permit the issuer, of
such securities (in this definition, the “issuer”) to make payment of Distributions on such
securities, within a two year period beginning on the date of such failure, only pursuant to the
issuance and sale of APM Qualifying Securities, in an amount such that the net proceeds of such
sale are at least equal to the amount of deferred and unpaid Distributions (including without
limitation all deferred and accumulated amounts) on such securities or, in the case of Qualifying
Preferred Stock, current Distributions, and in either case require the application of the net
proceeds of such sale to pay such deferred and unpaid Distributions, or in the case of Qualifying
Preferred Stock, permit the application of the net proceeds of such sale to pay current
Distributions, on those securities, provided that (i) if the Mandatory Trigger Provision
does not require such issuance and sale within one year of such failure, the amount of Common Stock
or

14

 

Qualifying Warrants the net proceeds of which the issuer must apply to pay such Distributions
pursuant to such provision may not exceed the Common Cap, and (ii) the amount of Qualifying
Preferred Stock and then still-outstanding Mandatorily Convertible Preferred Stock the net proceeds
of which the issuer may apply to pay such Distributions pursuant to such provision may not exceed
the Preferred Cap;

          (b) if the provisions described in clause (a) immediately above do not require such issuance
and sale within one year of such failure, include a Repurchase Restriction;

          (c) other than in the case of Qualifying Preferred Stock, prohibit the issuer of such
securities from redeeming or purchasing any of its securities ranking junior to or equally with any
APM Qualifying Securities upon the liquidation, dissolution or winding-up of the Corporation, the
proceeds of which were used to pay deferred Distributions during the relevant deferral period prior
to the date six months after the issuer applies the net proceeds of the sales described in clause
(a) immediately above to pay such deferred Distributions in full; and

          (d) other than in the case of Qualifying Preferred Stock, include a Bankruptcy Claim
Limitation Provision;

provided (and it being understood) that:

     (1) the issuer will not be obligated to issue (or to use Commercially Reasonable Efforts to
issue) APM Qualifying Securities for so long as a Market Disruption Event has occurred and is
continuing;

     (2) if, due to a Market Disruption Event or otherwise, the issuer is able to raise and apply
some, but not all, of the eligible proceeds necessary to pay all deferred Distributions on any
Distribution Date, the issuer will apply any available eligible proceeds to pay accrued and unpaid
Distributions on the applicable Distribution Date in chronological order subject to the Common Cap,
Preferred Cap and Share Cap, as applicable; and

     (3) if the issuer has outstanding more than one class or series of securities under which it
is obligated to sell a type of APM Qualifying Securities and applies some part of the proceeds to
the payment of deferred Distributions, then on any date and for any period the amount of net
proceeds received by the issuer from those sales and available for payment of deferred
Distributions on such securities (in accordance with the Alternative Payment Mechanism) shall be
applied to such securities on a pro rata basis in proportion to the total amounts that are due on
such securities.

     No remedy other than Permitted Remedies shall arise by the terms of such securities or related
transaction agreements in favor of the holders of such securities as a result of the issuer’s
failure to pay Distributions because of the Mandatory Trigger Provision until Distributions have
been deferred for one or more Distribution Periods that total together at least ten years.

     “Market Disruption Events” means the occurrence or existence of any of the following
events or sets of circumstances:

15

 

          (a) trading in securities generally, or the securities of the Corporation specifically, on the
New York Stock Exchange or any other national securities exchange or over-the-counter market on
which the Corporation’s Common Stock is listed or traded, shall have been suspended or materially
disrupted or minimum prices shall have been established on any such exchange or market by the
Commission, the relevant exchange or any other regulatory body or governmental authority having
jurisdiction, and the establishment of such minimum prices materially disrupts or otherwise has a
material adverse effect on trading in, or the issuance and sale of, the Corporation’s Common Stock;

          (b) the Corporation would be required to obtain the consent or approval of its stockholders or
a regulatory body (including, without limitation, any securities exchange) or governmental
authority to issue or sell APM Qualifying Securities pursuant to the Alternative Payment Mechanism
and such consent or approval has not yet been obtained notwithstanding that the Corporation has
used commercially reasonable efforts to obtain the required consent or approval;

          (c) an event occurs and is continuing as a result of which the offering document for the offer
and sale of APM Qualifying Securities would, in the reasonable judgment of the Corporation, contain
an untrue statement of a material fact or omit to state a material fact necessary in order to make
the statements in that offering document, in the light of the circumstances under which they were
made, not misleading and either (i) the disclosure of that event at such time, in the reasonable
judgment of the Corporation, is not otherwise required by law and would have a material adverse
effect on the business of the Corporation or (ii) the disclosure relates to a previously
undisclosed proposed or pending material business transaction, and the Corporation has a bona fide
reason for keeping such transaction confidential or disclosure of such transaction would impede the
ability of the Corporation to consummate such transaction; provided that no single suspension
period resulting from an event described in this clause (c) shall exceed 90 consecutive days and
multiple suspension periods resulting from one or more market disruption events described in this
clause (c) shall not exceed an aggregate of 180 days in any 360-day period;

          (d) the Corporation reasonably believes that the offering document for the offer and sale of
APM Qualifying Securities would not be in compliance with a rule or regulation of the Commission
(for reasons other than those described in clause (c) above), and the Corporation determines that
it is unable to comply with such rule or regulation or such compliance is impractical, provided
that no single suspension period resulting from an event described in this clause (d) shall exceed
90 consecutive days and multiple suspension periods resulting from one or more market disruption
events described in this clause (d) shall not exceed an aggregate of 180 days in any 360-day
period;

          (e) there shall have occurred a material adverse change in general domestic or international
economic, political or financial conditions, including without limitation as a result of terrorist
activities, or the effect of international conditions on the financial markets in the United States
shall be, such that the issuance of or market trading in the APM Qualifying Securities has been
materially disrupted or has ceased;

16

 

          (f) there shall have been an escalation in hostilities involving the United States, there
shall have been a declaration of a national emergency or war by the United States or there shall
have occurred any other national or international calamity or crisis such that the issuance of or
market trading in the APM Qualifying Securities has been materially disrupted or has ceased;

          (g) a material disruption shall have occurred in commercial banking or securities settlement
or clearing services in the United States such that market trading in the APM Qualifying Securities
has been materially disrupted or has ceased; or

          (h) a banking moratorium shall have been declared by federal or state authorities of the
United States such that market trading in the APM Qualifying Securities has been materially
disrupted or has ceased.

     “Market Value” means, on any date, the closing sale price per share of Common Stock
(or if no closing sale price is reported, the average of the bid and ask prices or, if more than
one in either case, the average of the average bid and the average ask prices) on that date as
reported in composite transactions by the New York Stock Exchange or, if the Common Stock is not
then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange
on which the Common Stock is listed; if the Common Stock is not listed on any U.S. securities
exchange on the relevant date, the market price will be the average of the mid-point of the bid and
ask prices for the Common Stock on the relevant date submitted by at least three nationally
recognized independent investment banking firms selected by the Corporation for this purpose.

     “Measurement Date” means, with respect to any repayment, redemption, defeasance or
purchase of the Debentures (a) on or prior to the Scheduled Maturity Date, the date that is 180
days prior to delivery of notice of such repayment, defeasance or redemption or the date of such
purchase and (b) after the Scheduled Maturity Date, the date that is 90 days prior to the delivery
of notice of such repayment, redemption or defeasance or the date of such purchase, except that, if
during the 90 day (or any shorter) period preceding such date, proceeds were received by the
Corporation or any of its Subsidiaries from the sale of Replacement Capital Securities to Persons
other than the Corporation and its Subsidiaries but no repayment, redemption, defeasance or
purchase of the Debentures was made in connection therewith, the measurement date shall be the date
upon which such preceding 90-day (or shorter) period began.

