Document:

Exhibit
10.122

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of September 25,
2006 (this “Agreement”) made by VCampus Corporation, a Delaware
corporation (the “Company”), and
Prosoft Learning Corporation, a Nevada corporation and wholly owned subsidiary
of the Company (each a “Grantor”
and collectively and together with the Company the “Grantors”), in favor of
Gottbetter Capital Master, Ltd., a Delaware limited liability
company (the “Buyer”).

W
I T N E S S E T H:

WHEREAS,
the Company and the Buyer are parties to the Securities Purchase Agreement,
pursuant to which the Company shall be required to sell, and the Buyer shall
purchase or have the right to purchase, the “Notes” (as defined therein); and

WHEREAS,
it is a condition precedent to the Buyer entering into the Securities Purchase
Agreement that the Grantors shall have executed and delivered to the Buyer this
Agreement providing for the grant to the Buyer of a security interest in all
personal property of each Grantor to secure all of the Company’s obligations
under the Securities Purchase Agreement, the “Notes” (as defined therein)
issued pursuant thereto (as such Notes may be amended, restated, replaced or
otherwise modified from time to time in accordance with the terms thereof,
collectively, the “Notes”), the “Transaction
Documents” (as defined in the Securities Purchase Agreement) (the “Transaction Documents”),

NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Buyers to perform under the Securities Purchase Agreement,
each Grantor agrees with the Buyer, as follows:

SECTION 1.           DEFINITIONS.

(a)  Reference is hereby made to the Securities
Purchase Agreement and the Notes for a statement of the terms thereof.
 All terms used in this Agreement and the recitals hereto which are
defined in the Securities Purchase Agreement, the Notes or in Articles 8 or 9
of the Uniform Commercial Code as in effect from time to time in the State of
New York (the “Code”),  and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein; provided that terms used herein which are defined in
the Code as in effect in the State of New York on the date hereof shall
continue to have the same meaning notwithstanding any replacement or amendment
of such statute except as the Buyer may otherwise determine provided  further,
that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection or priority of, or remedies with respect to, the
Lien on any Collateral under the Security Agreement is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of New York, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions.

 

(b)  The following terms shall have the respective
meanings provided for in the Code:  ”Accounts”, “Cash Proceeds”, “Chattel
Paper”, “Commercial Tort Claim”, “Commodity Account”, “Commodity Contracts”, “Deposit
Account”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”,
“Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Rights”, “Noncash
Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Security”, “Record”,
“Security Account”, “Software”, and “Supporting Obligations”.

(c)  As used in this Agreement, the following terms
shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:

“Copyright Licenses” means all licenses,
contracts or other agreements, whether written or oral, naming any Grantor as
licensee or licensor and providing for the grant of any right to use or sell
any works covered by any copyright (including, without limitation, all
Copyright Licenses set forth in Schedule II hereto).

“Copyrights” means all domestic and foreign
copyrights, whether registered or not, including, without limitation, all
copyright rights throughout the universe (whether now or hereafter arising) in
any and all media (whether now or hereafter developed), in and to all original
works of authorship fixed in any tangible medium of expression, acquired or
used by any Grantor (including, without limitation, all copyrights described in
Schedule II hereto), all applications, registrations and recordings
thereof (including, without limitation, applications, registrations and
recordings in the United States Copyright Office or in any similar office or
agency of the United States or any other country or any political subdivision
thereof), and all reissues, divisions, continuations, continuations in part and
extensions or renewals thereof.

“Event of Default” shall have the meaning
set forth in the Notes.

“Insolvency Proceeding” means any proceeding
commenced by or against any Person under any provision of the Bankruptcy Code
(Chapter 11 of Title 11 of the United States Code) or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, or extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means the
Copyrights, Trademarks and Patents.

“Licenses” means the Copyright Licenses, the
Trademark Licenses and the Patent Licenses.

“Lien” means any mortgage, deed of trust,
pledge, lien (statutory or otherwise), security interest, charge or other encumbrance
or security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any
capitalized lease and any assignment, deposit arrangement or financing lease
intended as, or having the effect of, security.

“Patent Licenses” means all licenses,
contracts or other agreements, whether

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written or oral,
naming any Grantor as licensee or licensor and providing for the grant of any
right to manufacture, use or sell any invention covered by any Patent
(including, without limitation, all Patent Licenses set forth in Schedule II  hereto).

“Patents” means all domestic and foreign
letters patent, design patents, utility patents, industrial designs,
inventions, trade secrets, ideas, concepts, methods, techniques, processes,
proprietary information, technology, know-how, formulae, rights of publicity
and other general intangibles of like nature, now existing or hereafter
acquired (including, without limitation, all domestic and foreign letters patent,
design patents, utility patents, industrial designs, inventions, trade secrets,
ideas, concepts, methods, techniques, processes, proprietary information,
technology, know-how and formulae described in Schedule II hereto), all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office, or in any similar office or agency of the United
States or any other country or any political subdivision thereof), and all
reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.

“Trademark Licenses” means all licenses,
contracts or other agreements, whether written or oral, naming any Grantor as
licensor or licensee and providing for the grant of any right concerning any
Trademark, together with any goodwill connected with and symbolized by any such
trademark licenses, contracts or agreements and the right to prepare for sale
or lease and sell or lease any and all Inventory now or hereafter owned by any
Grantor and now or hereafter covered by such licenses (including, without
limitation, all Trademark Licenses described in Schedule II  hereto).

“Trademarks” means all domestic and foreign
trademarks, service marks, collective marks, certification marks, trade names,
business names, d/b/a’s, Internet domain names, trade styles, designs, logos
and other source or business identifiers and all general intangibles of like
nature, now or hereafter owned, adopted, acquired or used by any Grantor
(including, without limitation, all domestic and foreign trademarks, service
marks, collective marks, certification marks, trade names, business names,
d/b/a’s, Internet domain names, trade styles, designs, logos and other source
or business identifiers described in Schedule II  hereto), all applications, registrations and
recordings thereof (including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state thereof or any other
country or any political subdivision thereof), and all reissues, extensions or
renewals thereof, together with all goodwill of the business symbolized by such
marks and all customer lists, formulae and other Records of any Grantor
relating to the distribution of products and services in connection with which
any of such marks are used.

SECTION 2.           GRANT OF SECURITY INTEREST.
 As collateral security for all of the “Obligations” (as defined in Section
3 hereof), each Grantor hereby pledges and assigns to the Buyer and grants
to the Buyer a continuing security interest in, all personal property of each
Grantor, wherever located and whether now or hereafter existing and whether now
owned or hereafter acquired, of every kind and description, tangible or
intangible (collectively, the “Collateral”),
including, without limitation, the following:

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(a)  all Accounts;

(b)  all Chattel Paper (whether tangible or
electronic);

(c)  the Commercial Tort Claims;

(d)  all Deposit Accounts, all cash, and all other
property from time to time deposited therein and the monies and property in the
possession or under the control of the Buyer or any affiliate, representative,
agent or correspondent of the Buyer;

(e)  all Documents;

(f)   all Equipment;

(g)  all Fixtures;

(h)  all General Intangibles (including, without
limitation, all Payment Intangibles);

(i)   all Goods;

(j)   all Instruments (including, without
limitation, Promissory Notes and each certificated Security);

(k)  all Inventory;

(l)   all Investment Property;

(m) all Copyrights, Patents and Trademarks, and all
Licenses;

(n)  all Letter-of-Credit Rights;

(o)  all Supporting Obligations;

(p)  all other tangible and intangible personal
property of each Grantor (whether or not subject to the Code), including,
without limitation, all bank and other accounts and all cash and all
investments therein, all proceeds, products, offspring, accessions, rents,
profits, income, benefits, substitutions and replacements of and to any of the
property of any Grantor described in the preceding clauses of this Section 2
(including, without limitation, any proceeds of insurance thereon and all
causes of action, claims and warranties now or hereafter held by each Grantor
in respect of any of the items listed above), and all books, correspondence,
files and other Records, including, without limitation, all tapes, desks,
cards, Software, data and computer programs in the possession or under the
control of any Grantor or any other Person from time to time acting for any
Grantor that at any time evidence or contain information relating to any of the
property described in the preceding clauses of this Section 2  or are otherwise necessary or helpful in the
collection or realization thereof; and

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(q)  all Proceeds, including all Cash Proceeds and
Noncash Proceeds, and products of any and all of the foregoing Collateral;

in each case
howsoever any Grantor’s interest therein may arise or appear (whether by
ownership, security interest, claim or otherwise).

Notwithstanding
the foregoing, the security interest granted herein does not extend to, and the
term “Collateral” does not include, any license or contract rights to the
extent (i) the granting of a security interest therein would be contrary to
applicable law, or (ii) that such rights are non-assignable by their terms (but
only to the extent such prohibition is enforceable under applicable law without
the consent of the licensor or other party).

SECTION 3.           SECURITY FOR OBLIGATIONS.
 The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, whether
now existing or hereafter incurred (collectively, the “Obligations”):

(a)  the payment by the Company, as and when due
and payable (by scheduled maturity, required prepayment, acceleration, demand
or otherwise), of all amounts from time to time owing by it to the Buyer in
respect of the Securities Purchase Agreement, the Notes and the other “Transaction Documents” (as defined in the
Securities Purchase Agreement), including, without limitation, (A) all
principal of and interest on the Notes (including, without limitation, all
interest that accrues after the commencement of any Insolvency Proceeding of
any Grantor, whether or not the payment of such interest is unenforceable or is
not allowable due to the existence of such Insolvency Proceeding), and (B) all
fees, commissions, expense reimbursements, indemnifications and all other
amounts due or to become due under any of the Transaction Documents; and

(b)  the due performance and observance by each
Grantor of all of its other obligations from time to time existing in respect
of any of the Transaction Documents, including without limitation, with respect
to any conversion or redemption rights of the Buyer under the Notes, for so
long as the Notes are outstanding; provided, however, the
Obligations shall not include any obligations of the Company to any Buyer as
equity holder of any of the Company’s capital stock.

SECTION 4.           REPRESENTATIONS AND WARRANTIES.
 Each Grantor represents and warrants as follows:

(a)  Schedule I hereto sets forth (i) the exact
legal name of the Grantors, and (ii) the organizational identification number
of each Grantor or states that no such organizational identification number
exists.

(b)  There is no pending or written notice
threatening any action, suit, proceeding or claim affecting any Grantor before
any governmental authority or any arbitrator, or any order, judgment or award
by any governmental authority or arbitrator, that may adversely affect the
grant by any Grantor, or the perfection, of the security interest purported to
be created hereby in the Collateral, or the exercise by the Buyer of any of its
rights or remedies hereunder.

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(c)  Except as may be disclosed in the Disclosure
Schedules or the SEC Documents, all Federal, state and local tax returns and
other reports required by applicable law to be filed by any Grantor have been
filed, or extensions have been obtained, and all taxes, assessments and other
governmental charges imposed upon any Grantor or any property of any Grantor
(including, without limitation, all federal income and social security taxes on
employees’ wages) and which have become due and payable on or prior to the date
hereof have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with generally accepted
accounting principles consistently applied (“GAAP”).

(d)  All Equipment, Fixtures, Goods and Inventory
of each Grantor now existing are, and all Equipment, Fixtures, Goods and
Inventory of each Grantor hereafter existing will be, located and/or based at
the addresses specified therefor in Schedule III hereto, except that
each Grantor will give the Buyer not less than 30 days’ prior written notice of
any change of the location of any such Collateral, other than to locations set
forth on Schedule III and with respect to which the Buyer has filed
financing statements and otherwise fully perfected its Liens thereon.
 Each Grantor’s chief place of business and chief executive office, the
place where each Grantor keeps its Records concerning Accounts and all
originals of all Chattel Paper are located at the addresses specified therefor
in Schedule III hereto.  None of the Accounts is evidenced by
Promissory Notes or other Instruments.  Set forth in Schedule IV
hereto is a complete and accurate list, as of the date of this Agreement, of
(i) each Promissory Note, Security and other Instrument owned by each Grantor
and (ii) each Deposit Account, Securities Account and Commodities Account of
each Grantor, together with the name and address of each institution at which
each such Account is maintained, the account number for each such Account and a
description of the purpose of each such Account.  Set forth in Schedule
II hereto is a complete and correct list of each trade name used by each
Grantor and the name of, and each trade name used by, each person from which
each Grantor has acquired any substantial part of the Collateral.

(e)  Each Grantor has delivered to the Buyer
complete and correct copies of each License described in Schedule II
hereto, including all schedules and exhibits thereto, which represents all of
the Licenses existing on the date of this Agreement.  Each such License
sets forth the entire agreement and understanding of the parties thereto
relating to the subject matter thereof, and there are no other agreements,
arrangements or understandings, written or oral, relating to the matters
covered thereby or the rights of each Grantor or any of its affiliates in
respect thereof.  Each material License now existing is, and the Company
intends that any material License entered into in the future will be, the
legal, valid and binding obligation of the parties thereto, enforceable against
such parties in accordance with its terms, subject to limitations on
enforceability under bankruptcy or other similar laws affecting the enforcement
generally of creditors’ rights and remedies.  To the Company’s knowledge,
no default under any material License by any such party has occurred, nor does
any defense, offset, deduction or counterclaim exist thereunder in favor of any
such party.

(f)   Each Grantor owns and controls, or otherwise
possesses adequate rights to use, all Trademarks, Patents and Copyrights, which
are the only trademarks, patents, copyrights,

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inventions, trade
secrets, proprietary information and technology, know-how, formulae, rights of
publicity necessary to conduct its business in substantially the same manner as
conducted as of the date hereof.  Schedule II hereto sets forth a
true and complete list of all registered copyrights, issued Patents, Trademarks,
and Licenses annually owned or used by each Grantor as of the date hereof.
 To the best knowledge of the Grantors, all such Intellectual Property of
each Grantor is subsisting and in full force and effect, has not been adjudged
invalid or unenforceable, is valid and enforceable and has not been abandoned
in whole or in part.  Except as set forth in Schedule II, no such
Intellectual Property is the subject of any licensing or franchising agreement.
 Each Grantor has no knowledge of any conflict with the rights of others
to any Intellectual Property and, to the best knowledge of the Grantors, each
Grantor is not now infringing or in conflict with any such rights of others in
any material respect, and to the best knowledge of the Grantors, no other Person
is now infringing or in conflict in any material respect with any such
properties, assets and rights owned or used by each Grantor.  No Grantor
has received any notice that it is violating or has violated the trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, rights of publicity or other intellectual
property rights of any third party.

(g)  Each Grantor is and will be at all times the
sole and exclusive owner of, or otherwise has and will have adequate rights in,
the Collateral free and clear of any Liens, except for Permitted Liens on any
Collateral.  No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
or filing office except such as may have been filed in favor of the Senior
Lender or with respect to the Buyer relating to this Agreement.

(h)  Except with respect to the Company’s
obligations to its Senior Lender, the exercise by the Buyer of any of its
rights and remedies hereunder will not contravene any law or any contractual
restriction binding on or otherwise affecting each Grantor or any of its
properties and will not result in or require the creation of any Lien, upon or
with respect to any of its properties.

(i)   Other than with respect to the Senior Lender,
no authorization or approval or other action by, and no notice to or filing
with, any governmental authority or other regulatory body, or any other Person,
is required for (i) the grant by each Grantor, or the perfection, of the
security interest purported to be created hereby in the Collateral, or
(ii) the exercise by the Buyer any of its rights and remedies hereunder,
except (A) for the filing under the Uniform Commercial Code as in effect
in the applicable jurisdiction of the financing statements, and (B) with
respect to the perfection of the security interest created hereby in the
Intellectual Property, for the recording of the appropriate Assignment for
Security, substantially in the form of Exhibit A hereto, as applicable,
in the United States Patent and Trademark Office or the United States Copyright
Office, as applicable.

(j)   This Agreement creates in favor of the Buyer
a legal, valid and enforceable security interest in the Collateral, as security
for the Obligations.  Buyer’s having possession of all Instruments and
cash constituting Collateral from time to time (or with respect to deposit
accounts, entering into appropriate control agreements), the recording of the
appropriate Assignment for Security executed pursuant hereto in the United
States Patent and Trademark

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Office and the
United States Copyright Office, the execution of appropriate assignments of
Letter of Credit Rights, as applicable, and the filing of the financing statements
and the other filings and recordings, as applicable, described in Schedule V
hereto and, with respect to the Intellectual Property hereafter existing and
not covered by an appropriate Assignment for Security, the recording in the
United States Patent and Trademark Office or the United States Copyright
Office, as applicable, of appropriate instruments of assignment, result in the
perfection of such security interests.  Such security interests are (or
will be after the Company satisfies all obligations owing to its existing
Senior Lender), or in the case of Collateral in which each Grantor obtains
rights after the date hereof, will be, perfected, first priority security
interests, subject only to Permitted Liens and the recording of such
instruments of assignment.  Such recordings and filings and all other
action necessary or desirable to perfect and protect such security interest
have been duly taken, except for the Buyer’s having possession of Instruments
and cash constituting Collateral after the date hereof and the other filings
and recordations described in Section 4(l) hereof.

(k)  As of the date hereof, no Grantor holds any
Commercial Tort Claims nor is aware of any such pending claims.

SECTION 5.           COVENANTS AS TO THE COLLATERAL.
 So long as any of the Obligations shall remain outstanding, unless the
Buyer shall otherwise consent in writing:

(a)  Further Assurances.  Each Grantor
will at its expense, at any time and from time to time, promptly execute and
deliver all further instruments and documents and take all further action that
the Buyer may reasonably request in order to:  (i) perfect and
protect the security interest purported to be created hereby; (ii) enable
the Buyer to exercise and enforce its rights and remedies hereunder in respect
of the Collateral; or (iii) otherwise effect the purposes of this
Agreement, including, without limitation:  (A) marking conspicuously
all Chattel Paper and each License and, at the request of the Buyer, each of
its Records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Buyer, indicating that such Chattel Paper, License or
Collateral is subject to the security interest created hereby, (B) 
delivering and pledging to the Buyer hereunder each Promissory Note, Security,
Chattel Paper or other Instrument, now or hereafter owned by any Grantor, duly
endorsed and accompanied by executed instruments of transfer or assignment, all
in form and substance satisfactory to the Buyer, (C) executing and filing
(to the extent, if any, that any Grantor’s signature is required thereon) or
authenticating the filing of, such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that the Buyer may
request in order to perfect and preserve the security interest purported to be
created hereby, (D) furnishing to the Buyer from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral in each case as the Buyer may
reasonably request, all in reasonable detail, (E) if any Collateral shall
be in the possession of a third party, notifying such Person of the Buyer’s
security interest created hereby and obtaining a written acknowledgment from
such Person that such Person holds possession of the Collateral for the benefit
of the Buyer, which such written acknowledgement shall be in form and substance
satisfactory to the Buyer, (F) if at any time after the date hereof, any
Grantor acquires or holds any Commercial Tort Claim, promptly notifying the
Buyer in a writing signed by such Grantor setting forth a brief description of
such Commercial Tort Claim and granting to the Buyer a

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security interest
therein and in the proceeds thereof, which writing shall incorporate the
provisions hereof and shall be in form and substance satisfactory to the Buyer,
(G) upon the acquisition after the date hereof by any Grantor of any motor
vehicle or other Equipment subject to a certificate of title or ownership
(other than a Motor Vehicle or Equipment that is subject to a purchase money
security interest), causing the Buyer to be listed as the lienholder on such
certificate of title or ownership and delivering evidence of the same to the
Buyer in accordance with the Securities Purchase Agreement; and (H) taking
all actions required by any earlier versions of the Uniform Commercial Code or
by other law, as applicable, in any relevant Uniform Commercial Code
jurisdiction, or by other law as applicable in any foreign jurisdiction.

(b)  Location of Equipment and Inventory.
 Each Grantor will keep the Equipment and Inventory at the locations
specified therefor on Schedule II hereto, or, at such other locations in the
United States, provided that within 10 days following the relocation of
Equipment or Inventory to such other location, Grantor shall deliver to the
Buyer a new Schedule II indicating such new location.

(c)  Condition of Equipment.  Each
Grantor will maintain or cause the Equipment (necessary or useful to its
business) to be maintained and preserved in good condition, repair and working
order, ordinary wear and tear excepted, and will forthwith, or in the case of
any loss or damage to any Equipment of any Grantor within a commercially
reasonable time after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith which are necessary
or desirable, consistent with past practice, or which the Buyer may request to
such end.  Any Grantor will promptly furnish to the Buyer a statement
describing in reasonable detail any such loss or damage in excess of $250,000
per occurrence to any Equipment.

(d)  Taxes, Etc.  Each Grantor agrees
to pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Equipment and Inventory, except
to the extent the validity thereof is being contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves in
accordance with GAAP have been set aside for the payment thereof.

(e)  Insurance.

(i)           Each Grantor will, at its own
expense, maintain insurance (including, without limitation, commercial general
liability and property insurance) with respect to the Equipment and Inventory
in such amounts, against such risks, in such form and with responsible and
reputable insurance companies or associations as is required by any
governmental authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice by companies in
similar businesses similarly situated and in any event, in amount, adequacy and
scope reasonably satisfactory to the Buyer.  To the extent requested by
the Buyer at any time and from time to time, each such policy for liability
insurance shall provide for all losses to be paid on behalf of the Buyer and
any Grantor as their respective interests may appear, and each policy for

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property damage insurance shall provide for all losses
to be adjusted with, and paid directly to, the Buyer. To the extent requested
by the Buyer at any time and from time to time, each such policy shall in
addition (A) name the Buyer as an additional insured party thereunder (without
any representation or warranty by or obligation upon the Buyer) as their
interests may appear, (B) contain an agreement by the insurer that any loss
thereunder shall upon an Event of Default be payable to the Buyer on its own account
notwithstanding any action, inaction or breach of representation or warranty by
any Grantor, (C) provide that there shall be no recourse against the Buyer for
payment of premiums or other amounts with respect thereto, and (D) provide that
at least 30 days’ prior written notice of cancellation, lapse, expiration or
other adverse change shall be given to the Buyer by the insurer.  Any
Grantor will, if so requested by the Buyer, deliver to the Buyer original or
duplicate policies of such insurance and, as often as the Buyer may reasonably
request, a report of a reputable insurance broker with respect to such
insurance.  Any Grantor will also, at the request of the Buyer, upon an
Event of Default execute and deliver instruments of assignment of such insurance
policies and cause the respective insurers to acknowledge notice of such
assignment.

(ii)          Reimbursement under any liability
insurance maintained by any Grantor pursuant to this Section 5(e) may be
paid directly to the Person who shall have incurred liability covered by such
insurance. In the case of any loss involving damage to Equipment or Inventory,
upon an Event of Default, any proceeds of insurance maintained by any Grantor
pursuant to this Section 5(e) shall be paid to the Buyer (except as to
which paragraph (iii) of this Section 5(e) is not applicable), any
Grantor will make or cause to be made the necessary repairs to or replacements
of such Equipment or Inventory, and any proceeds of insurance maintained by any
Grantor pursuant to this Section 5(e) shall be paid by the Buyer to any
Grantor as reimbursement for the costs of such repairs or replacements.

(iii)         Upon an Event of Default, all insurance
payments in respect of such Equipment or Inventory shall be paid to the Buyer
and applied as specified in Section 7(b) 
hereof.

(f)   Provisions Concerning the Accounts and the
Licenses.

(i)           Any Grantor will (A) give the Buyer
at least 30 days’ prior written notice of any change in such Grantor’s name,
identity or organizational structure, (B) maintain its jurisdiction of
incorporation as set forth in Section 4(b)  hereto, (C) immediately notify the Buyer upon
obtaining an organizational identification number, if on the date hereof such
Grantor did not have such identification number, and (D) keep adequate records
concerning the Accounts and Chattel Paper and permit representatives of the
Buyer during normal business hours on reasonable notice to such Grantor, to
inspect and make abstracts from such Records and Chattel Paper.

(ii)          Each Grantor will, except as otherwise
provided in this subsection (f), continue to collect, at its own expense,
all amounts due or to become due under the Accounts.  In connection with
such collections, any Grantor may (and, at the Buyer’s

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direction, will) take such commercially reasonable
action as any Grantor or the Buyer may deem necessary or advisable to enforce
collection or performance of the Accounts; provided, however ,
that the Buyer shall have the right at any time, upon the occurrence and during
the continuance of an Event of Default, to notify the account debtors or
obligors under any Accounts of the assignment of such Accounts to the Buyer and
to direct such account debtors or obligors to make payment of all amounts due
or to become due to any Grantor thereunder directly to the Buyer or its
designated agent and, upon such notification and at the expense of any Grantor
and to the extent permitted by law, to enforce collection of any such Accounts
and to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as may Grantor might have done.  After
receipt by any Grantor of a notice from the Buyer that the Buyer has notified,
intends to notify, or has enforced or intends to enforce any Grantor’s rights
against the account debtors or obligors under any Accounts as referred to in
the proviso to the immediately preceding sentence, (A) all amounts and
proceeds (including Instruments) received by any Grantor in respect of the
Accounts shall be received in trust for the benefit of the Buyer hereunder,
shall be segregated from other funds of any Grantor and shall be forthwith paid
over to the Buyer in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (i) credited to the
outstanding obligations so long as no Event of Default shall have occurred and
be continuing or (ii) if an Event of Default shall have occurred and be
continuing, applied as specified in Section 7(b) hereof, and (B) no
Grantor will adjust, settle or compromise the amount or payment of any Account
or release wholly or partly any account debtor or obligor thereof or allow any
credit or discount thereon.  In addition, upon the occurrence and during
the continuance of an Event of Default, the Buyer may (in its sole and absolute
discretion) direct any or all of the banks and financial institutions with
which any Grantor either maintains a Deposit Account or a lockbox or deposits
the proceeds of any Accounts to send immediately to the Buyer by wire transfer
(to such account as the Buyer shall specify, or in such other manner as the
Buyer shall direct) all or a portion of such securities, cash, investments and
other items held by such institution.  Any such securities, cash,
investments and other items so received by the Buyer shall (in the sole and
absolute discretion of the Buyer) be held as additional Collateral for the
Obligations or distributed in accordance with Section 7 hereof.

(iii)         Upon the occurrence and during the
continuance of any breach or default under any material License referred to in Schedule
II  hereto by any party thereto other
than any Grantor, each Grantor party thereto will, promptly after obtaining
knowledge thereof, give the Buyer written notice of the nature and duration
thereof, specifying what action, if any, it has taken and proposes to take with
respect thereto and thereafter will take reasonable steps to protect and
preserve its rights and remedies in respect of such breach or default, or will
obtain or acquire an appropriate substitute License.

(iv)        Each Grantor will, at its expense,
promptly deliver to the Buyer a copy of each notice or other communication
received by it by which any other party to any material License referred to in Schedule
II hereto purports to exercise any of its rights or affect any of its
obligations thereunder, together with a copy of any reply by such Grantor
thereto.

 11

 

 

(v)         Each Grantor will, to the extent
commercially reasonable, exercise promptly and diligently each and every right
which it may have under each material License (other than any right of
termination) and will duly perform and observe in all respects all of its
obligations under each material License and will take all action reasonably
necessary to maintain such Licenses in full force and effect.  No Grantor
will, without the prior written consent of the Buyer, cancel, terminate, amend
or otherwise modify in any respect, or waive any provision of, any material
License referred to in Schedule II hereto, except in the ordinary course
or consistent with past practice.

(g)  Transfers and Other Liens.

(i)           Without the Consent of the Buyer, no
Grantor will sell, assign (by operation of law or otherwise), lease, license,
exchange or otherwise transfer or dispose of any substantial part of the
Collateral, except (A) Inventory or Intellectual Property in the ordinary
course of business, and (B) worn-out or obsolete assets not necessary to the
business.

(ii)          No Grantor will create, suffer to
exist or grant any Lien upon or with respect to any Collateral other than a
Permitted Lien.

(h)  Intellectual Property.