     “Measurement Period” with respect to any notice date or purchase date means the period
(i) beginning on the Measurement Date with respect to such notice date or purchase date and (ii)
ending on such notice date or purchase date, as applicable. Measurement Periods cannot run
concurrently.

     “No Payment Provision” means a provision or provisions in the transaction documents
for securities (referred to in this definition as “such securities”) that:

          (a) include an Alternative Payment Mechanism; and

17

 

          (b) permit the issuer of such securities, in its sole discretion, to defer in whole or in part
payment of Distributions on such securities for one or more consecutive Distribution
Periods of up to five years or, if a Market Disruption Event has occurred and is continuing,
ten years, without any remedy other than Permitted Remedies.

     “Non-Cumulative” means, with respect to any securities, that the issuer may elect not
to make any number of periodic Distributions without any remedy arising under the terms of the
securities or related agreements in favor of the holders, other than one or more Permitted
Remedies.

     “NRSRO” means a nationally recognized statistical rating organization within the
meaning of Section 3(a)(62) of the Securities Exchange Act.

     “Optional Deferral Provision” means, as to any securities, provisions in the terms
thereof or of the related transaction agreements to the effect of either (a) or (b) below:

          (a) (i) the issuer of such securities may, in its sole discretion, defer in whole or in part
payment of Distributions on such securities for one or more consecutive Distribution Periods up to
five years or, if a Market Disruption Event has occurred and is continuing, ten years, without any
remedy other than Permitted Remedies and (ii) such securities are subject to an Alternative Payment
Mechanism (provided that such Alternative Payment Mechanism need not apply during the first five
years of any deferral period and need not include a Common Cap, Preferred Cap, Share Cap,
Bankruptcy Claim Limitation or Repurchase Restrictions); or

          (b) the issuer of such securities may, in its sole discretion, defer in whole or in part
payment of Distributions on such securities for one or more consecutive Distribution Periods up to
ten years, without any remedy other than Permitted Remedies.

     “Permitted Remedies” means, with respect to any securities, one or more of the
following remedies:

          (a) rights in favor of the holders of such securities permitting such holders to elect one or
more directors of the issuer (including any such rights required by the listing requirements of any
stock or securities exchange on which such securities may be listed or traded); and

          (b) complete or partial prohibitions on the issuer paying Distributions on or purchasing
common stock or other securities that rank equally with or junior as to Distributions to such
securities for so long as Distributions on such securities, including deferred Distributions,
remain unpaid.

     “Person” means any individual, corporation, partnership, joint venture, trust, limited
liability company, corporation or other entity, unincorporated organization or government or any
agency or political subdivision thereof.

     “Preferred Cap” has the meaning specified in the definition of Alternative Payment
Mechanism.

18

 

     “Qualifying Preferred Stock” means Non-Cumulative perpetual preferred stock issued by
the Corporation that (a) ranks equally with or junior to all other outstanding preferred stock of
the issuer, other than a preferred stock that is issued or issuable pursuant to a
stockholders’ rights plan or similar plan or arrangement, and (b) contains no remedies other than
Permitted Remedies and either (i) is subject to Intent-Based Replacement Disclosure and has a
provision that prohibits the issuer from making any Distributions thereon upon the Corporation’s
failure to satisfy one or more financial tests set forth therein or (ii) is subject to a Qualifying
Replacement Capital Covenant; provided, however, that if such Qualifying Preferred
Stock includes Intent-Based Replacement Disclosure and is structured at the time of issuance with a
distribution rate step-up of more than 25 basis points prior to the 25th anniversary of such
issuance, then such Qualifying Preferred Stock shall, in lieu of Intent-Based Replacement
Disclosure, be subject to a replacement capital covenant that will remain in effect until at least
the Scheduled Maturity Date and that is substantially similar to this Replacement Capital Covenant.

     “Qualifying Replacement Capital Covenant” means (a) a replacement capital covenant
that is substantially similar to this Replacement Capital Covenant applicable to the Debentures or
(b) a replacement capital covenant, as identified by the Corporation’s Board of Directors, or a
duly authorized committee thereof, acting in good faith and in its reasonable discretion and
reasonably construing the definitions and other terms of this Replacement Capital Covenant, (i)
entered into by a company that at the time it enters into such replacement capital covenant is a
reporting company under the Securities Exchange Act and (ii) that restricts the related issuer and
its subsidiaries from repaying, redeeming or purchasing identified securities except out of the
proceeds from the sale of specified Replacement Capital Securities that have terms and provisions
at the time of repayment, redemption or purchase that are as or more equity-like than the
securities then being repaid, redeemed or purchased, raised within 180 days prior to the applicable
repayment, redemption or purchase date; provided that the term of such Qualifying Replacement
Capital Covenant shall be determined at the time of issuance of the related Replacement Capital
Securities taking into account the other characteristics of such securities.

     “Qualifying Replacement Securities” means securities or a combination of securities
(other than Common Stock, rights to acquire Common Stock, Mandatorily Convertible Preferred Stock
or Debt Exchangeable for Common Equity) that, in the determination of the Corporation’s Board of
Directors (or a duly authorized committee thereof) reasonably construing the definitions and other
terms of this Replacement Capital Covenant, meet one of the following criteria:

          (a) in connection with any repayment, redemption, defeasance or purchase of Debentures prior
to October 15, 2018:

   (i) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon the liquidation, dissolution or winding-up of
the Corporation, (2) have no maturity or a maturity of at least 60 years and (3)(A) are
Non-Cumulative and are subject to a Qualifying Replacement Capital Covenant or have a No
Payment Provision and are subject to a Qualifying Replacement Capital Covenant or (B) have a
Mandatory Trigger Provision and have either an Optional Deferral Provision or a No Payment
Provision and are subject to Intent-Based Replacement Disclosure; or

19

 

   (ii) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon the liquidation, dissolution or winding-up
of the Corporation, (2) have no maturity or a maturity of at least 40 years, (3) are
subject to a Qualifying Replacement Capital Covenant and (4) have a Mandatory Trigger
Provision and an Optional Deferral Provision; or

   (iii) shares of preferred stock issued by the Corporation or any of its Subsidiaries
that are (1) Non-Cumulative, (2) have no prepayment obligation on the part of the issuer
thereof, whether at the election of the Holders or otherwise, (3) have no maturity or a
maturity of at least 60 years and either (A) are subject to a Qualifying Replacement Capital
Covenant or (B) have a Mandatory Trigger Provision and are subject to Intent-Based
Replacement Disclosure; or

          (b) in connection with any repayment, redemption, defeasance or purchase of Debentures on or
after October 15, 2018 and prior to October 15, 2038:

   (i) any securities described under clause (a) of this definition that would be
Qualifying Replacement Securities prior to October 15, 2018;

   (ii) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon the liquidation, dissolution or winding-up of
the Corporation, (2) have no maturity or a maturity of at least 60 years, (3) are subject to
a Qualifying Replacement Capital Covenant and (4) have an Optional Deferral Provision;

   (iii) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon a liquidation, dissolution or winding-up of
the Corporation, (2) are Non-Cumulative or have a No Payment Provision, (3) have no maturity
or a maturity of at least 60 years and (4) are subject to Intent-Based Replacement
Disclosure;