(i)            If applicable, any Grantor shall,
upon the Buyer’s written request, duly execute and deliver the applicable
Assignment for Security in the form attached hereto as Exhibit A.
 Each Grantor (either itself or through licensees) will, and will
undertake reasonable efforts to cause each licensee thereof to, take all action
reasonably necessary to maintain all of the Intellectual Property in full force
and effect, including, without limitation, using the proper statutory notices
and markings and using the Trademarks on each applicable trademark class of
goods in order to so maintain the Trademarks in full force and free from any
claim of abandonment for non-use, and each Grantor will not (nor knowingly
permit any licensee thereof to) do any act or knowingly omit to do any act
whereby any Intellectual Property may become invalidated; provided, however,
that so long as no Event of Default has occurred and is continuing, no Grantor
shall have an obligation to use or to maintain any Intellectual Property
(A) that relates solely to any product or work, that has been, or is in the
process of being, discontinued, abandoned or terminated, (B) that is being
replaced with Intellectual Property substantially similar to the Intellectual
Property that may be abandoned or otherwise become invalid, so long as the
failure to use or maintain such Intellectual Property does not materially
adversely affect the validity of such replacement Intellectual Property and so
long as such replacement Intellectual Property is subject to the Lien created
by this Agreement or (C) that is substantially the same as another Intellectual
Property that is in full force, so long the failure to use or maintain such
Intellectual Property does not materially adversely affect the validity of such
replacement Intellectual Property and so long as such other Intellectual
Property is subject to the Lien and security interest created by this
Agreement.  Each Grantor will cause to be taken all reasonably necessary
steps in any

 12
 

 

proceeding before the United States Patent and
Trademark Office and the United States Copyright Office or any similar office
or agency in any other country or political subdivision thereof to maintain
each registration of any material Intellectual Property (other than the
Intellectual Property described in the proviso to the immediately preceding sentence),
including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of maintenance fees, filing fees, taxes or other
governmental fees.  If any material Intellectual Property (other than
Intellectual Property described in the proviso to the first sentence of
subsection (i) of this clause (h)) is infringed, misappropriated, diluted or
otherwise violated in any material respect by a third party, each Grantor shall
(x) upon learning of such infringement, misappropriation, dilution or other
violation, promptly notify the Buyer and (y) to the extent any Grantor shall
deem appropriate under the circumstances, promptly sue for infringement,
misappropriation, dilution or other violation, seek injunctive relief where
appropriate and recover any and all damages for such infringement,
misappropriation, dilution or other violation, or take such other actions as
such Grantor shall deem appropriate under the circumstances to protect such
Intellectual Property.  Each Grantor shall furnish to the Buyer from time
to time upon its request statements and schedules further identifying and
describing the Intellectual Property and Licenses and such other reports in connection
with the Intellectual Property and Licenses as the Buyer may reasonably
request, all in reasonable detail and promptly upon request of the Buyer,
following receipt by the Buyer of any such statements, schedules or reports,
each Grantor shall modify this Agreement by amending Schedule II  hereto, as the case may be, to include any
Intellectual Property and License, as the case may be, which becomes part of
the Collateral under this Agreement and shall execute and authenticate such
documents and do such acts as shall be reasonably necessary or, in the judgment
of the Buyer, desirable to subject such Intellectual Property and Licenses to
the Lien and security interest created by this Agreement.  Notwithstanding
anything herein to the contrary, upon the occurrence and during the continuance
of an Event of Default, no Grantor may abandon or otherwise permit any material
Intellectual Property to become invalid without the prior written consent of
the Buyer, and if any material Intellectual Property is infringed,
misappropriated, diluted or otherwise violated in any material respect by a
third party, each Grantor will take such reasonable action under the
circumstances to protect such Intellectual Property.

(ii)           In no event shall any Grantor, either
itself or through any agent, employee, licensee or designee, file an
application for the registration of any Trademark or Copyright or the issuance
of any Patent with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, or in any similar office or agency of
the United States or any country or any political subdivision thereof unless it
gives the Buyer prior written notice thereof.  Upon request of the Buyer,
any Grantor shall execute, authenticate and deliver any and all assignments,
agreements, instruments, documents and papers as the Buyer may reasonably
request to evidence the Buyer’s security interest hereunder in such
Intellectual Property and the General Intangibles of any Grantor relating
thereto or represented thereby, and each Grantor hereby appoints the Buyer its
attorney-in-fact to execute and/or authenticate and file all such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed, and

 13
 

 

such power (being coupled with an interest) shall be
irrevocable until the indefeasible payment in full in cash of all of the
Obligations in full.

(i)   Deposit, Commodities and Securities
Accounts.  Upon the continuance of an Event of Default and upon the
Buyer’s written request, each Grantor shall undertake best efforts to cause
each bank and other financial institution with an account referred to in Schedule
IV hereto to execute and deliver to the Buyer a control agreement, in form
and substance reasonably satisfactory to the Buyer, duly executed by each
Grantor and such bank or financial institution, or enter into other
arrangements in form and substance satisfactory to the Buyer, pursuant to which
such institution shall irrevocably agree, inter alia, that (i) it
will comply at any time with the instructions originated by the Buyer to such
bank or financial institution directing the disposition of cash, Commodity
Contracts, securities, Investment Property and other items from time to time
credited to such account, without further consent of each Grantor, which
instructions the Buyer will not give to such bank or other financial
institution in the absence of a continuing Event of Default, (ii) all
cash, Commodity Contracts, securities, Investment Property and other items of
each Grantor deposited with such institution shall be subject to a perfected,
first priority security interest in favor of the Buyer (subject to existing
priority lien in favor of the Senior Lender), (iii) any right of set off
(other than recoupment of standard fees), banker’s Lien or other similar Lien,
security interest or encumbrance shall be fully waived as against the Buyer,
and (iv) upon receipt of written notice from the Buyer during the
continuance of an Event of Default, such bank or financial institution shall
immediately send to the Buyer by wire transfer (to such account as the Buyer
shall specify, or in such other manner as the Buyer shall direct) all such
cash, the value of any Commodity Contracts, securities, Investment Property and
other items held by it.  Without the prior written consent of the Buyer,
each Grantor shall not make or maintain any Deposit Account, Commodity Account
or Securities Account except for the accounts set forth in Schedule IV
hereto.  The provisions of this paragraph 5(i) shall not apply to (i)
Deposit Accounts for which the Buyer is the depositary and (ii) Deposit
Accounts specially and exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of each Grantor’s
salaried employees.

(j)   Motor Vehicles.

(i)            Upon the Buyer’s written request,
each Grantor shall deliver to the Buyer originals of the certificates of title
or ownership for all motor vehicles with a value in excess of $50,000, owned by
Grantor with the Buyer listed as lienholder, for the benefit of the Buyers.

(ii)           Each Grantor hereby appoints the
Buyer as its attorney-in-fact, effective the date hereof and terminating upon
the termination of this Agreement, for the purpose of (A) executing on behalf
of each Grantor title or ownership applications for filing with appropriate
state agencies to enable motor vehicles now owned or hereafter acquired by each
Grantor to be retitled and the Buyer listed as lienholder thereof, (B) filing
such applications with such state agencies, and (C) executing such other
documents and instruments on behalf of, and taking such other action in the
name of, each Grantor as the Buyer may deem necessary or advisable to
accomplish the purposes hereof (including, without limitation, for the purpose
of creating in favor of the Buyer a perfected Lien on

 14
 

 

the motor vehicles and exercising the rights and
remedies of the Buyer hereunder).  This appointment as attorney-in-fact is
coupled with an interest and is irrevocable until all of the Obligations are
indefeasibly paid in full in cash and after all Transaction Documents have been
terminated.

(iii)          Any certificates of title or ownership
delivered pursuant to the terms hereof shall be accompanied by odometer
statements for each motor vehicle covered thereby.

(iv)          So long as no Event of Default shall
have occurred and be continuing, upon the request of any Grantor, the Buyer
shall execute and deliver to any Grantor such instruments as any Grantor shall
reasonably request to remove the notation of the Buyer as lienholder on any
certificate of title for any motor vehicle; provided, however,
that any such instruments shall be delivered, and the release effective, only
upon receipt by the Buyer of a certificate from any Grantor stating that such
motor vehicle is to be sold or has suffered a casualty loss (with title thereto
passing to the casualty insurance company therefor in settlement of the claim
for such loss) and the amount that any Grantor will receive as sale proceeds or
insurance proceeds.  Any proceeds of such sale or casualty loss shall be
paid to the Buyer hereunder immediately upon receipt, to be applied to the
Obligations then outstanding.

(k)  Control.  Each Grantor hereby
agrees to take any or all action that may be reasonably necessary or desirable
or that the Buyer may reasonably request in order for the Buyer to obtain
control in accordance with Sections 9-105 — 9-107 of the Code with respect to
the following Collateral:  (i) Electronic Chattel Paper, (ii)
Investment Property, and (iii) Letter-of-Credit Rights.

(l)   Inspection and Reporting.  Each
Grantor shall permit the Buyer, or any agent or representatives thereof or such
professionals or other Persons as the Buyer may designate, not more than once a
year in the absence of an Event of Default, (i) to examine and make copies
of and abstracts from any Grantor’s records and books of account, (ii) to visit
and inspect its properties, (iii) to verify materials, leases,
Instruments, Accounts, Inventory and other assets of any Grantor from time to
time, (iii) to conduct audits, physical counts, appraisals and/or
valuations, examinations at the locations of any Grantor.  Each Grantor
shall also permit the Buyer, or any agent or representatives thereof or such
professionals or other Persons as the Buyer may designate to discuss, with
notice and at reasonable and convenient times, any Grantor’s affairs, finances
and accounts with any of its directors, officers, managerial employees,
independent accountants or any of its other representatives.

(m) Future Subsidiaries.  If any
Grantor shall hereafter create or acquire any material Subsidiary,
simultaneously with the creation of acquisition of such Subsidiary, such
Grantor shall cause such Subsidiary to become a party to this Agreement as an
additional “Grantor” hereunder, and to duly execute and deliver a guaranty of
the Obligations in favor of the Buyer in form and substance reasonably
acceptable to the Buyer, and to duly execute and/or deliver such opinions of
counsel and other documents, in form and substance reasonably acceptable to the
Buyer, as the Buyer shall reasonably request with respect thereto.

 15
 

 

SECTION 6.           ADDITIONAL PROVISIONS CONCERNING
THE COLLATERAL.

(a)  Each Grantor hereby (i) authorizes the
Buyer to file one or more Uniform Commercial Code financing or continuation
statements, and amendments thereto, relating to the Collateral and
(ii) ratifies such authorization to the extent that the Buyer has filed
any such financing or continuation statements, or amendments thereto, prior to
the date hereof.  A photocopy or other reproduction of this Agreement or
any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.

(b)  Each Grantor hereby irrevocably appoints the
Buyer as its attorney-in-fact and proxy, with full authority in the place and
stead of each Grantor and in the name of each Grantor or otherwise, from time
to time in the Buyer’s discretion, so long as an Event of Default shall have
occurred and is continuing, to take any action and to execute any instrument
which the Buyer may deem necessary or advisable to accomplish the purposes of
this Agreement (subject to the rights of each Grantor under Section 5
hereof), including, without limitation, (i) to obtain and adjust insurance required
to be paid to the Buyer pursuant to Section 5(e) hereof, (ii) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any
Collateral, (iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper in connection with clause (i) or (ii)
above, (iv) to file any claims or take any action or institute any proceedings
which the Buyer may deem necessary or desirable for the collection of any
Collateral or otherwise to enforce the rights of the Buyer and the Buyers with
respect to any Collateral, and (v) to execute assignments, licenses and other
documents to enforce the rights of the Buyer and the Buyers with respect to any
Collateral.  This power is coupled with an interest and is irrevocable
until all of the Obligations are indefeasibly paid in full in cash.

(c)  For the purpose of enabling the Buyer to
exercise rights and remedies hereunder, only upon the continuance of an Event
of Default and at such time as the Buyer shall be lawfully entitled to exercise
such rights and remedies, and for no other purpose, each Grantor hereby grants
to the Buyer, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to any Grantor)
to use, assign, license or sublicense any Intellectual Property now owned or
hereafter acquired by any Grantor, wherever the same may be located, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer programs used for the
compilation or printout thereof.  Notwithstanding anything contained
herein to the contrary, but subject to the provisions of the Securities Purchase
Agreement that limit the right of any Grantor to dispose of its property and Section
5(h) hereof, so long as no Event of Default shall have occurred and be
continuing, any Grantor may exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Intellectual
Property in the ordinary course of its business.  In furtherance of the
foregoing, unless an Event of Default shall have occurred and be continuing,
the Buyer shall from time to time, upon the request of any Grantor, execute and
deliver any instruments, certificates or other documents, in the form so
requested, which such Grantor shall have certified are appropriate (in any
Grantor’s judgment) to allow it to take any action permitted above (including
relinquishment of the license provided pursuant to this clause (c) as to any
Intellectual Property).  Further, upon the indefeasible

 16
 

 

payment in full in
cash of all of the Obligations, the Buyer (subject to Section 10(e)  hereof) shall release and reassign to any
Grantor all of the Buyer’s right, title and interest in and to the Intellectual
Property, and the Licenses, all without recourse, representation or warranty
whatsoever.  The exercise of rights and remedies hereunder by the Buyer
shall not terminate the rights of the holders of any licenses or sublicenses
theretofore granted by each Grantor in accordance with the second sentence of
this clause (c).  Each Grantor hereby releases the Buyer from any claims,
causes of action and demands at any time arising out of or with respect to any
actions taken or omitted to be taken by the Buyer under the powers of attorney
granted herein other than actions taken or omitted to be taken through the
Buyer’s gross negligence or willful misconduct, as determined by a final
determination of a court of competent jurisdiction.

(d)  If any Grantor fails to perform any agreement
contained herein, the Buyer may itself perform, or cause performance of, such
agreement or obligation, in the name of any Grantor or the Buyer, and the
expenses of the Buyer incurred in connection therewith shall be payable by any
Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.

(e)  The powers conferred on the Buyer hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers.

Except
for the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Buyer shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.

(f)   Anything herein to the contrary
notwithstanding (i) each Grantor shall remain liable under the Licenses
and otherwise with respect to any of the Collateral to the extent set forth
therein to perform all of its obligations thereunder to the same extent as if
this Agreement had not been executed, (ii) the exercise by the Buyer of
any of its rights hereunder shall not release any Grantor from any of its
obligations under the Licenses or otherwise in respect of the Collateral, and
(iii) the Buyer shall not have any obligation or liability by reason of
this Agreement under the Licenses or with respect to any of the other Collateral,
nor shall the Buyer be obligated to perform any of the obligations or duties of
any Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.

SECTION 7.           REMEDIES UPON EVENT OF DEFAULT.
 If any Event of Default shall have occurred and be continuing:

(a)  The Buyer may exercise in respect of the
Collateral, in addition to any other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party
upon default under the Code (whether or not the Code applies to the affected
Collateral), and also may (i) take absolute control of the Collateral,
including, without limitation, transfer into the Buyer’s name or into the name
of its nominee or nominees (to the extent the Buyer has not theretofore done
so) and thereafter receive, for the benefit of the Buyer, all payments made
thereon, give all consents, waivers and ratifications in respect thereof and
otherwise act with respect thereto as though it were the outright owner
thereof, (ii) require each Grantor to, and each Grantor hereby agrees that
it will at its expense and upon request of the

 17
 

 

Buyer forthwith,
assemble all or part of its respective Collateral as directed by the Buyer and
make it available to the Buyer at a place or places to be designated by the
Buyer that is reasonably convenient to both parties, and the Buyer may enter
into and occupy any premises owned or leased by any Grantor where the
Collateral or any part thereof is located or assembled for a reasonable period
in order to effectuate the Buyer’s rights and remedies hereunder or under law,
without obligation to any Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation
to prepare or process the Collateral for sale, (A) sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any of
the Buyer’s offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Buyer may deem
commercially reasonable and/or (B) lease, license or dispose of the
Collateral or any part thereof upon such terms as the Buyer may deem
commercially reasonable.  Each Grantor agrees that, to the extent notice
of sale or any other disposition of its respective Collateral shall be required
by law, at least ten (10) days’ notice to any Grantor of the time and place of
any public sale or the time after which any private sale or other disposition
of its respective Collateral is to be made shall constitute reasonable
notification.  The Buyer shall not be obligated to make any sale or other
disposition of any Collateral regardless of notice of sale having been given.
 The Buyer may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
 Each Grantor hereby waives any claims against the Buyer and the Buyers
arising by reason of the fact that the price at which its respective Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Buyer accepts the first offer received and does not
offer such Collateral to more than one offeree, and waives all rights that any
Grantor may have to require that all or any part of such Collateral be
marshalled upon any sale (public or private) thereof.  Each Grantor hereby
acknowledges that (i) any such sale of its respective Collateral by the
Buyer shall be made without warranty, (ii) the Buyer may specifically
disclaim any warranties of title, possession, quiet enjoyment or the like, and
(iii) such actions set forth in clauses (i) and (ii) above shall not
adversely effect the commercial reasonableness of any such sale of Collateral.
 In addition to the foregoing, in connection with any sale or disposition
authorized under this Section 7(a) (1) upon written notice to any Grantor
from the Buyer, such Grantor shall cease any use of the Intellectual Property
or any trademark, patent or copyright similar thereto for any purpose described
in such notice; (2) the Buyer may, at any time and from time to time, upon 10
days’ prior notice to such Grantor, license, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any of the
Intellectual Property, throughout the universe for such term or terms, on such
conditions, and in such manner, as the Buyer shall in its sole discretion
determine; and (3) the Buyer may, at any time, pursuant to the authority
granted in Section 6 hereof (such authority being effective upon the
occurrence and during the continuance of an Event of Default), execute and
deliver on behalf of such Grantor, one or more instruments of assignment of the
Intellectual Property (or any application or registration thereof), in form
suitable for filing, recording or registration in any country.

(b)  Any cash held by the Buyer as Collateral and
all Cash Proceeds received by the Buyer in respect of any sale of or collection
from, or other realization upon, all or any part of the Collateral may, in the
discretion of the Buyer, be held by the Buyer as collateral for, and/or then or
at any time thereafter applied (after payment of any amounts payable to the
Buyer pursuant to 

 18
 

 

Section 8
hereof) in whole or in part by the Buyer against, all or any part of the
Obligations in such order as the Buyer shall elect, consistent with the
provisions of the Securities Purchase Agreement.  Any surplus of such cash
or Cash Proceeds held by the Buyer and remaining after the indefeasible payment
in full in cash of all of the Obligations shall be paid over to the Company or
to whomsoever shall be lawfully entitled to receive the same or as a court of
competent jurisdiction shall direct.

(c)  In the event that the proceeds of any such
sale, collection or realization are insufficient to pay all amounts to which
the Buyer is legally entitled, the Company shall be liable for the deficiency,
together with interest thereon at the highest rate specified in any of the
applicable Transaction Documents for interest on overdue principal thereof or
such other rate as shall be fixed by applicable law, together with the costs of
collection and the reasonable fees, costs, expenses and other client charges of
any attorneys employed by the Buyer to collect such deficiency.

(d)  Each Grantor hereby acknowledges that if the
Buyer complies with any applicable state, provincial, or federal law
requirements in connection with a disposition of the Collateral, such
compliance will not adversely affect the commercial reasonableness of any sale
or other disposition of the Collateral.

(e)  The Buyer shall not be required to marshal any
present or future collateral security (including, but not limited to, this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of the Buyer’s rights
hereunder and in respect of such collateral security and other assurances of
payment shall be cumulative and in addition to all other rights, however
existing or arising.  To the extent that any Grantor lawfully may, each Grantor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the Buyer’s
rights under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

SECTION 8.           INDEMNITY AND EXPENSES.

(a)  Each Grantor agrees, jointly and severally, to
defend, protect, indemnify and hold the Buyer, jointly and severally, harmless
from and against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees, costs, expenses, and disbursements of such Person’s counsel) to the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting primarily from such Person’s gross negligence
or willful misconduct, as determined by a final judgment of a court of
competent jurisdiction.

(b)  Each Grantor agrees, jointly and severally, to
upon demand pay to the Buyer the amount of any and all documented costs and
expenses, including the reasonable fees, costs,

 19
 

 

expenses and
disbursements of counsel for the Buyer and of any experts and agents
(including, without limitation, any collateral trustee which may act as agent
of the Buyer), which the Buyer may incur in connection with (i) the
preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Collateral, (iii) the
exercise or enforcement of any of the rights of the Buyer hereunder, or
(iv) the failure by any Grantor to perform or observe any of the
provisions hereof.

SECTION 9.           NOTICES, ETC.  All
notices and other communications provided for hereunder shall be in writing and
shall be mailed (by certified mail, postage prepaid and return receipt
requested), telecopied, e-mailed or delivered, if to any Grantor at its address
specified below and if to the Buyer to it, at its address specified below; or
as to any such Person, at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 9.  All such notices and other
communications shall be effective (a) if sent by certified mail, return
receipt requested, when received or three days after deposited in the mails,
whichever occurs first, (b) if telecopied or e-mailed, when transmitted
(during normal business hours) and confirmation is received, otherwise, the day
after the notice was transmitted if confirmation is received, or (c) if
delivered, upon delivery.

SECTION 10.         MISCELLANEOUS.

(a)  No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by each Grantor
and the Buyer, and no waiver of any provision of this Agreement, and no consent
to any departure by each Grantor therefrom, shall be effective unless it is in
writing and signed by the Buyer, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

(b)  No failure on the part of the Buyer to
exercise, and no delay in exercising, any right hereunder or under any of the
other Transaction Documents shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.  The rights and
remedies of the Buyer or any Buyer provided herein and in the other Transaction
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law.  The rights of the Buyer under any of
the other Transaction Documents against any party thereto are not conditional
or contingent on any attempt by such Person to exercise any of its rights under
any of the other Transaction Documents against such party or against any other
Person, including but not limited to, any Grantor.

(c)  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

(d)  This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect until the indefeasible payment in full in cash of the

 20
 

 

Obligations, and
(ii) be binding on each Grantor and all other Persons who become bound as
debtor to this Agreement in accordance with Section 9-203(d) of the Code and
shall inure, together with all rights and remedies of the Buyer hereunder, to
the benefit of the Buyer and their respective permitted successors, transferees
and assigns.  Without limiting the generality of clause (ii) of the
immediately preceding sentence, without notice to any Grantor, the Buyer may
assign or otherwise transfer its rights and obligations under this Agreement
and any of the other Transaction Documents, to any other Person and such other
Person shall thereupon become vested with all of the benefits in respect
thereof granted to the Buyer herein or otherwise.  Upon any such
assignment or transfer, all references in this Agreement to the Buyer shall
mean the assignee of the Buyer.  None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior written
consent of the Buyer, and any such assignment or transfer without the consent
of the Collateral Agent shall be null and void.

(e)  Upon the indefeasible payment in full in cash
of the Obligations, (i) this Agreement and the security interests created
hereby shall terminate and all rights to the Collateral shall revert to the
respective Grantor that granted such security interests hereunder, and (ii) the
Buyer will, upon any Grantor’s request and at such Grantor’s expense, (A)
return to such Grantor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof, and (B) execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination, all without any representation, warranty
or recourse whatsoever.

(f)   THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT
THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(g)  ANY LEGAL ACTION, SUIT OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS.  EACH GRANTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS
IS DEEMED APPROPRIATE BY THE COURT.

 21
 

 

(h)  EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE
BENEFITS OF THIS AGREEMENT) THE BUYER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER
ACTION OF THE PARTIES HERETO.

(i)   Each Grantor irrevocably consents to the
service of process of any of the aforesaid courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to any Grantor at its
address provided herein, such service to become effective 10 days after such
mailing .

(j)   Nothing contained herein shall affect the
right of the Buyer to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against any Grantor or any
property of any Grantor in any other jurisdiction.

(k)  Each Grantor irrevocably and unconditionally
waives any right it may have to claim or recover in any legal action, suit or
proceeding referred to in this Section any special, exemplary, punitive or
consequential damages.

(l)   Section headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

(m) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together
constitute one in the same Agreement.

[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]

 22
 

 

IN
WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.

	
     

  	
   

  	
  VCAMPUS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
     

  	
   

  	
  By:

  	
   

  	
   

  
	
     

  	
   

  	
  Name:

  	
   

  
	
     

  	
   

  	
  Title:

  	
   

  
	
     

  	
   

  	
  Address:

  	
  1850 Centennial Park Drive

  
	
   

  	
   

  	
   

  	
   

  	
  Suite 200

  
	
   

  	
   

  	
   

  	
   

  	
  Reston, VA 20191

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
     

  	
   

  	
  PROSOFT LEARNING CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
     

  	
   

  	
  By:

  	
   

  	
   

  
	
     

  	
   

  	
  Name:

  	
   

  
	
     

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  

 

 

ACCEPTED BY:

GOTTBETTER
CAPITAL MASTER, LTD.

	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Adam S. Gottbetter

  	
   

  
	
  Title:

  	
  Director

  	
   

  
	
  Address:

  	
  488 Madison Avenue, 12th Floor

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  	
   

  

 

 23

 

 

SCHEDULE I

LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR

JURISDICTION OF ORGANIZATION

 

	
  Grantor’s Name

  	
   

  	
  State of Organization

  	
   

  	
  Federal Employer I.D.

  	
   

  	
  Organizational I.D.

  	
   

  
	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  
	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  

 

 

 

 

SCHEDULE II

INTELLECTUAL
PROPERTY

 

 

 

SCHEDULE III

LOCATIONS

 

	
  Grantor

  	
   

  	
  Chief Place of Business

  and Chief Executive Office

  	
   

  	
  Books and Records

  	
   

  	
  Equipment, Fixtures,

  Goods and Inventory

  	
   

  
	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  
	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  	
     

  	
   

  

 

 

 

 

SCHEDULE IV

PROMISSORY NOTES, SECURITIES, DEPOSIT
ACCOUNTS, SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS

Securities

	
  Grantor

  	
   

  	
  Name of Issuer

  	
   

  	
  Number of

  Shares

  	
   

  	
  Class

  	
   

  	
  Certificate

  No.(s)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Deposit Accounts

	
  Grantor

  	
   

  	
  Name and Address of Institution

  	
   

  	
  Purpose of the Account

  	
   

  	
  Account No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

 

SCHEDULE V

FINANCING STATEMENTS

	
  Grantors

  	
   

  	
  Jurisdictions For Filing Financing Statements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

 

 

SCHEDULE VI

COMMERCIAL TORT CLAIMS

 

 

 

EXHIBIT A

ASSIGNMENT FOR SECURITY

[TRADEMARKS] [PATENTS] [COPYRIGHTS]

WHEREAS,                                                              
(the “Assignor”) [has adopted, used and is using, and holds all right,
title and interest in and to, the trademarks and service marks listed on the
annexed Schedule 1A, which trademarks and service marks are
registered or applied for in the United States Patent and Trademark Office (the
“Trademarks”)] [holds all right, title and interest in the letter
patents, design patents and utility patents listed on the annexed Schedule 1A,
which patents are issued or applied for in the United States Patent and
Trademark Office (the “Patents”)] [holds all right, title and interest
in the copyrights listed on the annexed Schedule 1A, which copyrights
are registered in the United States Copyright Office (the “Copyrights”)];

WHEREAS, the Assignor has
entered into a Security Agreement, dated as of September   ,
2006 (as amended, restated or otherwise modified from time to time the “Security
Agreement”), in favor Gottbetter Capital Master, Ltd., as collateral agent
for certain purchasers (the “Assignee”);

WHEREAS, pursuant to the
Security Agreement, the Assignor has assigned to the Assignee and granted to
the Assignee for the benefit of the Buyers (as defined in the Security
Agreement) a continuing security interest in all right, title and interest of
the Assignor in, to and under the [Trademarks, together with, among other
things, the good-will of the business symbolized by the Trademarks] [Patents]
[Copyrights] and the applications and registrations thereof, and all proceeds
thereof, including, without limitation, any and all causes of action which may
exist by reason of infringement thereof and any and all damages arising from
past, present and future violations thereof (the “Collateral”), to
secure the payment, performance and observance of the “Obligations” (as defined
in the Security Agreement);

NOW, THEREFORE, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Assignor does hereby pledge, convey, sell, assign, transfer
and set over unto the Assignee and grants to the Assignee for the benefit of
the Buyers a continuing security interest in the Collateral to secure the
prompt payment, performance and for the benefit of the Buyers observance of the
Obligations.