   (iv) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon the liquidation, dissolution or winding-up of
the Corporation, (2) have no maturity or a maturity of at least 40 years and (3) (A) are
Non-Cumulative, or have a No Payment Provision, and subject to a Qualifying Replacement
Capital Covenant or (B) have a Mandatory Trigger Provision and an Optional Deferral
Provision and are subject to Intent-Based Replacement Disclosure;

   (v) securities issued by the Corporation or any of its Subsidiaries that (1) upon the
liquidation, dissolution or winding-up of the Corporation, rank junior to all of the senior
and subordinated debt of the Corporation other than the Debentures and securities that rank
equally with the Debentures upon the liquidation, dissolution or winding up of the
Corporation, (2) have a Mandatory Trigger Provision and an Optional Deferral Provision and
are subject to Intent-Based Replacement Disclosure and (3) have no maturity or a maturity of
at least 60 years;

20

 

   (vi) cumulative preferred stock issued by the Corporation or any of its Subsidiaries
that (1) has no prepayment obligation on the part of the issuer thereof, whether at the
election of the holders or otherwise, (2) has no maturity or a maturity of at least 60 years
and (3) is subject to a Qualifying Replacement Capital Covenant; or

   (vii) other securities issued by the Corporation or any of its Subsidiaries that (1)
rank upon the liquidation, dissolution or winding-up of the Corporation equally with or
junior to the Debentures and (2) have no maturity or a maturity of at least 30 years, are
subject to a Qualifying Replacement Capital Covenant and have a Mandatory Trigger Provision
and an Optional Deferral Provision; or

          (c) in connection with any repayment, redemption, defeasance or purchase of Debentures at any
time after October 15, 2038:

   (i) any securities described under clause (b) of this definition that would be
Qualifying Replacement Securities prior to October 15, 2038;

   (ii) securities issued by the Corporation or any of its Subsidiaries that (1) rank
equally with or junior to the Debentures upon the liquidation, dissolution or winding-up of
the Corporation, (2) either (A) have no maturity or a maturity of at least 60 years and are
subject to Intent-Based Replacement Disclosure or (B) have no maturity or a maturity of at
least 40 years and are subject to a Qualifying Replacement Capital Covenant and (C) have an
Optional Deferral Provision;

   (iii) securities issued by the Corporation or any of its Subsidiaries that (1) rank
junior to all of the senior and subordinated debt of the Corporation other than the
Debentures and any other securities that rank equally with the Debentures upon the
liquidation, dissolution or winding-up of the Corporation, (2) have a Mandatory Trigger
Provision, an Optional Deferral Provision and are subject to Intent-Based Replacement
Disclosure and (3) have no maturity or a maturity of at least 40 years; or

   (iv) preferred stock issued by the Corporation or any of its Subsidiaries that either
(1) has no maturity or a maturity of at least 60 years and is subject to Intent-Based
Replacement Disclosure or (2) has a maturity of at least 40 years and is subject to a
Qualifying Replacement Capital Covenant,

provided, however, that if any of the securities described in the foregoing clauses
(a), (b) and (c) is structured at the time of issuance with a distribution rate step-up (whether
interest or dividend) of more than 25 basis points prior to the 25th anniversary of such issuance,
then such security shall be subject to a Qualifying Replacement Capital Covenant that will remain
in effect until at least the Scheduled Maturity Date.

     “Qualifying Warrants” means any net share settled warrants to purchase the Common
Stock of the Corporation that (a) have an exercise price greater than the Market Value of the
Common Stock of the Corporation on the date of sale, (b) the Corporation is not entitled to redeem
for cash and (c) the holders of which are not entitled to require the Corporation to repurchase for
cash in any circumstances.

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     “Redesignation Date” means, as to the Covered Debt in effect at any time, the earliest
of (a) the date that is two years prior to the final maturity date of such Covered Debt, (b) if the
Corporation elects to redeem, or the Corporation or a Subsidiary of the Corporation elects to
purchase, such Covered Debt either in whole or in part with the consequence that after giving
effect to such redemption or purchase the outstanding principal amount of such Covered Debt is
less than $100,000,000, the applicable redemption or purchase date and (c) if such Covered
Debt is not Eligible Subordinated Debt of the Corporation, the date on which the Corporation issues
long-term indebtedness for money borrowed that is Eligible Subordinated Debt.

     “Replacement Capital Covenant” has the meaning specified in the introduction to this
instrument.

     “Replacement Capital Securities” means

          (a) Common Stock and rights to acquire Common Stock;

          (b) Mandatorily Convertible Preferred Stock;

          (c) Debt Exchangeable for Common Equity; and

          (d) Qualifying Replacement Securities.

     “Repurchase Restrictions” has the meaning specified in clause (c) of the definition of
“Alternative Payment Mechanism.”

     “Scheduled Maturity Date” means October 15, 2038.

     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended from
time to time, including any successor statute.

     “Share Cap” means, with respect to any securities or combination of securities, a
provision limiting the total number of shares of Common Stock, Qualifying Warrants and Mandatorily
Convertible Preferred Stock that may be issued by the Corporation pursuant to the Alternative
Payment Mechanism applicable to such securities such that the number of shares of Common Stock
issued or issuable on the exercise or conversion of all Qualifying Warrants and Mandatorily
Convertible Preferred Shares issued by the Corporation pursuant to such Alternative Payment
Mechanism shall not exceed a specified number of shares of Common Stock, provided that the
product of such Share Cap and the Market Value of the Common Shares as of the date of issuance of
such Qualifying Replacement Securities shall not represent a lower proportion of the aggregate
principal or liquidation amount, as applicable, of such securities than the product of the Share
Cap applicable to the Debentures and the Current Stock Market Price of the Common Stock as of the
date of issuance of such Debentures represents of the aggregate principal amount of such Debentures
at the time of issuance.

     “Subordinated Indenture” means the Junior Subordinated Debt Indenture, dated as of
June 6, 2008, between the Corporation and The Bank of New York Mellon Trust Company, N.A. (formerly
known as The Bank of New York Trust Company, N.A.), as trustee, as amended and

22

 

supplemented by the Supplemental Indenture and as further amended and supplemented from time to time in accordance with
its terms.

     “Supplemental Indenture” means the Second Supplemental Indenture, dated as of October
17, 2008, between the Corporation and The Bank of New York Mellon Trust Company,
N.A. (formerly known as The Bank of New York Trust Company, N.A.), as trustee, as amended and
supplemented from time to time in accordance with its terms.

     “Subsidiary” means, at any time, any Person the shares of stock or other ownership
interests of which ordinary have voting power to elect a majority of the board of directors or
other managers of such Person are at the time owned or the management and policies of which are
otherwise at the time controlled, directly or indirectly through one or more intermediaries
(including other Subsidiaries) or both, by another Person.

     “Termination Date” has the meaning specified in Section 4(a).

23exv10w1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”) is made and entered into as of October 10, 2008 by
and between John McIlwaine (“Executive”) and PureRay Corporation, a Georgia corporation (“PureRay”
or the “Company”).

R E C I T A L S

     The Company desires to employ Executive and to have the benefit of his skills and services,
and Executive desires to accept employment with the Company, on the terms and conditions set forth
herein.

     NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set
forth herein, and the performance of each, the parties hereto, intending to be legally bound, agree
as follows:

AGREEMENTS

     1. Term. The term of this Agreement shall begin on the date first written above (the
“Effective Date”) and end on January 31, 2010 (the “Initial Term”), unless renewed or earlier
terminated in accordance with Section 6 of this Agreement (the Initial Term and any renewal thereof
or earlier termination in accordance herewith is referred to as the “Term”). If not earlier
terminated, this Agreement shall automatically renew for additional one (1) year period(s)
beginning on February 1, 2010 and on each anniversary thereof unless at least ninety (90) days
before the end of the Initial Term or the end of each applicable renewal Term the Company or
Executive gives written notice to the other of its or his intent not to renew the Agreement.