The Assignor does hereby
further acknowledge and affirm that the rights and remedies of the Assignee
with respect to the Collateral are more fully set forth in the Security Agreement,
the terms and provisions of which are hereby incorporated herein by reference
as if fully set forth herein.

 

IN WITNESS WHEREOF, the Assignor has caused this
Assignment to be duly executed by its officer thereunto duly authorized as of                ,
20   

	
     

  	
  [GRANTORS]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
     

  	
  By:

  	
   

  
	
     

  	
  Name:

  
	
     

  	
  Title:

  

 

STATE OF                          

ss.:

COUNTY
OF                      

On this       
day of                    ,
20   , before me personally came                               ,
to me known to be the person who executed the foregoing instrument, and who,
being duly sworn by me, did depose and say that s/he is the                               
of                                                             ,
a                               ,
and that s/he executed the foregoing instrument in the firm name of                                                             ,
and that s/he had authority to sign the same, and s/he acknowledged to me that
he executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.

 

 

 

SCHEDULE 1A TO ASSIGNMENT FOR SECURITY

[Trademarks and Trademark Applications]

[Patent and Patent Applications]

[Copyright and Copyright Applications]

Owned by 

 

 

 

Schedule 4(g)

Effective
Financing StatementsExhibit 10.1

Adobe
Systems Incorporated

Deferred Compensation Plan

 

Effective December 2, 2006

 

 

TABLE OF CONTENTS

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  Selection, Enrollment, Eligibility

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Selection by Committee

  	
   

  	
  6

  
	
  2.2

  	
   

  	
  Enrollment and Eligibility Requirements;
  Commencement of Participation

  	
   

  	
  6

  
	
  2.23

  	
   

  	
  Termination of a Participant’s Eligibility

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  Deferral Commitments/Company Contribution
  Amounts/Company Restoration Matching Amounts /Vesting/Crediting/Taxes

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Minimum Deferrals

  	
   

  	
  8

  
	
  3.2

  	
   

  	
  Maximum Deferral

  	
   

  	
  9

  
	
  3.3

  	
   

  	
  Election to Defer; Effect of Election Form

  	
   

  	
  9

  
	
  3.4

  	
   

  	
  Withholding and Crediting of Annual Deferral Amounts

  	
   

  	
  10

  
	
  3.5

  	
   

  	
  Company Contribution Amount

  	
   

  	
  10

  
	
  3.6

  	
   

  	
  Company Restoration Matching Amount

  	
   

  	
  11

  
	
  3.7

  	
   

  	
  Crediting of Amounts after Benefit Distribution

  	
   

  	
  11

  
	
  3.8

  	
   

  	
  Vesting

  	
   

  	
  11

  
	
  3.9

  	
   

  	
  Crediting/Debiting of Account Balances

  	
   

  	
  12

  
	
  3.10

  	
   

  	
  FICA and Other Taxes

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  Scheduled Distribution; Unforeseeable Financial Emergencies

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Scheduled Distribution

  	
   

  	
  14

  
	
  4.2

  	
   

  	
  Postponing Scheduled Distributions

  	
   

  	
  14

  
	
  4.3

  	
   

  	
  Other Benefits Take Precedence Over Scheduled
  Distributions

  	
   

  	
  15

  
	
  4.4

  	
   

  	
  Withdrawal Payout/Suspensions for Unforeseeable
  Financial Emergencies

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  Change in Control Benefit

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Change in Control Benefit

  	
   

  	
  16

  
	
  5.2

  	
   

  	
  Payment of Change in Control Benefit

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  Retirement Benefit

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Retirement Benefit

  	
   

  	
  16

  
	
  6.2

  	
   

  	
  Payment of Retirement Benefit

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  Termination Benefit

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Termination Benefit

  	
   

  	
  17

  
	
  7.2

  	
   

  	
  Payment of Termination Benefit

  	
   

  	
  17

  

 

 i
 

 

 

	
  ARTICLE 8

  	
   

  	
  Disability Benefit

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Disability Benefit

  	
   

  	
  17

  
	
  8.2

  	
   

  	
  Payment of Disability Benefit

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  Death Benefit

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Death Benefit

  	
   

  	
  18

  
	
  9.2

  	
   

  	
  Payment of Death Benefit

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  Beneficiary Designation

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Beneficiary

  	
   

  	
  18

  
	
  10.2

  	
   

  	
  Beneficiary Designation; Change; Spousal Consent

  	
   

  	
  18

  
	
  10.3

  	
   

  	
  Acknowledgement

  	
   

  	
  18

  
	
  10.4

  	
   

  	
  No Beneficiary Designation

  	
   

  	
  18

  
	
  10.5

  	
   

  	
  Doubt as to Beneficiary

  	
   

  	
  18

  
	
  10.6

  	
   

  	
  Discharge of Obligations

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  Leave of Absence

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Paid Leave of Absence

  	
   

  	
  19

  
	
  11.2

  	
   

  	
  Unpaid Leave of Absence

  	
   

  	
  19

  
	
  11.3

  	
   

  	
  Leaves Resulting in Separation from Service

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  Termination of Plan, Amendment or Modification

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Termination of Plan

  	
   

  	
  19

  
	
  12.2

  	
   

  	
  Amendment

  	
   

  	
  20

  
	
  12.3

  	
   

  	
  Plan Agreement

  	
   

  	
  20

  
	
  12.4

  	
   

  	
  Effect of Payment

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  	
  Administration

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Committee Duties

  	
   

  	
  21

  
	
  13.2

  	
   

  	
  Administration Upon Change in Control

  	
   

  	
  21

  
	
  13.3

  	
   

  	
  Agents

  	
   

  	
  21

  
	
  13.4

  	
   

  	
  Binding Effect of Decisions

  	
   

  	
  21

  
	
  13.5

  	
   

  	
  Indemnity of Committee

  	
   

  	
  22

  
	
  13.6

  	
   

  	
  Employer Information

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
   

  	
  Other Benefits and Agreements

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  Coordination with Other Benefits

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
   

  	
  Claims Procedures

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  Presentation of Claim

  	
   

  	
  22

  
	
  15.2

  	
   

  	
  Notification of Decision

  	
   

  	
  22

  
	
  15.3

  	
   

  	
  Review of a Denied Claim

  	
   

  	
  23

  

 

 ii
 

 

 

	
  15.4

  	
   

  	
  Decision on Review

  	
   

  	
  23

  
	
  15.5

  	
   

  	
  Arbitration/Interest on Unpaid Amounts/Controlling
  Law

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
   

  	
  Trust

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.1

  	
   

  	
  Establishment of the Trust

  	
   

  	
  24

  
	
  16.2

  	
   

  	
  Interrelationship of the Plan and the Trust

  	
   

  	
  25

  
	
  16.3

  	
   

  	
  Distributions From the Trust

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
   

  	
  Miscellaneous

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.1

  	
   

  	
  Status of Plan

  	
   

  	
  25

  
	
  17.2

  	
   

  	
  Unsecured General Creditor

  	
   

  	
  25

  
	
  17.3

  	
   

  	
  Employer’s Liability

  	
   

  	
  25

  
	
  17.4

  	
   

  	
  Nonassignability

  	
   

  	
  25

  
	
  17.5

  	
   

  	
  Not a Contract of Employment

  	
   

  	
  25

  
	
  17.6

  	
   

  	
  Furnishing Information

  	
   

  	
  26

  
	
  17.7

  	
   

  	
  Terms

  	
   

  	
  26

  
	
  17.8

  	
   

  	
  Captions

  	
   

  	
  26

  
	
  17.9

  	
   

  	
  Governing Law

  	
   

  	
  26

  
	
  17.10

  	
   

  	
  Notice

  	
   

  	
  26

  
	
  17.11

  	
   

  	
  Successors

  	
   

  	
  26

  
	
  17.12

  	
   

  	
  Spouse’s Interest

  	
   

  	
  26

  
	
  17.13

  	
   

  	
  Validity

  	
   

  	
  27

  
	
  17.14

  	
   

  	
  Incompetent

  	
   

  	
  27

  
	
  17.15

  	
   

  	
  Court Order

  	
   

  	
  27

  
	
  17.16

  	
   

  	
  Distribution in the Event of Income Inclusion Under
  409A

  	
   

  	
  27

  
	
  17.17

  	
   

  	
  Deduction Limitation on Benefit Payments

  	
   

  	
  27

  
	
  17.18

  	
   

  	
  Insurance

  	
   

  	
  28

  

 

 iii

 

Adobe Systems Incorporated

Deferred Compensation Plan

Master Plan Document

 

ADOBE SYSTEMS INCORPORATED

DEFERRED COMPENSATION PLAN

Effective December 2,
2006

Purpose

The purpose of
this Plan is to provide specified benefits to Directors and a select group of
management or highly compensated Employees who contribute materially to the
continued growth, development and future business success of Adobe Systems
Incorporated, a Delaware corporation, and its subsidiaries, if any, that
sponsor this Plan.  This Plan shall be
unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE 1

Definitions

For the purposes
of this Plan, unless otherwise clearly apparent from the context, the following
phrases or terms shall have the following indicated meanings:

1.1                                 “Account
Balance” shall mean, with respect to a Participant, an entry on the records of
the Employer equal to the sum of the Participant’s Annual Accounts.  The Account Balance shall be a bookkeeping
entry only and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant, or his or her
designated Beneficiary, pursuant to this Plan.

1.2                                 “Annual
Account” shall mean, with respect to a Participant, an entry on the records of
the Employer equal to the following amount: (i) the sum of the Participant’s
Annual Deferral Amount, Company Contribution Amount and Company Restoration
Matching Amount for any one Plan Year, plus (ii) amounts credited or debited to
such amounts pursuant to this Plan, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to the
Annual Account for such Plan Year.  The
Annual Account shall be a bookkeeping entry only and shall be utilized solely
as a device for the measurement and determination of the amounts to be paid to
a Participant, or his or her designated Beneficiary, pursuant to this Plan.

1.3                                 “Annual
Deferral Amount” shall mean that portion of a Participant’s Base Salary, Bonus,
Commissions, Performance Based Restricted Stock Units, and Director Fees that a
Participant defers in accordance with Article 3 for any one Plan Year,
without regard to whether such amounts are withheld and credited during such
Plan Year.  In the event of a Participant’s
Retirement, Disability, death or Termination of Employment prior to the end of
a Plan Year, such year’s Annual Deferral Amount shall be the actual amount
withheld prior to such event.

1.4                                 “Annual
Installment Method” shall be an annual installment payment over the number of
years selected by the Participant in
accordance with this Plan, calculated as follows: (i) for the first annual
installment, the vested portion of each Annual Account shall be calculated as
of the close of business on or around the Participant’s Benefit Distribution Date,
as determined by the Committee in its sole discretion, and (ii) for remaining annual
installments, the vested portion of each applicable Annual Account shall be
calculated on every anniversary of such calculation date, as applicable.  Each annual installment shall be calculated
by multiplying this balance by a

 1
 

 

fraction, the numerator
of which is one and the denominator of which is the remaining number of annual
payments due to the Participant.  By way
of example, if the Participant elects a ten year Annual Installment Method as
the form of Retirement Benefit for an Annual Account, the first payment shall
be 1/10 of the vested balance of such Annual Account, calculated as described
in this definition.  The following year,
the payment shall be 1/9 of the vested balance of such Annual Account,
calculated as described in this definition.

1.5                               “Base
Salary” shall mean the annual cash compensation from an Employer relating to
services performed during any calendar year. 
It shall be limited to base pay earned during any calendar year and
shall exclude: Commissions; distributions from nonqualified deferred
compensation plans; bonuses; overtime; fringe benefits; stock options; employee
stock purchase plan benefits; lump sum cash payout of paid time off in the case
of Participants incurring a separation from service on account of Termination
of Employment, Retirement, Disability, or death; relocation expenses; incentive
payments; non-monetary awards; Director Fees and other fees; and automobile and
other allowances paid to a Participant for employment services rendered
(whether or not such allowances are included in the Employee’s gross
income).  Base Salary shall be calculated
before reduction for compensation voluntarily deferred or contributed by the
Participant and not otherwise included in the Participant’s income because of
Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established
by any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that had there been no such plan, the amount
would have been payable in cash to the Employee.  Base Salary shall be reduced by Participant
contributions under this Plan.

1.6                                 “Beneficiary”
shall mean one or more persons, trusts, estates or other entities, designated
in accordance with Article 10, that are entitled to receive benefits under
this Plan upon the death of a Participant.

1.7                                 “Beneficiary
Designation Form” shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee to
designate one or more Beneficiaries.

1.8                                 “Benefit
Distribution Date” shall mean a date that triggers distribution of a
Participant’s vested benefits.  A Benefit
Distribution Date for a Participant shall be determined upon the occurrence of
any one of the following:

(a)                                  If
the Participant Retires, the Benefit Distribution Date for his or her vested
Account Balance shall be (i) the last
day of the six-month period immediately following the date on which the
Participant Retires if the Participant is a Key Employee, and (ii) for all other Participants, the date on which the Participant Retires;
provided, however, in the event the Participant changes the Retirement Benefit
election for one or more Annual Accounts in accordance with Section 6.2(b), the Benefit Distribution Date
for such Annual Account(s) shall be postponed
in accordance with such Section 6.2(b); or

(b)                                 If
the Participant experiences a Termination of Employment, the Benefit
Distribution Date for his or her vested Account Balance shall be (i) the
last day of the six-month period immediately following the date on which the
Participant experiences a Termination of Employment if the Participant is a Key
Employee, and (ii) for all other

 2
 

 

Participants, the date on which the Participant experiences a
Termination of Employment; or

(c)                                  If
the Participant dies prior to the complete distribution of his or her vested
Account Balance, the Participant’s Benefit Distribution Date shall be the date
on which the Committee is provided with proof that is satisfactory to the
Committee of the Participant’s death; or

(d)                                 If
the Participant becomes Disabled, the Participant’s Benefit Distribution Date
shall be the date on which it is determined that the Participant has become
Disabled; or

(e)                                  If (i) a Change in Control occurs with
respect to a Participant prior to the Participant’s Termination of Employment,
Retirement, death or Disability, and (ii) the Participant has elected to
receive a Change in Control Benefit as set forth in Article 5, the Participant’s
Benefit Distribution Date shall be the date on which the Change in Control
occurs, as determined by the Committee in its sole discretion.

1.9                                 “Board”
shall mean the board of directors of the Company.

1.10                           “Bonus”
shall mean any compensation, in addition to Base Salary and Commissions from an
Employer, earned by a Participant for services rendered during an Employer’s
fiscal year or such other period provided under any Employer’s Annual Incentive
Plan, Profit Sharing Plan, or any other cash incentive arrangement designated
by the Committee, as further described on an Election Form approved by the
Committee in its sole discretion.

1.11                           “Change
in Control” shall mean any “change in control event” as defined in accordance
with Treasury guidance and Regulations related to Code Section 409A. Notwithstanding
the preceding sentence, the Committee may determine that the definition of
Change in Control for purposes of this Plan shall be more restrictive than the
definition applicable under Section 409A, for example, by providing that sales
of subsidiaries of the Company shall not be taken into account in determining
whether there has been a Change in Control.

1.12                           “Change in Control Benefit” shall have the
meaning set forth in Article 5.

1.13                           “Claimant”
shall have the meaning set forth in Section 15.1.

1.14                           “Code”
shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time.

1.15                           “Commissions”
shall mean the commissions otherwise payable to a Participant under an Employer
sales incentive plan absent a deferral under this Plan.

1.16                           “Committee”
shall mean the committee described in Article 13.

1.17                           “Company”
shall mean Adobe Systems Incorporated, a Delaware corporation, and any
successor to all or substantially all of the Company’s assets or business.

1.18                           “Company
Contribution Amount” shall mean, for any one Plan Year, the amount determined
in accordance with Section 3.5.

1.19                           “Company
Restoration Matching Amount” shall mean, for any one Plan Year, the amount
determined in accordance with Section 3.6.

1.20                           “Death
Benefit” shall mean the benefit set forth in Article 9.

 3
 

 

1.21                           “Director”
shall mean any member of the Board.

1.22                           “Director
Fees” shall mean the annual fees earned by a Director, including retainer fees
and meeting fees, as compensation for serving on the Board.

1.23                           “Disability”
or “Disabled” shall mean that a Participant is (i) unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or (ii) by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, receiving income replacement benefits for a period
of not less than 3 months under an accident or health plan covering employees
of the Participant’s Employer.

1.24                           “Disability
Benefit” shall mean the benefit set forth in Article 8.

1.25                           “Election
Form” shall mean the form, which may be in electronic format, established from
time to time by the Committee that a Participant completes, signs and returns
to the Committee to make an election under the Plan.

1.26                           “Employee”
shall mean a person who is an employee of any Employer.

1.27                           “Employer(s)”
shall mean the Company and/or any of its subsidiaries (now in existence or
hereafter formed or acquired) that have been selected by the Board to
participate in the Plan and have adopted the Plan as a sponsor.

1.28                           “ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.

1.29                           “First
Plan Year” shall mean the period beginning January 1, 2007 and ending December
31, 2007; provided that, the Committee may determine, in its discretion, an
earlier beginning date for the First Plan Year.

1.30                           “401(k)
Plan” shall mean, with respect to an Employer, a plan qualified under Code
Section 401(a) that contains a cash or deferral arrangement described in Code
Section 401(k), adopted by the Employer, as it may be amended from time to
time, or any successor thereto.

1.31                           “Key
Employee” shall mean any Participant who is a “key employee” (as defined in
Code Section 416(i) without regard to paragraph (5) thereof) of any Employer
which is a corporation whose stock is publicly traded on an established
securities market or otherwise, as determined by the Committee in accordance
with Code Section 409A and related Treasury guidance and Regulations.

1.32                           “Participant”
shall mean any Employee or Director (i) who is selected to participate in
the Plan, (ii) who submits an executed Plan Agreement, Election Form and
Beneficiary Designation Form, which are accepted by the Committee, and (iii)
whose Plan Agreement has not terminated.

1.33                           “Performance
Based Restricted Stock Units” shall mean the restricted stock units awarded to
selected Participants, which units shall be settled by the delivery of Company
stock unless deferral of payout is made pursuant to this Plan.

 4
 

 

1.34                           “Plan”
shall mean the Adobe Systems Incorporated Deferred Compensation Plan, which
shall be evidenced by this instrument and by each Plan Agreement, as they may
be amended from time to time.

1.35                           “Plan
Agreement” shall mean a written agreement, as may be amended from time to time,
which is entered into by and between an Employer and a Participant.  Each Plan Agreement executed by a Participant
and the Participant’s Employer shall provide for the entire benefit to which
such Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Employer shall supersede all previous Plan Agreements in their entirety and
shall govern such entitlement.  The terms
of any Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or limit
the benefits otherwise provided under the Plan; provided, however, that any
such additional benefits or benefit limitations must be agreed to by the
Employer, the Participant, and the Company.

1.36                           “Plan
Year” shall mean a period beginning on January 1 of each calendar year and
continuing through December 31 of such calendar year.

1.37                           “Retirement”,
“Retire(s)” or “Retired” shall mean (1) with respect to an Employee, separation
from service with all Employers for any reason other than a leave of absence,
death or Disability, as determined in accordance with Code Section 409A and
related Treasury guidance and Regulations, on or after the attainment of age 55
with ten Years of Service; and (2) with respect to a Director who is not then
an Employee, separation from service as a Director with all Employers.

1.38                           “Retirement
Benefit” shall mean the benefit set forth in Article 6.

1.39                           “Scheduled
Distribution” shall mean the distribution set forth in Section 4.1.

1.40                           “Terminate
the Plan”, “Termination of the Plan” shall mean a determination that (i) all
Participants (or all Participants of one or more Employers) shall no longer be
eligible to participate in the Plan, (ii) all deferral elections for such
Participants shall terminate, and (iii) such Participants shall no longer be
eligible to receive Employer contributions under this Plan.

1.41                           “Termination
Benefit” shall mean the benefit set forth in Article 7.

1.42                           “Termination
of Employment” shall mean the separation from service with all Employers,
voluntarily or involun­tarily, for any reason other than Retirement, Disability,
death or an authorized leave of absence, as determined in accordance with Code
Section 409A and related Treasury guidance and Regulations.  If a Participant is both an Employee and a
Director, a Termination of Employment shall occur only upon the termination of
the last position held.

1.43                           “Trust”
shall mean one or more trusts established by the Company in accordance with
Article 16.

1.44                           “Unforeseeable
Financial Emergency” shall mean a severe financial hardship of the Participant
or Beneficiary resulting from an illness or accident of the Participant or
Beneficiary, the Participant or Beneficiary’s spouse or the Participant or
Beneficiary’s dependent (as defined in section 152(a) of the Code)); loss of
the Participant’s or Beneficiary’s property due to casualty (including the need
to rebuild a home following damage to a home not otherwise covered by
insurance, for example, as a result of a natural disaster); or other similar
extraordinary and unforeseeable circumstance arising as a result of events
beyond the control of the Participant or

 5
 

 

Beneficiary.  The determination of whether an “Unforeseeable
Financial Emergency” exists shall be determined in the sole discretion of the
Committee.

1.45                           “Years
of Service” shall mean the total number of full years in which a Participant
has been employed by one or more Employers. 
For purposes of this definition, a year of employment shall be a 365 day
period (or 366 day period in the case of a leap year) that, for the first year
of employment, commences on the Employee’s date of hiring and that, for any
subsequent year, commences on an anniversary of that hiring date.  The Committee shall make a determination as
to whether any partial year of employment shall be counted as a Year of
Service.  The Committee, in its complete
discretion, may determine that, in addition to employment described in the
preceding two sentences, employment may be counted toward the computation of
Years of Service if it is either (a) employment with a subsidiary that is not
an Employer or (2) employment with a company that has been in whole or part
acquired by the Company or a subsidiary of the Company through merger, purchase
of assets, or other form of reorganization.

ARTICLE 2

Selection, Enrollment, Eligibility

2.1                                 Selection by Committee.  Participation in the Plan shall be limited to
Directors and, as determined by the Committee in its sole discretion, a select
group of management or highly compensated Employees.  From that group, the Committee shall select,
in its sole discretion, those individuals who may actually participate in this
Plan.

2.2                                 Enrollment and Eligibility Requirements;
Commencement of Participation.

(a)                                  As
a condition to participation, each Director or selected Employee who is
eligible to participate in the Plan effective as of the first day of a Plan
Year shall complete, execute and return to the Committee a Plan Agreement, an
Election Form and a Beneficiary Designation Form, prior to the first day of
such Plan Year, or such other earlier deadline (such as prior to the first day
of the Company’s fiscal year) as may be established by the Committee in its
sole discretion.  In addition, the
Committee shall establish from time to time such other enrollment requirements
as it determines, in its sole discretion, are necessary.  With
respect to the First Plan Year, each Director or selected Employee must
complete these requirements within 30 days of the date on which such Director
or Employee becomes eligible to participate in the Plan, or within such
other earlier deadline as may be established by the Committee, in its sole
discretion, in order to participate for that Plan.  Except as provided in Section 2.2(b) below, with respect to any Plan
Year after the First Plan Year, each Director or selected Employee must
complete these requirements prior to the first day of such Plan Year, or such
other earlier deadline (such as prior to the first day of the Company’s
fiscal year) as may be established by
the Committee in its sole discretion.

(b)                                 A
Director or selected Employee who first becomes eligible to participate in this
Plan after the first day of a Plan Year must complete these requirements within
30 days after he or she first becomes eligible to participate in the Plan, or
within such other earlier deadline as may be established by the Committee, in
its sole discretion, in order to participate for that Plan Year.  In such event, such person’s participation in
this Plan shall

 6
 

 

not commence
earlier than the date determined by the Committee pursuant to Section 2.2(c)
and such person shall not be permitted to defer under this Plan any portion of
his or her Base Salary, Bonus and/or Director Fees that are paid with respect
to services performed prior to his or her participation commencement date,
except to the extent permissible under
Code Section 409A and related Treasury guidance or Regulations.

(c)                                  Each
Director or selected Employee who is eligible to participate in the Plan shall
commence participation in the Plan on the date that the Committee determines,
in its sole discretion, that the Director or Employee has met all enrollment
requirements set forth in this Plan and required by the Committee, including
returning all required documents to the Committee within the specified time
period.  Notwithstanding the foregoing,
the Committee shall process such Participant’s deferral election as soon as
administratively practicable after such deferral election is submitted to and
accepted by the Committee.

(d)                                 If
a Director or an Employee fails to meet all requirements contained in this
Section 2.2 within the period required, that Director or Employee shall not be
eligible to participate in the Plan during such Plan Year.

(e)                                  If,
pursuant to Section 3.3(c), the Committee determines that an election may be
made to defer the payment of performance-based compensation no later than six
months before the end of the performance service period, the Committee may
adjust the deadline for the submission of enrollment forms to reflect its
determination.  In particular, the
Committee may determine that the enrollment deadlines with respect to the
Annual Incentive Plan shall be measured with respect to the date ending six
months before the end of the Company’s fiscal year and that the timing
deadlines with respect to the submission of forms with respect to the deferral
of compensation under the Annual Incentive Plan shall be measured solely with
respect to the date ending six months before the end of the Company’s fiscal
year.

2.3                                 Termination of a Participant’s Eligibility.   If the Committee
determines that an Employee Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership in
such group is determined in accordance with Sections 201(2), 301(a)(3) and
401(a)(1) of ERISA, or that the
inclusion of Directors in this Plan could jeopardize the status of this Plan as
a plan intended to be “unfunded” and “maintained by an employer primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees” within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1), the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has
made for the remainder of the Plan Year in which the Committee makes such
determination, (ii) prevent the Participant from making future deferral
elections, and/or (iii) take further action that the Committee deems
appropriate.  Notwithstanding the
foregoing, in the event of a Termination of the Plan, the termination of the
affected Participant’s eligibility for participation in the Plan shall not be
governed by this Section 2.3, but rather shall be governed by Section
12.1.  In the event that a Participant is
no longer eligible to defer compensation under this Plan, the Participant’s
Account Balance shall continue to be governed by the terms of this Plan until
such time as the Participant’s Account Balance is paid in accordance with the
terms of this Plan.

 7
 

 

ARTICLE 3

Deferral Commitments/Company Contribution Amounts/

Company Restoration Matching Amounts/
Vesting/Crediting/Taxes

3.1                                 Minimum Deferrals.

(a)                                  Annual Deferral Amount.  For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Base Salary, Commissions,
Bonus, Performance Based Restricted Stock Units, and/or Director Fees in the
following minimum amounts for each deferral elected: 

	
  Deferral

  	
   

  	
  Minimum Amount

  
	
  Base Salary

  	
   

  	
  5%

  
	
  Commissions

  	
   

  	
  5%

  
	
  Bonus

  	
   

  	
  5% (in the case of the Annual Incentive Plan, the
  Participant may elect to defer amounts in excess of a specified dollar
  amount)

  
	
  Performance
  Based Restricted Stock Units

  	
   

  	
  5%

  
	
  Director Fees

  	
   

  	
  5%

  

In addition to the
minimum amounts set forth above, the Committee may determine in its discretion
that elections to defer Base Salary, Commissions, Performance Based Restricted
Units, or Bonuses shall only be effective to the extent that a specified
minimum dollar amount of Base Salary, Commissions, Performance Based Restricted
Stock Units, or Bonus is expected to be deferred; for example, the Committee
may determine that an election to defer a portion of a Participant’s Bonus
under the Annual Incentive Plan shall only be effective if a minimum amount,
such as $2000, is expected to be deferred. If the Committee determines, in its
sole discretion, prior to the beginning of a Plan Year that a Participant has
made an election for less than the stated minimum amounts, or if no election is
made, the amount deferred shall be zero. 
If the Committee determines, in its sole discretion, at any time after
the beginning of a Plan Year that a Participant has deferred less than the
stated minimum amounts for that Plan Year, any amount credited to the
Participant’s applicable Annual Account as the Annual Deferral Amount for that
Plan Year shall be distributed to the Participant within 60 days after the last
day of the Plan Year in which the Committee determination was made.  