     2. Position and Duties. Subject to terms set forth herein, Company agrees to continue
to employ Executive in the position of Chief Operating Officer and Executive hereby accepts the
continuation of such employment in each case on the terms and subject to the conditions set forth
herein effective as of the Effective Date. During the term of his employment with Company,
Executive will devote his best efforts and substantially all of his business time and attention to
the business of Company, except for vacation periods and reasonable periods of illness or other
incapacities permitted by Company’s general employment policies.

     3. Compensation. For all services rendered by Executive during the Term, the Company
shall compensate Executive as follows:

          (a) Base Salary. As of the Effective Date, the gross annual salary payable to Executive shall
be $210,000 per year, payable on a regular basis in accordance with the Company’s standard payroll
procedures, but not less than monthly (such annual salary is referred to herein as the “Base
Salary”). Effective on the earlier of (i) January 1, 2009 or (ii) the date additional funding of
not less than $1,000,000 is secured from the date of this Agreement, Executive’s Base Salary shall
increase to $240,000 per year. The Board, or Compensation Committee of the Board, will review
Executive’s performance annually and make increases to such Base Salary if, in its discretion, any
such increase is warranted; provided, however, that executive’s Base Salary shall be increased
annually by not less than the cost-of-living increase for federal Social Security benefits (equal
to the

1

 

percentage increase in the
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third
quarter of the previous year to the third quarter of the then current year).

          (b) Annual Bonus. Executive shall be entitled to participate in any executive bonus plans
approved by the Board.

          (c) Perquisites, Benefits, and Other Compensation. Executive will be eligible to participate
on the same basis as similarly situated employees in Company’s benefit plans in effect from time to
time during Executive’s employment with Company. All matters of eligibility for coverage or
benefits under any benefit plan shall be determined in accordance with the provisions of such plan.
Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion;
provided, however, that Executive shall receive, at no cost to Executive, full medical and dental
coverage for himself and his family, and no less than four (4) weeks of paid vacation per year.

          (d) Stock Options. Subject to the terms of a stock option agreement entered into between
Executive and the Company, Executive shall be granted incentive stock options to purchase a number
of shares of the Company’s common stock to be agreed upon by the Company and Executive pursuant to
the Company’s 2008 Stock Option and Incentive Plan. Such options shall (among other reasonable and
customary terms) provide that (i) the options shall expire on the 10th anniversary of
the grant date if not exercised in full before such anniversary date; (ii) except as otherwise
provided in this Agreement, Executive shall forfeit all unvested options if he terminates his
employment without Good Reason or is terminated for Good Cause; (iii) the options shall not be
transferable except in accordance with the terms of the Plan and shall vest in accordance with the
vesting schedule in the stock option agreement between the Executive and the Company.

     4. Expense Reimbursement. The Company shall reimburse Executive for (or, at the
Company’s option, pay) all business travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his services hereunder during the Term. All reimbursable expenses
shall be appropriately documented in reasonable detail by Executive upon submission of any request
for reimbursement, and in a format and manner consistent with the Company’s expense reporting
policies and applicable federal and state tax record keeping requirements.

     5. Place of Performance. Executive’s primary office location shall be the Company’s
offices at 3490 Piedmont Rd. Suite 1120, Atlanta, Georgia 30305. Executive shall not be required
to relocate his principal office more than 50 miles from this location. Executive understands that
his responsibilities may involve travel.

     6. Termination; Rights on Termination. Executive’s employment and the Term may be
terminated in any one of the following ways:

          (a) Termination.

               (i) Termination by the Company for Good Cause. The Company may terminate the Term and
Executive’s employment for “Good Cause,” effective thirty (30) days after the Company provides
written notice to the Executive of the facts and circumstances that it contends constitute Good
Cause. “Good Cause” shall mean: (a) Executive’s material breach of this Agreement or any other
written agreement between Executive and the Company, which Executive fails to cure within ten (10)
days of having received notice from the Company of the facts and

2

 

 circumstances it contends
constitutes such breach; (b) Executive’s gross negligence in the performance or nonperformance
of any of Executive’s duties or responsibilities, which Executive fails to cure within ten (10)
days of having received notice from the Company of the facts and circumstances it contends
constitutes such gross negligence; or (c)  Executive’s fraud with respect to the business or
affairs of the Company, which Executive fails to cure within ten (10) days of having received
notice from the Company of the facts and circumstances it contends constitutes such conduct; (d)
Executive’s material breach of the terms of the Employment Terms Memo attached hereto as
Exhibit A (the “Employment Terms Memo”); or (e) Executive’s conviction of, or plea of no
contest to, any felony or to any misdemeanor involving theft or fraud.

               (ii) Termination by the Company Without Good Cause. At any time during the Term, the Company
may, without Good Cause and for any reason whatsoever, terminate the Executive’s employment,
effective ninety (90) days after written notice is provided to Executive.

               (iii) Termination by Executive for Good Reason. Executive may terminate the Term and his
employment hereunder for Good Reason (as defined below), effective ninety (90) days after he
provides written notice to the Company of (a) the facts and circumstances constituting Good Reason,
and (b) his intent to terminate the Term and his employment for Good Reason.

               (iv) Termination by the Executive Without Good Reason. Executive may terminate his employment
hereunder without Good Reason, effective thirty (30) days after providing written notice to the
Company. “Good Reason” shall mean any of the following, which the Company fails to cure within ten
(10) days of having received written notice from Executive of the facts and circumstances that he
contends constitutes Good Reason: (a) a material breach of this Agreement by the Company; (b) a
material change in Executive’s position with the Company which reduces his level of responsibility;
(c) a reduction in Executive’s Base Salary, as may be increased pursuant to Section 3(a) hereof,
below 90%; or (d) the occurrence of a Change in Control.

               (v) Change in Control. If any payments or benefits to be provided pursuant to this Agreement
are determined to be “deferred compensation” (as such term is defined in Section 409A of the
Internal Revenue Code), then “Change in Control” shall have the same meaning as under Section 409A
for all purposes relating to such payment or benefit. Otherwise, “Change in Control” shall mean
the occurrence of any of the following events with respect to the Company:

3

 

                    A. The acquisition by any Person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)) of Beneficial Ownership (as defined
in Rule 13d-3 promulgated under the 1934 Act) of 50% or more of either (i) the then outstanding
shares of common stock of the Company (“Stock”), or (ii) the combined voting power of the
outstanding voting securities of the Company entitled to vote generally in the election of
Directors; provided, however, that for purposes of this subsection, the following transactions
shall not constitute a Change of Control: (A) any acquisition of such Stock or voting power
directly from the Company through a public offering of shares of Stock of the Company, (B) any
acquisition of such Stock or voting power by the Company, (C) any acquisition of such Stock or
voting power by any employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition of such Stock or voting power by
any Person who, prior to such acquisition, had Beneficial Ownership of 50% or more of (i) the then
outstanding shares of Stock, or (ii) the combined voting power of the outstanding voting securities
of the Company entitled to vote generally in the election of Directors, or (E) any acquisition by
any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (B) of this definition;

                    B. The consummation of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company (“Business Combination”) unless, following
such Business Combination: (i) all or substantially all of the individuals and entities who were
the Beneficial Owners, respectively, of the outstanding shares of Stock of the Company and the
outstanding voting securities of the Company immediately before such Business Combination
Beneficially Own, directly or indirectly, more than 50% of, respectively, the then outstanding
shares of Stock and the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of Directors, as the case may be, of the company resulting from or
surviving such Business Combination (including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) in substantially the same proportions as their
ownership immediately before such Business Combination of the outstanding shares of Stock and the
outstanding voting securities of the Company, as the case may be; and (ii) no Person (excluding any
corporation resulting from such Business Combination, or any employee benefit plan (or related
trust) of the Company or such corporation resulting from or surviving such Business Combination)
Beneficially Owns, directly or indirectly, 50% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from or surviving such Business Combination or
the combined voting power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed as to the Company before the Business Combination; and
(iii) at least a simple majority of the members of the Board resulting from or surviving such
Business Combination were members of the Company’s Board at the time of the execution of the
initial agreement, or of the action of the Company’s Board, providing for such Business
Combination; or

                    C. The unconditional approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company (except for a liquidation of the Company that also constitutes a
Business Combination that complies with (i), (ii) and (iii) of subsection (B) of this definition).