(b)                                 Participation After Commencement of Plan Year.  Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of a Plan Year, unless the Committee establishes different
proration rules, any minimum Annual Deferral Amount shall be an amount
equal to any minimum established by the Plan or the Committee multiplied by a
fraction, the numerator of which is the number of complete months remaining in
the Plan Year and the denominator of which is 12.

 8
 

 

3.2                                 Maximum Deferral.

(a)                                  Annual Deferral Amount.  For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Base Salary, Commissions,
Bonus, Performance Based Restricted Stock Units, and/or Director Fees up to the
following maximum percentages for each deferral elected, provided that, if
necessary for the purpose of allowing enough remaining undeferred compensation
to fund any necessary withholdings for taxes or benefits, the Committee may, in
its sole discretion, establish lesser amounts for one or more classes of
Participants:

	
  Deferral

  	
   

  	
  Maximum Percentage

  	
   

  
	
  Base Salary 

  	
   

  	
  75

  	
  %

  
	
  Commissions

  	
   

  	
  100

  	
  %

  
	
  Bonus

  	
   

  	
  100

  	
  %

  
	
  Performance Based Restricted Stock Units

  	
   

  	
  100

  	
  %

  
	
  Director Fees

  	
   

  	
  100

  	
  %

  

 

(b)                                 Short Plan Year.  Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall
be limited to the amount of compensation not yet earned by the Participant as
of the date the Participant submits a Plan Agreement and Election Form to the
Committee for acceptance, except to the extent permissible under Code Section 409A and related
Treasury guidance or Regulations.

3.3                                 Election to Defer; Effect of Election Form.

(a)                                  First Plan Year.  In connection with a Participant’s commence­ment
of participa­tion in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the Committee
deems necessary or desirable under the Plan. 
For these elections to be valid, the Election Form must be completed and
signed by the Participant, timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the Committee.

(b)                                 Subsequent Plan Years.  For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the Committee
deems necessary or desirable under the Plan, shall be made by timely delivering
a new Election Form to the Committee, in accordance with its rules and
procedures, before the end of the Company’s fiscal year preceding the Plan Year
for which the election is made, or before such other deadline established by
the Committee to the extent such other deadline complies with the requirements
of Code Section 409A and related
Treasury guidance.  If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral Amount
shall be zero for that Plan Year.

 9
 

 

(c)                                  Performance-Based Compensation. Notwithstanding
the foregoing, the Committee may, in its sole discretion, determine that an
irrevocable deferral election pertaining to performance-based compensation may
be made by the Participant’s timely delivering an Election Form to the
Committee, in accordance with its rules and procedures, no later than six 6
months before the end of the performance service period.  “Performance-based compensation” shall be
compensation from an Employer based on services performed over a period of at
least 12 months, in accordance with Code Section 409A and related Treasury
guidance or Regulations.  Until such time
as Treasury guidance provides the requirements for an amount to qualify as “performance-based
compensation” under Code Section 409A, the Committee may utilize the definition
of “bonus compensation” provided in Treasury Notice 2005-1 in determining which
amounts may be deferred by delivering an Election Form to the Committee, in
accordance with its rules and procedures, no later than six months before the
end of the performance service period.

3.4                                 Withholding and Crediting of Annual Deferral
Amounts.

(a)                                  For
each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be
withheld from each regularly scheduled Base Salary payment in equal amounts, as
adjusted from time to time for increases and decreases in Base Salary.  The Bonus, Commission, Performance Based
Restricted Stock Units, and/or Director Fees portion of the Annual Deferral
Amount shall be withheld at the time these amounts are or otherwise would be
paid to the Participant, whether or not this occurs during the Plan Year
itself.  Annual Deferral Amounts shall be
credited to the Participant’s Annual Account for such Plan Year at the time
such amounts would otherwise have been paid to the Participant.

(b)                                 Notwithstanding
any provision or election under this Plan to the contrary, if necessary to
comply with Code Section 409A or to facilitate administration of the Company’s
payroll system, the Committee, in its sole discretion, may choose to either (i)
not withhold from Base Salary during any payroll period in which any portion of
such Base Salary relates to services performed in a prior Plan Year, or (ii)
withhold from Base Salary during any payroll period in which any portion of
such Base Salary relates to services performed in a prior Plan Year in
accordance with the Participant’s deferral election submitted for the prior
Plan Year.  Accordingly, in order to
carry out the intent of this provision, the Committee may adjust a Participant’s
Base Salary deferral election submitted pursuant to this Article 3.

3.5                                 Company Contribution Amount.

(a)                                  An
Employer is not generally required to make Employer Contributions to this
Plan.  Employer Contributions may be
made, however, as provided under the following subsections of this section and
Section 3.6.

(b)                                 For
each Plan Year, an Employer may be required to credit amounts to a Participant’s
Annual Account in accordance with employment or other agreements entered into
between the Participant and the Employer, which amounts shall be part of the
Participant’s Company Contribution Amount for that Plan Year.  Such amounts shall be credited to the
Participant’s Annual Account for the applicable Plan Year on the date or dates
prescribed by such agreements.

 10
 

 

(c)                                  For
each Plan Year, an Employer, in its sole discretion, may, but is not required
to, credit any amount it decides, in its discretion, to contribute to any
Participant’s Annual Account under this Plan, which amount shall be part of the
Participant’s Company Contribution Amount for that Plan Year.  The amount so credited to a Participant may
be smaller or larger than the amount credited to any other Participant, and the
amount credited to any Participant for a Plan Year may be zero, even though one
or more other Participants receive a Company Contribution Amount for that Plan
Year.  The Company Contribution Amount described
in this Section 3.5(c), if any, shall be credited to the Participant’s Annual
Account for the applicable Plan Year on a date or dates to be determined by the
Committee, in its sole discretion.

3.6                                 Company Restoration Matching Amount.  A
Participant’s Company Restoration Matching Amount for any Plan Year shall be an
amount, which is determined by the Committee to make up for a reduction in the
Participant’s match in the 401(k) Plan for the Plan Year, if any, due to the
Participant’s deferral of Base Salary, Commissions, and Bonus into this Plan
for the Plan Year.  In order to be
eligible for a Company Restoration Matching Amount, a Participant must
contribute the maximum amount that he or she is eligible to contribute to the
401(k) Plan year that corresponds to the Plan Year of this Plan.  The amount of the Company Restoration
Matching Amount shall be computed by determining the increase in the
Participant’s eligible compensation (the “Increase”) under the 401(k) Plan for
the Plan Year that would have occurred, absent the Participant’s election to
participate in this Plan; the Company Restoration Matching Amount equals the
additional matching contribution to the 401(k) Plan that would have occurred if
the Participant’s eligible compensation had been increased by the Increase and
the Participant had deferred that portion of the Increase into the 401(k) Plan
that would have resulted in the maximum matching contribution by the Company
with respect to the Increase.  For
example, if (a) the maximum eligible compensation under the 401(k) Plan for a
Plan Year is $210,000, (b) the Company matches 50% of the first 6% of eligible
compensation contributed by a Participant, and (c) eligible compensation under
the 401(k) Plan is reduced to $170,000 because of a Participant’s election
under this Plan, the Company Restoration Matching Amount would be $1200 (50% of
6% of $40,000). The Participant’s Company Restoration Matching Amount, if any,
shall be credited to the Participant’s Annual Account for the applicable Plan
Year on a date or dates to be determined by the Committee, in its sole
discretion.

3.7                                 Crediting of Amounts after Benefit Distribution.  Notwithstanding any provision in this Plan to
the contrary, should the complete distribution of a Participant’s vested
Account Balance occur prior to the date on which any portion of (i) the Annual
Deferral Amount that a Participant has elected to defer in accordance with
Section 3.3, (ii) the Company Contribution Amount, or (iii) the Company
Restoration Matching Amount, would otherwise be credited to the Participant’s
Account Balance, such amounts shall not be credited to the Participant’s
Account Balance, but shall be paid to the Participant in a manner determined by
the Committee, in its sole discretion.

3.8                                 Vesting.

(a)                                  A
Participant shall at all times be 100% vested in his or her deferrals of Base
Salary, Commissions, Performance Based Restricted Stock Units, Bonus and
Director’s Fees.

(b)                                 A
Participant shall be vested in the portion of his or her Account Balance
attributable to any Company Contribution Amounts, plus amounts credited or
debited on such amounts

 11
 

 

(pursuant to
Section 3.9), in accordance with the vesting schedule(s) set forth in his or
her Plan Agreement, employment agreement or any other agreement entered into
between the Participant and his or her Employer.  If not addressed in such agreements, a
Participant shall vest in the portion of his or her Account Balance
attributable to any Company Contribution Amounts, plus amounts credited or
debited on such amounts (pursuant to Section 3.9), in accordance with the
vesting schedule declared by the Committee in its sole discretion.

(c)                                  A
Participant shall be vested in the portion of his or her Account Balance
attributable to any Company Restoration Matching Amounts, plus amounts credited
or debited on such amounts (pursuant to Section 3.9), only to the extent that
the Participant would be vested in such amounts under the provisions of the
401(k) Plan, as determined by the Committee in its sole discretion.

3.9                                 Crediting/Debiting of Account Balances.  In
accordance with, and subject to, the rules and procedures that are established
from time to time by the Committee, in its sole discretion, amounts shall be
credited or debited to a Participant’s Account Balance in accordance with the
following rules:

(a)                                  Measurement Funds.  The Committee shall
select from time to time certain mutual funds, insurance company separate
accounts, indexed rates or other methods (the “Measurement Funds”) for purposes
of crediting or debiting additional amounts to Participants’ Account
Balances.  The Committee may discontinue,
substitute or add a Measurement Fund, provided however, that any decision to
retain, discontinue or substitute a Measurement Fund shall be made in good
faith. Any discontinuance of a Measurement Fund will take effect not earlier
than the first day of the first calendar quarter that begins at least 30 days
after the day on which the Committee gives Participants advance written notice
of such change, unless such advance notice cannot be given due to reasons beyond
the control of the Company or the Committee, in which case notice of the change
shall be given as soon as administratively practical.

(b)                                 Company Stock Fund.  With respect to the deferral
of Performance Based Restricted Stock Units, unless otherwise specifically
provided by the Committee, deferrals may be only credited to a
Measurement Fund denominated in units of common stock of the Company,
and distributions from such fund shall only be made in shares of such stock.

(c)                                  Election of Measurement Funds.  A Participant, in connection with his or her
initial deferral election in accordance with Section 3.3 above, shall elect, on
the Election Form, one or more Measurement Fund(s) (as described in Section
3.9(a) above) to be used to determine the amounts to be credited or debited to
his or her Account Balance.  If a
Participant does not elect any of the Measurement Funds as described in the
previous sentence, the Participant’s Account Balance shall automatically be
allocated into a default Measurement Fund which is selected by the Committee
and identified prior to such allocation in Plan communication materials.  A Participant may (but is not required to)
elect, by submitting an Election Form to the Committee that is accepted by the
Committee or by any other procedure approved by the Committee, to add or delete
one or more Measurement Fund(s) to be used to determine the amounts to be
credited or debited

 12
 

 

to the Participant’s
Account Balance, or to change the portion of the Participant’s Account Balance
allocated to each previously or newly elected Measurement Fund.  If an election is made in accordance with the
previous sentence, it shall apply as of the first business day deemed
reasonably practicable by the Committee, in its sole discretion, and shall
continue thereafter for each subsequent day in which the Participant
participates in the Plan, unless changed in accordance with the previous
sentence.

(d)                                 Proportionate Allocation.  In making any election described in Section
3.9(c) above, the Participant shall specify on the Election Form, in increments
of one percent (1%), the percentage of his or her Account Balance or
Measurement Fund, as applicable, to be allocated/reallocated.

(e)                                  Crediting or Debiting Method.  The performance of each Measurement Fund
(either positive or negative) will be determined on a daily basis based on the
manner in which such Participant’s Account Balance has been hypothetically
allocated among the Measurement Funds by the Participant.

(f)                                    No Actual Investment.  Notwithstanding any other provision of this
Plan that may be interpreted to the contrary, the Measurement Funds are to be
used for measurement purposes only, and a Participant’s election of any such
Measurement Fund, the allocation of his or her Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such amounts
to a Participant’s Account Balance shall  not be considered or
construed in any manner as an actual investment of his or her Account Balance
in any such Measurement Fund.  In the
event that the Company or the Trustee (as that term is defined in the Trust),
in its own discretion, decides to invest funds in any or all of the investments
on which the Measurement Funds are based, no Participant shall have any rights
in or to such investments themselves. 
Without limiting the foregoing, a Participant’s Account Balance shall at
all times be a bookkeeping entry only and shall not represent any investment
made on his or her behalf by the Company or the Trust; the Participant shall at
all times remain an unsecured creditor of the Company.

3.10                           FICA and Other Taxes.

(a)                                  Annual Deferral Amounts.  For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the Participant’s
Employer(s) shall withhold from that portion of the Participant’s Base Salary
and/or Bonus Amounts that is not being deferred, in a manner determined by the
Employer(s), the Participant’s share of FICA and other employment taxes on such
Annual Deferral Amount.  If necessary,
the Committee may reduce the Annual Deferral Amount in order to comply with
this Section 3.10.

(b)                                 Company Restoration Matching Amounts and Company
Contribution Amounts. 
When a Participant becomes vested in a portion of his or her Account
Balance attributable to any Company Restoration Matching Amounts and/or Company
Contribution Amounts, the Participant’s Employer(s) shall withhold from that
portion of the Participant’s Base Salary and/or Bonus that is not deferred, in
a manner determined by the Employer(s), the Participant’s share of FICA and
other employment taxes (or other required withholdings) on such amounts.  If necessary, the Committee may reduce the

 13
 

 

vested portion of the
Participant’s Company Restoration Matching Amount or Company Contribution
Amount, as applicable, in order to comply with this Section 3.10.

(c)                                  Distributions.  The Participant’s Employer(s), or the trustee
of the Trust, shall withhold from any payments made to a Participant under this
Plan all federal, state and local income, employment and other taxes required
to be withheld by the Employer(s), or the trustee of the Trust, in connection
with such payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.