          (b) Executive’s Rights on Termination

               (i) If Executive’s employment is terminated by the Company for Good

4

 

Cause or by Executive without Good Reason, no compensation or benefits shall be payable to Executive
after the date of termination, except as provided in Section 6(d). The Company may request that
Executive not report to work during any notice period set forth in Section 6(a) if Executive’s
employment is terminated by the Company for Good Cause or by Executive without Good Reason.

               (ii) If Executive’s employment is terminated by the Company without Good Cause or by Executive
for Good Reason, Executive shall be entitled to the following payments and benefits from Company:

	 	(A)	 	a lump sum payment equal to the total
of all cash compensation that otherwise would have been paid to
Executive during the greater duration of (i) the remainder of the
then current Term or (ii) twelve (12) months (the “Severance
Period”);
	 
	 	(B)	 	continuation of all health and dental
benefits then in effect for Executive and his family at the
Company’s expense throughout the Severance Period;
	 
	 	(C)	 	continuation of Executive’s car allowance throughout the Severance Period;
	 
	 	(D)	 	immediate vesting of any and all of Executive’s unvested stock options,
restricted stock or warrants, if applicable; and
	 
	 	(E)	 	payment of all commissions and bonuses under this Agreement as if the
Executive had remained employed by Company through the end of the Severance Period.

The continued payment of any and all benefits set forth herein and applicable
immediate vesting of any unvested stock options pursuant to this Section 6(b)(ii) are
conditioned on Executive’s continued compliance with the terms and conditions of the
Employment Term Memo and the execution by Executive of a general and absolute
liability release agreement by Executive of any and all claims Executive has or may
have that arose at or prior to the execution of such release agreement, all in form
and substance reasonably satisfactory to the Company.

          (c) Termination for Executive’s Death or Disability. If Executive dies or becomes physically
or mentally unable to carry out his duties for the Company (with or without reasonable
accommodation and as determined in good faith by the Board, whose determination shall be final and
binding), the Term and Executive’s employment shall immediately terminate and the Company shall pay
Executive or his estate the payments and benefits outlined in Section 6(b)(ii) as if Executive had
terminated this agreement with Good Reason.

          (d) Payment Through Termination. Upon termination of Executive’s employment for any reason
provided for in this Agreement, Executive shall be entitled to receive all compensation earned and
all benefits and reimbursements due through the effective date of termination plus any other
payments and benefits as contemplated by this Section 6. In addition, the Company shall offer
Executive and his qualified dependents continued coverage under the Company’s health insurance
plan, as required by COBRA, at Executive’s cost, so long as Executive or his dependents are
eligible for COBRA coverage. No other compensation or benefits will be due or payable to Executive
subsequent to termination, except as provided by this Section 6 or required by law.

5

 

          (e) Provisions that Survive Termination of Agreement. All rights and obligations of the
Company and Executive under this Agreement shall cease as of the effective date of termination,
except that the Company’s obligations under Section 6 and Executive’s obligations under Section 7
and as set forth in the Employment Terms memo shall survive such termination in accordance with
their respective terms.

     7. Employment Covenants.

          (a) Agreement. As a condition of employment, Executive agrees to execute and abide by the
Employment Terms Memorandum attached hereto as Exhibit A (the “Employment Terms Memo”).

          (b) Remedies. Executive’s duties under the Employment Terms Memo shall survive termination of
his employment with Company. The failure by Executive to abide by the Employment Terms Memo during
and after the termination of Executive’s employment with Company will, among other things,
constitute a material breach of this Agreement. Executive acknowledges that a remedy at law for
any breach or threatened breach by him of the provisions of the Employment Terms Memo would be
inadequate, and he therefore agrees that Company shall be entitled to injunctive relief in case of
any such breach or threatened breach.

          (c) No Conflicting Agreements. Executive represents and warrants that Executive’s employment
by Company will not conflict with any prior employment or consulting agreement or other agreement
with any third party, and that Executive will perform his duties to Company without violating any
such agreement. Executive represents and warrants that Executive does not possess confidential
information arising out of prior employment, consulting, or other third party relationships, which
would be used in connection with Executive’s employment by Company, except as expressly authorized
by that third party. During Executive’s employment by Company, Executive will use in the
performance of Executive’s duties only information which is generally known and used by persons
with training and experience comparable to Executive’s own, common knowledge in the industry,
otherwise legally in the public domain, or obtained or developed by Company or by Executive in the
course of Executive’s work for Company.

     8. Cooperation with Company.

          (a) Cooperation Obligation. During and after the term of Executive’s employment, Executive
will cooperate with Company in responding to the reasonable requests of Company’s Chairman of the
Board, CEO or legal counsel, as applicable, in connection with any and all existing or future
litigation, arbitrations, mediations or investigations brought by or against Company, or its or
their respective affiliates, agents, officers, directors or employees, whether administrative,
civil or criminal in nature, in which Company reasonably deems Executive’s cooperation necessary or
desirable. In such matters, Executive agrees to provide Company with reasonable advice, assistance
and information, including offering and explaining evidence, providing sworn statements, and
participating in discovery and trial preparation and testimony. Executive also agrees to promptly
send Company copies of all correspondence (for example, but not limited to, subpoenas) received by
Executive in connection with any such legal proceedings, unless Executive is expressly prohibited
by law from so doing.

6

 

          (b) Expenses. Company will reimburse Executive for reasonable out-of-pocket expenses
(including but not limited to legal expenses) incurred by Executive as a result of his cooperation
with the
obligations described in Section 8(a), within thirty (30) days of the presentation of
appropriate documentation thereof, in accordance with Company’s standard reimbursement policies and
procedures.

     9. Assignment; Binding Effect. Executive understands that he has been selected for
employment by the Company on the basis of his personal qualifications, experience and skills.
Executive agrees, therefore, that he cannot assign all or any portion of his performance under this
Agreement. The Company may assign this Agreement only to the purchaser of substantially all of the
assets of the Company, provided that any such assignee shall assume this Agreement in a writing
delivered to Executive. Subject to the preceding two sentences, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their respective heirs, legal
representatives, successors and assigns.

     10. Mediation and Arbitration.

          (a) Mediation. Any controversy or claim against Executive or the Company or any of its
officers, directors, employees or agents arising from, out of or relating to this Agreement, the
breach thereof (other than controversies or claims arising from, out of or relating to the
provisions in Exhibit A with respect to which the Company may seek injunctive and/or other
equitable relief in a court of competent jurisdiction as set forth in Section 7(b)), or the
employment or termination thereof of Executive by the Company which would give rise to a claim
under federal, state or local law (including but not limited to claims based in tort or contract,
claims for discrimination under state or federal law, and/or claims for violation of any federal,
state or local law, statute or regulation) (“Claims”), shall be submitted to an impartial mediator
(“Mediator”) selected jointly by the parties. Both parties shall attend a mediation conference and
attempt to resolve any and all Claims.

          (b) Selection of Arbitrator. If the parties are not able to resolve all Claims, any
unresolved Claims, including any dispute as to whether a matter constitutes a Claim which must be
submitted to arbitration, shall be determined by final and binding arbitration in Atlanta, Georgia
in accordance with the Model Employment Dispute Resolution Rules (“Rules”) of the American
Arbitration Association, by a panel of three (3) experienced employment arbitrators licensed to
practice law in accordance with the Rules. One (1) arbitrator shall be selected by the Company,
one (1) arbitrator shall be selected by the Executive, and one (1) arbitrator shall be selected by
the two (2) arbitrators selected by the parties.

          (c) Arbitration Procedures. A demand for arbitration shall be made within a reasonable time
after the Claim has arisen. In no event shall the demand for arbitration be made after the date
when institution of legal and/or equitable proceedings based on such Claim would be barred by the
applicable statute of limitations. Each party to the arbitration will be entitled to be
represented by counsel and will have the opportunity to take one deposition of an opposing party or
witness before the arbitration hearing. By mutual agreement of the parties, additional depositions
may be taken. The arbitrator shall have the authority to hear and grant a motion to dismiss and/or
for summary judgment, applying the standards governing such motions under the Federal Rules of
Civil Procedure. Each party shall have the right to subpoena witnesses and documents for the
arbitration hearing. A court reporter shall record all arbitration proceedings.

          (d) Damages, Fees and Costs. With respect to any Claim brought to arbitration hereunder,
either party may be entitled to recover whatever damages would otherwise be available

7

 

to that party
in any legal proceeding based upon the federal and/or state law applicable to the matter and as
specified by Section 16. The decision of the arbitrator may be entered and enforced in any court
of competent
jurisdiction by either the Company or Executive. Except as otherwise awarded by the
arbitrator, each party shall pay the fees of their respective attorneys, the expenses of their
witnesses and any other expenses connected with presenting their Claim or defense. Except as
otherwise awarded by the arbitrator, other costs of the arbitration, including the fees of the
Mediator, the arbitrator, the cost of any record or transcript of the arbitration, administrative
fees, and other fees and costs, shall be borne equally by the parties, one-half by Executive, on
the one hand, and one-half by the Company, on the other hand. Should Executive or the Company
pursue any dispute or matter covered by this Section by any method other than said arbitration, the
responding party shall be entitled to recover from the other party all damages, costs, expenses,
and attorneys’ fees incurred as a result of such action. The provisions contained in this Section
10 shall survive the termination and/or expiration of this Agreement.

          (e) Acceptance of Arbitration. The parties indicate their acceptance of the foregoing
arbitration requirement by initialing below:

	 	 	 	 	 	 	 	 	 
	 

	 	JW 

For the Company
	 	 
	 	SM 

Executive
	 	 

     11. Complete Agreement; Waiver; Amendment. This Agreement and its exhibits, together with the
Employment Terms Memo and that certain stock option agreement dated as of                      by and between
Company and Executive, constitute the entire agreement between Executive and Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this subject matter.
It is entered into without reliance on any promise or representation other than those expressly
contained herein, and it cannot be modified or amended except in a writing signed by an officer of
Company other than Executive. This written Agreement may not be later modified except by a further
writing signed by Executive and a duly authorized officer of the Company, and no term of this
Agreement may be waived except by a writing signed by the party waiving the benefit of such term.

     12. Counterparts. This Agreement may be executed in separate counterparts, any one of
which need not contain signatures of more than one party, but all of which taken together will
constitute one and the same Agreement.

     13. Notice. Any notices provided hereunder must be in writing and shall be deemed
effective upon the earlier of personal delivery (including personal delivery by fax) or the next
day after sending by overnight courier, addressed as follows:

	 	 	 	 	 
	 

	 	To the Company:
	 	PureRay Corporation
	 

	 	 	 	3490 Piedmont Road, Suite 1120
	 

	 	 	 	Atlanta, Georgia 30305
	 

	 	 	 	Attention: CEO
	 

	 	 	 	Fax: (404) 869-6296
	 
	 	 	 	 
	 

	 	To the Executive:
	 	John McIlwaine
	 

	 	 	 	8575 High Hampton Chase
	 

	 	 	 	Alpharetta, Georgia 30022

8

 

	 	 	 	 	 
	 

	 	 	 	Fax: 678-393-9989

     14. Severability; Headings. If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by the portion held
invalid or inoperative. The section headings are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent of the Agreement or of any part
hereof.

     15. Construction. No provision of this Agreement shall be construed against or
interpreted to the disadvantage of Executive or the Company by any court or the government or
judicial authority by reason of Executive or the Company having or being deemed to have structured
or drafted such provision of this Agreement.

     16. Governing Law. This Agreement shall in all respects be governed by and construed
in accordance with the laws of the State of Georgia, not including the choice-of-law rules thereof.
Subject to the arbitration provisions in Section 10, the parties hereto agree that the state or
federal courts in the State of Georgia shall have personal jurisdiction over them with respect to,
and shall be the exclusive forum for the resolution of, any matter or controversy arising from this
Agreement. Service of a summons and complaint concerning any such matter or controversy may, in
addition to any other lawful means, be effected by sending a copy of such summons and complaint by
certified mail to the party to be served as specified in Section 13 hereof.

9

 

          In Witness Whereof, the parties have executed this Agreement on the day and year
first above written.

	 	 	 	 	 	 	 	 	 	 	 
	PURERAY CORPORATION:	 	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Jefrey M. Wallace	 	 	 	By:	 	/s/ John McIlwaine	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	Print Name: Jefrey M. Wallace	 	 	 	Print Name: John McIlwaine	 	 
	Title: Chief Executive Officer, President
and 

          Secretary	 	 	 	 	 	 	 	 

10

 

Exhibit A

EMPLOYMENT TERMS MEMORANDUM

This Employment Terms Memorandum (“Agreement”) is effective as of October 10, 2008 by and between
PureRay Corporation (“PureRay”), a Washington State corporation, and the Recipient named below (the
“Recipient”). As a condition to Recipient’s continued Engagement (as defined herein) by PureRay,
PureRay is requiring Recipient to enter into this Agreement. By signing this Agreement, the
Recipient acknowledges the receipt of valuable consideration provided by PureRay in exchange for
the obligations assured hereunder, accepts this condition to its Engagement and specifically agrees
as follows:

1. Proprietary Information:

     (a) The following terms used in this Agreement shall have the following meanings: (i)
“Intellectual Property” means all works, including literary works, pictorial, graphic and
sculptural works, architectural works, works of visual art, and any other work that may be the
subject matter of copyright protection (including computer programs); advertising and marketing
concepts; information; data; formulas; designs; models; drawings; computer programs, including all
documentation, related listings, design specifications, and flowcharts; trade secrets; any
inventions, including all processes, machines, manufactures, compositions of matter, designs and
any other invention whether patentable or not, as well as all statutory protection obtained or
obtainable thereon, patents, patent applications, patent disclosures; trademarks, service marks,
trade dress, trade names, logos, corporate names, Internet domain names, URLs, and registrations
and applications for the registration thereof, together with all of the goodwill associated
therewith; unregistered and registered design rights and any applications for registration thereof;
database rights; waivable or assignable rights of publicity or moral rights of patents, copyrights,
or trademarks; and any right to bring suit or collect damages for the infringement,
misappropriation or violation of the foregoing, anywhere in the world; (ii) “Proprietary
Information” means all confidential or proprietary information of value to PureRay or its
Affiliates or third parties with whom PureRay or any of its Affiliates does business and not
generally known by others, whether communicated by oral, written, visual, or any other means of
communication, including without limitation: past, present and future business plans; licensing
strategies; information regarding executives and employees; the terms and conditions of this
Agreement; Work Product; trade secrets; information about the financial affairs of PureRay or its
Affiliates; financing methods; accounting, marketing and personnel records; profit and performance
reports; training manuals; and any other information which is treated by PureRay or its Affiliates
as being confidential or labeled “confidential” or to similar effect and all tangible materials
containing such information and all physical embodiments of such information; (iii) “Work Product”
means all Intellectual Property related to the business of PureRay and the lighting industry in
general, including without limitation multiplexing LED light bulbs and solar-powered charging
stations, initiated, created, conceived, developed, reduced to practice, authored, delivered, or
made, in whole or in part, by PureRay or its Affiliates, or made by any person or entity employed
by, while affiliated with, under contract with, after entering any agreement or contract with,
funded by, or on behalf of PureRay or its Affiliates; and any improvements to said Intellectual
Property.

     (b) Recipient will hold in confidence and will not disclose, reproduce, distribute, transmit,
reverse engineer, decompile, disassemble or transfer, give, sell, license or lease, directly or
indirectly, in any form, by any means, or for any purpose, the Proprietary Information of PureRay
and its Affiliates, or any portion thereof, communicated, discussed, delivered or made available by
PureRay or its Affiliates to, or received by, Recipient without the prior written consent of
PureRay. Notwithstanding the foregoing, Recipient may only disclose the Proprietary Information to
its employees and authorized agents with a need to know such information, provided that each such
employee or agent shall (i) be informed by Recipient of the terms and conditions of this Agreement
and (ii) either (a) agree, in writing, to be bound by all of the terms and conditions of this
Agreement or (b) be subject to contractual obligations of confidentiality and non-use at least as
restrictive as those set forth in this Agreement.

     (c) Proprietary Information specifically excluded from the obligations of confidentiality of
this Agreement includes:

          (i) Proprietary Information which (a) at the time of disclosure are already in the public
domain, or (b) subsequently becomes part of the public domain through no fault of Recipient;
provided, however, that the fact that general information may be in or become part of the public
domain, in and of itself, does not exclude any specific information from the obligations of this
Agreement;

          (ii) Proprietary Information which Recipient can demonstrate by written evidence was in the
possession of Recipient prior to disclosure by PureRay, or receipt thereof, without obligation to
keep confidential; and

          (iii) Proprietary Information which become known to Recipient through a third party who is not
under any obligation of confidentiality to PureRay, and such third party obtained the Proprietary
Information lawfully.

A-1

 

     (d) In the event that the Recipient is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil investigative demand or
similar process) in any judicial or administrative proceeding to disclose any Proprietary
Information, it will give PureRay prompt notice of such request so that PureRay may seek an
appropriate protective order. It is further agreed that if, in the absence of a protective order
or the receipt of a waiver hereunder, the Recipient is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning PureRay or its Affiliates to any tribunal or else
stand liable for contempt or suffer other censure or penalty, Recipient may disclose information to
such tribunal without liability hereunder; provided, however, that the Recipient gives PureRay
written notice of the information to be disclosed as far in advance of its disclosure as is
practicable and that the Recipient use its best efforts to obtain assurances that confidential
treatment will be accorded to such information; and further provided, the Recipient will furnish
only the portion of the Proprietary Information which is legally required.

     (e) Recipient acknowledges and agrees that the Proprietary Information of PureRay and its
Affiliates are the sole and exclusive property of PureRay (or a third party providing such
information to PureRay) and that PureRay (or the third party providing such information to PureRay)
owns all worldwide copyrights, patent rights, trade secret rights, confidential information rights,
and all other property rights therein. No rights, title, interests, or licenses (express or
implied) in or to Proprietary Information are granted to Recipient by virtue of this Agreement.

     (f) Recipient acknowledges that its obligations with regard to the Proprietary Information of
PureRay and its Affiliates shall remain in effect until the later of: (i) three (3) years after the
termination of Recipients Engagement with the Company or (ii) five (5) years after the execution of
this Agreement, except that its obligations under this Agreement with regard to Proprietary
Information that constitutes a trade secret of PureRay and its Affiliates under applicable law will
remain in effect for as long as such information shall remain a trade secret under applicable law,
and that nothing contained in this Agreement will be construed as limiting the availability or
effect of any laws purporting to protect trade secrets. At the request of PureRay at any point in
time, Recipient shall return to PureRay, or destroy and provide proof of such destruction, any and
all tangible Proprietary Information, whether prepared by PureRay, its Affiliates, or Recipient,
which include or incorporate Proprietary Information. Recipient shall retain no copies in any form
or format of the Proprietary Information.

     (g) Recipient will promptly disclose all Work Product developed, arising, resulting, or
derived from the Proprietary Information or this Agreement to PureRay and all Work Product shall be
the sole and exclusive property of PureRay or its Affiliates as directed by PureRay. Without
limiting the foregoing, Recipient acknowledges that all original works of authorship which are
made, developed, arising, resulting, or derived from the Proprietary Information or this Agreement
by Recipient, solely or jointly with others, and which are protectable by copyright are “works made
for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101).

     (h) Recipient hereby transfers, grants, conveys, assigns, and relinquishes exclusively to
PureRay or its Affiliates as directed by PureRay all of Recipient’s right, title, and interest, if
any, in, to, and under all Work Product developed, arising, resulting, or derived from the
Proprietary Information or this Agreement, including all waivable or assignable rights of publicity
or moral rights of patents, copyrights, or trademarks.

     (i) Recipient shall authorize and request the respective authorities in jurisdictions
throughout the world to issue any and all Letters Patent, including any reissue or reexamination
thereof, resulting from any Work Product developed, arising, resulting, or derived from the
Proprietary Information or this Agreement, or from a division, continuation or continuation-in-part
thereof to PureRay or its Affiliates as directed by PureRay for its interest and for the sole use
and benefit of PureRay or its Affiliates as directed by PureRay and its assigns and legal
representatives.

     (j) Recipient shall execute and deliver, from time to time after the date hereof upon the
request of PureRay or its Affiliates as directed by PureRay, such further conveyance instruments,
and take such further actions, as may be necessary or desirable to evidence more fully the transfer
of ownership of all the Work Product developed, arising, resulting, or derived from the Proprietary
Information or this Agreement on the part of PureRay or its Affiliates as directed by PureRay, to
the fullest extent possible and Recipient agrees to do so without further consideration; provided,
however, that all reasonable out-of-pocket expenses incurred by Recipient at the request of PureRay
shall be paid by PureRay. Recipient shall: (a) execute, acknowledge, and deliver any affidavits or
documents of assignment and conveyance regarding any Work Product developed, arising, resulting, or
derived from the Proprietary Information or this Agreement, (b) provide testimony in connection
with any proceeding affecting the right, title, interest, or benefit of PureRay or its Affiliates
as directed by PureRay and to any Work Product developed, arising, resulting, or derived from the
Proprietary Information or this Agreement, and (c) perform any other acts deemed necessary to carry
out the intent of this Agreement.

     (k) In providing information to the Recipient, neither PureRay nor its Affiliates shall be
deemed to be making any representations, express or implied, as to the information’s adequacy,
sufficiency or freedom from error of any kind. Recipient represents and warrants that it is
permitted to enter into this Agreement and perform the obligations contemplated
thereby and that this Agreement and the terms and obligations thereof are not inconsistent with any
other obligation which it may have.

A-2

 

     (j) The following terms used in this Agreement shall have the following meanings: (i)
“Affiliate” means any entity or person that controls, is controlled by, or is under common control
with PureRay; (ii) “Business Contracts” means any entities, individuals and parties with whom
PureRay does business, including, without limitation, vendors, suppliers, customers and prospective
customers; (iii) “Engagement” means any relationship in which Recipient is compensated for
providing services to PureRay, its customers or its Affiliates.

2. Non-Solicitation:

          (a) Recipient agrees that Recipient will not during the term its Engagement with PureRay and
for a period of twelve (12) months after the termination of its Engagement with PureRay for any
reason, solicit for employment, attempt to employ, employ, or affirmatively assist any other person
or entity in employing or soliciting for employment any person employed or hired as an employee or
consultant by PureRay or its Affiliates during the two (2) year period immediately preceding
termination of Recipient’s Engagement with PureRay.

          (b) Recipient agrees that during the term of its Engagement and for a period of eighteen (18)
months after termination of its Engagement for any reason or no reason, Recipient shall not, on
Recipient’s own behalf or on behalf of any person, firm, partnership, association, corporation or
business organization, entity or enterprise, solicit, contact, call upon, communicate with or
attempt to communicate with, any Business Contact of PureRay or its Affiliates, or their
subsidiaries or affiliates with which Recipient had contact, with a view to market, distribute,
license, sell, develop or provide any technology, product, equipment, or service sold or provided
or under development by PureRay during the two (2) year period immediately preceding termination of
Recipient’s Engagement with PureRay.

3. Non-Competition:

          (a) Recipient acknowledges that as an employee of PureRay it will share a large portion of the
responsibility for PureRay’ research and development efforts in the area of lighting technology,
including without limitation multiplexing LED light bulbs and solar-powered charging stations
(“Lighting Technology”), throughout the United States and internationally, and, accordingly, it is
reasonable and necessary for PureRay to protect itself on such basis. Therefore, Recipient
covenants and agrees that, for a period of two (2) years after termination of its Engagement with
PureRay, for any reason or no reason, it will not directly or indirectly, on its own behalf or on
behalf of any person or entity, provide services substantially similar to those provided by
Recipient to PureRay (the “Services”) to any person or entity that is engaged in the development
and production of Lighting Technology. Recipient expressly acknowledges and agrees that because of
the nature of the Services it is providing as an employee of PureRay and because of the highly
specialized and competitive nature of the PureRay’ Business (i.e., the development and production
of Lighting Technology), the scope of the activities restricted by this covenant, and the duration
of those restrictions, is reasonably defined to protect PureRay’ legitimate business interests.

          (b) Recipient further acknowledges and agrees: (i) The knowledge and experience Recipient
will acquire while providing the Services under this Agreement on PureRay’ behalf are of a special,
unique, and extraordinary character, and Recipient’s position with PureRay will place it in a
position of confidence and trust with PureRay’ shareholders, employees, and customers; (ii)
Recipient will have special knowledge, contacts and expertise with respect to PureRay’ operations,
including direct and regular access to PureRay’ Trade Secrets and its Confidential Information,
and, as a result, PureRay would not enter into this Agreement without obtaining the covenants and
agreements of Recipient as set forth in this Agreement; and (iii) Recipient’s experience and
capabilities are such that it can obtain subsequent employment without breaching the terms and
conditions of this Agreement and Recipient’s compliance with its obligations under this Agreement
will not prevent it from earning a livelihood.

4. Recipient acknowledges that the remedies at law for breach of any covenant contained in this
Agreement may be inadequate and that PureRay and its Affiliates shall be entitled to injunctive
relief for a material breach of any term of this Agreement by Recipient. Nothing contained herein
shall be construed as limiting PureRay’ or its Affiliate’s right to any other remedies at law,
including the recovery of damages for breach of this Agreement. Recipient hereby agrees to
indemnify, defend, and hold harmless PureRay, its Affiliates, their respective employees,
directors, agents, representatives, and assignees, from and against any and all claims,
liabilities, losses and damages, together with costs and expenses (including reasonable attorneys’
fees), arising directly or indirectly from the willful violation of any of Recipient’s obligations
under this Agreement.

5. The rights, duties and obligations of Recipient under this Agreement shall be binding upon any
successor-in-interest of Recipient (whether by merger, transfer of assets, sale of stock,
conversion, operation of law or otherwise). PureRay may assign, transfer or delegate any of its
rights, duties or obligations to an affiliate or a successor-in-interest (whether by merger,
transfer of

A-3

 

assets, sale of stock, conversion, operation of law or otherwise). All terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties and their respective
permitted successors and assigns.

6. Nothing contained in this Agreement shall be construed or deemed by any person under any
circumstances to obligate PureRay, or its Affiliates to continue Recipient’s Engagement for any
period.

7. This Agreement constitutes the entire agreement between PureRay and Recipient with respect to
the subject matter of this Agreement, and supersedes any prior agreements or understandings,
whether oral or written, between PureRay and Recipient with respect to such subject matter.
Failure of PureRay to enforce any of the provisions of this Agreement or any rights with respect to
it, or the failure to exercise any option provided under this Agreement shall in no way be
considered to be a waiver of that provision, right or option, or in any way affect the validity of
this Agreement. No waiver of rights under this Agreement, nor any modification or amendment of
this Agreement, shall be effective or enforceable, unless it is in writing signed by the party to
be bound. If any provision of this Agreement is held invalid or unenforceable, the provision shall
be deemed modified only to the extent necessary to render it valid or eliminated from this
Agreement, as the situation may require, and this Agreement shall be enforced and construed as if
the provision had been included in this Agreement as modified in scope or applicability, or not
been included, as the case may be. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Georgia, without giving effect to its
conflict of laws rules.

RECIPIENT ACKNOWLEDGES THAT RECIPIENT HAS READ AND FULLY UNDERSTANDS AND FULLY AGREES TO THE TERMS
OF THIS AGREEMENT. RECIPIENT HAS EXECUTED THIS AGREEMENT AS OF THIS 10TH DAY OF
OCTOBER, 2008.

	 	 	 	 	 	 	 
	PureRay Corporation:

	 	 	 	Recipient:	 	 
	 
	 	 	 	 	 	 
	By: /s/ Jefrey M. Wallace

		 
	 	By: /s/ John McIlwaine	 	 
	 

	 	 	 	 

	 	 
	Print Name: Jefrey M. Wallace

	 	 	 	Print Name: John McIlwaine	 	 
	 

	 	 	 	 

	 	 
	Title:  Chief Executive Officer, 
President and Secretary

Address:  3490 Piedmont Road,

      Suite 1120, Atlanta,
      GA 30305

	 	 	 	Address:  3490 Piedmont Road,

Suite 1120, Atlanta,
GA 30305
	 	 
	

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	(SEAL)
	 	 	 	 	 	 

	 	 	 	 	 	 	 
	Witness: /s/ Rozanne Patten

	 	 	 	Witness:  /s/ Rozanne Patten	 	 
	 

Print Name: Rozanne Patten
	 	 
	 	 

Print Name:  Rozanne Patten
	 	 
	 

	 	 	 	 
	 	 
	Address:
 3490 Piedmont Road,

Suite 1120, Atlanta,
GA 30305

	 	 	 	Address:  3490 Piedmont Road,

Suite 1120, Atlanta,
GA 30305
	 	 

A-4

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