ARTICLE 4

Scheduled Distribution; Unforeseeable Financial Emergencies

4.1                                 Scheduled Distribution.  In connection with each election to defer an
Annual Deferral Amount, a Participant may irrevocably elect to receive a
Scheduled Distribution, in the form of a lump sum payment, from the Plan with
respect to all or a portion of the Annual Deferral Amount.  The Scheduled Distribution shall be a lump
sum payment in an amount that is equal to the portion of the Annual Deferral
Amount the Participant elected to have distributed as a Scheduled Distribution,
plus amounts credited or debited in the manner provided in Section 3.9
above on that amount, calculated as of the close of business on or around the
date on which the Scheduled Distribution becomes payable, as determined by the
Committee in its sole discretion. 
Subject to the other terms and conditions of this Plan, each Scheduled
Distribution elected shall be paid out during a 60 day period commencing
immediately after the first day of any Plan Year designated by the Participant
(the “Scheduled Distribution Date”).  The
Plan Year designated by the Participant must be at least three Plan Years after
the end of the Plan Year to which the Participant’s deferral election described
in Section 3.3 relates.  By way of
example, if a Scheduled Distribution is elected for Annual Deferral Amounts
that are earned in the Plan Year commencing January 1, 2007, the earliest
Scheduled Distribution Date that may be designated by a Participant would be
January 1, 2011, and the Scheduled Distribution would become payable during the
60 day period commencing immediately after such Scheduled Distribution Date.

4.2                                 Postponing Scheduled Distributions. A
Participant may elect to
postpone a Scheduled Distribution described in Section 4.1 above, and have such
amount paid out during a 60 day period commencing immediately after an
allowable alternative distribution date designated by the Participant in
accordance with this Section 4.2.  In
order to make this election, the Participant must submit a new Scheduled
Distribution Election Form to the Committee in accordance with the following
criteria:

(a)                                  Such
Scheduled Distribution Election Form must be submitted to and accepted by the
Committee in its sole discretion at least 12 months prior to the Participant’s
previously designated Scheduled
Distribution Date;

(b)                                 The
new Scheduled Distribution Date selected by the Participant must be the first
day of a Plan Year, and must be at least five years after the previously designated Scheduled Distribution
Date; and

 14

 

(c)                                  The election of the new Scheduled
Distribution Date shall have no effect until at least 12 months after the date
on which the election is made.

4.3                                 Other Benefits Take Precedence Over Scheduled
Distributions.  Should a
Benefit Distribution Date occur that triggers a benefit under Articles 5, 6, 7,
8, or 9, any Annual Deferral Amount that is subject to a Scheduled Distribution
election under Section 4.1 shall not be paid in accordance with Section 4.1,
but shall be paid in accordance with the other applicable Article.
Notwithstanding the foregoing, the Committee shall interpret this Section 4.3
in a manner that is consistent with Code Section 409A and other applicable tax
law, including but not limited to Treasury guidance and Regulations issued
after the effective date of this Plan.

4.4                                 Unforeseeable Emergencies.

(a)                                  If the Participant experiences an
Unforeseeable Emergency, the Participant may petition the Committee to receive
a partial or full payout from the Plan, subject to the provisions set forth below.

(b)                                 The
payout, if any, from the Plan shall not exceed the lesser of (i) the
Participant’s vested Account Balance, calculated as of the close of business on
or around the date on which the amount becomes payable, as determined by the
Committee in its sole discretion, or (ii) the amount necessary to satisfy the
Unforeseeable Emergency, plus amounts
necessary to pay Federal, state, or local income taxes or penalties reasonably
anticipated as a result of the distribution.  Notwithstanding the foregoing, a Participant
may not receive a payout from the Plan to the extent that the Unforeseeable
Emergency is or may be relieved (A) through reimbursement or compensation by
insurance or otherwise, (B) by liquidation of the Participant’s assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship or (C) by cessation of deferrals under this Plan.

(c)                                  If
the Committee, in its sole discretion, approves a Participant’s petition for
payout from the Plan, the Participant shall receive a payout from the Plan
within 60 days of the date of such approval, and the Participant’s deferral
election for that year under the Plan shall be terminated as of the date of
such approval.

(d)                                 In
addition, a Participant’s deferral elections under this Plan shall be
terminated to the extent the Committee determines, in its sole discretion, that
termination of such Participant’s deferral elections is required pursuant to
Treas. Reg. §1.401(k)-1(d)(3) for the Participant to obtain a hardship
distribution from an Employer’s 401(k) Plan. 
If the Committee determines, in its sole discretion, that a termination
of the Participant’s deferrals is required in accordance with the preceding
sentence, the Participant’s deferrals shall be terminated as soon as administratively
practicable following the date on which such determination is made.

(e)                                  Notwithstanding
the foregoing, the Committee shall interpret all provisions relating to a
payout and/or termination of deferrals under this Section 4.4 in a manner that
is consistent with Code Section 409A and related Treasury guidance and
Regulations.

 15
 

 

ARTICLE 5

Change
in Control Benefit

5.1                                 Change in Control
Benefit.  A Participant, in connection with his
or her commencement of participation in the Plan, shall irrevocably elect on an
Election Form whether to (i) receive a Change in Control Benefit upon the occurrence of a Change in Control,
which shall be equal to the Participant’s vested Account Balance, calculated as
of the close of business on or around the Participant’s Benefit Distribution
Date, as determined by the Committee in its sole discretion, or (ii) to have
his or her Account Balance remain in the Plan upon the occurrence of a Change
in Control and to have his or her Account Balance remain subject to the terms and
conditions of the Plan.  If a Participant
does not make any election with respect to the payment of the Change in Control
Benefit, then such Participant’s Account Balance shall remain in the Plan upon
a Change in Control and shall be subject to the terms and conditions of the
Plan.

5.2                                 Payment of Change in
Control Benefit.  The Change in Control Benefit, if any, shall
be paid to the Participant in a lump sum no later than 60 days after the
Participant’s Benefit Distribution Date. 
Notwithstanding the foregoing, the Committee shall interpret all
provisions in this Plan relating to a Change in Control Benefit in a manner
that is consistent with Code
Section 409A and related Treasury guidance and Regulations.

ARTICLE 6

Retirement Benefit

6.1                                 Retirement Benefit.    A Participant who Retires shall receive, as
a Retirement Benefit, his or her vested Account Balance, calculated as of the
close of business on or around the Participant’s Benefit Distribution Date, as
determined by the Committee in its sole discretion.

6.2                                 Payment of Retirement Benefit.

(a)                                  In connection with a Participant’s election
to defer an Annual Deferral Amount, the Participant shall elect the form in
which his or her Annual Account for such Plan Year will be paid.  The Participant may elect to receive each
Annual Account in the form of a lump sum or pursuant to an Annual Installment
Method of 5, 10, or 15 years.  If a
Participant does not make any election with respect to the payment of an Annual
Account, then the Participant shall be deemed to have elected to receive such
Annual Account as a lump sum.

(b)                                 A Participant may change the form of payment
for an Annual Account by submitting an Election Form to the Committee in
accordance with the following criteria:

(i)                                     The election to
modify the form of payment for such Annual Account shall have no effect until
at least twelve (12) months after the date on which the election is made; and

(ii)                                  Each payment related to
such Annual Account shall be delayed at
least five years from the originally
scheduled Benefit Distribution Date for such Annual Account.

 16
 

 

For purposes of applying the requirements above, the right to receive
an Annual Account in installment payments shall be treated as the entitlement
to a single payment.  The Committee shall
interpret all provisions relating to an election described in this Section 6.2
in a manner that is consistent with Code Section 409A and related Treasury
guidance or Regulations.

The
Election Form most recently accepted by the Committee in accordance with the
criteria set forth above shall govern the payout of the applicable Annual
Account.

(c)                                  The
lump sum payment shall be made, or installment payments shall commence, no
later than 60 days after the Benefit Distribution Date.  Remaining installments, if any, shall continue
in accordance with the Participant’s election for each Annual Account and shall
be paid no later than 60 days after each anniversary of the Benefit
Distribution Date.

ARTICLE 7

Termination Benefit

7.1                                 Termination Benefit.  A Participant who
experiences a Termination of Employment shall receive, as a Termination
Benefit, his or her vested Account Balance, calculated as of the close of
business on or around the Participant’s Benefit Distribution Date, as
determined by the Committee in its sole discretion.

7.2                                 Payment of Termination Benefit.  The Termination
Benefit shall be paid to the Participant in a lump sum payment no later than 60
days after the Participant’s Benefit Distribution Date.

ARTICLE 8

Disability Benefit

8.1                                 Disability Benefit. Upon a Participant’s Disability, the
Participant shall receive a Disability Benefit, which shall be equal to the
Participant’s vested Account Balance, calculated as of the close of business on
or around the Participant’s Benefit Distribution Date, as selected by the
Committee in its sole discretion.

8.2                                 Payment of Disability Benefit.

(a)                                  If
a Participant becomes Disabled prior to being eligible for Retirement, the
Participant’s Disability Benefit will be paid in a lump sum payment.

(b)                                 If
a Participant becomes Disabled on or after becoming eligible for Retirement,
the Participant’s Disability Benefit shall be paid in the form in which the
Participant elected to receive his or her Retirement Benefit for each Annual
Account in accordance with Section 6.2.

(c)                                  The
lump sum payment shall be made, or installment payments shall commence, no
later than 60 days after the Benefit Distribution Date.  Remaining installments, if any, shall
continue in accordance with the Participant’s election for each Annual Account
and shall be paid no later than 60 days after each anniversary of the Benefit
Distribution Date.

 17
 

 

ARTICLE 9

Death Benefit

9.1                                 Death Benefit.  The Participant’s Beneficiary(ies) shall
receive a Death Benefit upon the Participant’s death which will be equal to the
Participant’s vested Account Balance, calculated as of the close of business on
or around the Participant’s Benefit Distribution Date, as selected by the
Committee in its sole discretion.

9.2                                 Payment of Death Benefit.  The Death Benefit shall be paid to the Participant’s
Beneficiary(ies) in a lump sum payment no later than 60 days after the
Participant’s Benefit Distribution Date.

ARTICLE 10

Beneficiary Designation

10.1                           Beneficiary.  Each Participant shall have the right, at any
time, to designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a beneficiary
upon the death of a Participant.  The
Beneficiary designated under this Plan may be the same as or different from the
Beneficiary designation under any other plan of an Employer in which the
Participant participates.

10.2                           Beneficiary Designation; Change; Spousal Consent.  A Participant shall designate his or her
Beneficiary by completing and signing the Beneficiary Designation Form, and
returning it to the Committee or its designated agent.  A Participant shall have the right to change
a Beneficiary by completing, signing and otherwise complying with the terms of
the Beneficiary Designation Form and the Committee’s rules and procedures, as
in effect from time to time.  If the
Participant names someone other than his or her spouse as a Beneficiary,
spousal consent is required and shall be provided in a form designated by the
Committee, executed by such Participant’s spouse and returned to the Committee.  Upon the acceptance by the Committee of a new
Beneficiary Designation Form, all Beneficiary designations previously filed
shall be canceled.  The Committee shall
be entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.

10.3                           Acknowledgment.  No designation or change in designation of a
Beneficiary shall be effective until received and acknowledged in writing by
the Committee or its designated agent.

10.4                           No Beneficiary Designation.  If a Participant fails to designate a
Beneficiary as provided in Sections 10.1, 10.2 and 10.3 above or, if all
designated Beneficia­ries predecease the Participant or die prior to complete
distribution of the Participant’s benefits, then the Participant’s designated
Beneficiary shall be deemed to be his or her surviving spouse.  If the Participant has no surviving spouse,
the benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant’s estate.

10.5                           Doubt as to Beneficiary.  If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant’s
Employer to withhold such payments until this matter is resolved to the
Committee’s satisfaction.

 18
 

 

10.6                           Discharge of Obligations.  The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the Committee
from all further obligations under this Plan with respect to the Participant,
and that Participant’s Plan Agreement shall terminate upon such full payment of
benefits.

ARTICLE 11

Leave of Absence

11.1                           Paid Leave of Absence.  If a Participant is authorized by the
Participant’s Employer to take a paid leave of absence from the employment of
the Employer, and such leave of absence does not constitute a separation from
service, as determined by the Committee in accordance with Code Section 409A
and related Treasury guidance and Regulations, (i) the Partici­pant shall
continue to be considered eligible for the benefits provided in Articles 4, 5,
6, 7, 8, or 9 in accordance with the provisions of those Articles, and (ii) the
Annual Deferral Amount shall continue
to be withheld during such paid leave of absence in accordance with
Section 3.3.

11.2                           Unpaid Leave of Absence.  If a Participant is authorized by the
Participant’s Employer to take an unpaid leave of absence from the employ­ment
of the Employer for any reason, and such leave of absence does not constitute a
separation from service, as determined by the Committee in accordance with Code
Section 409A and related Treasury guidance and Regulations, such Participant
shall continue to be eligible for the benefits provided in Articles 4, 5, 6, 7,
8, or 9 in accordance with the provisions of those Articles. However, the
Participant shall be excused from fulfilling his or her Annual Deferral Amount
commitment that would otherwise have been withheld during the period during
which the unpaid leave of absence is taken. 
If a Participant returns from the leave of absence during the Plan Year
in which leave of absence began, the Participant’s deferral election shall be
immediately reinstated for the remainder of the year with respect to
compensation earned subsequent to the return from the leave of absence.  In addition, if the Participant returns to
employment, the Participant may elect to defer an Annual Deferral Amount for the
Plan Year following his or her return to employment and for every Plan Year
thereafter while a Participant in the Plan, provided such deferral elections
are otherwise allowed and an Election Form is delivered to and accepted by the
Committee for each such election in accordance with Section 3.3 above.

11.3                           Leaves Resulting in Separation from Service.  In the event that a Participant’s leave of
absence from his or her Employer constitutes a separation from service, as
determined by the Committee in accordance with Code Section 409A and related Treasury
guidance and Regulations, the Participant’s vested Account Balance shall be
distributed to the Participant in accordance with Article 6 or 7 of this Plan,
as applicable.

ARTICLE 12

Termination of Plan, Amendment or Modification

12.1                           Termination of Plan.  Although the Company anticipates that it will
continue the Plan for an indefinite period of time, there is no guarantee that
the Company will continue the Plan or will

 19
 

 

not terminate the
Plan at any time in the future. 
Accordingly, the Company reserves the right to Terminate the Plan,
either entirely or with respect to one or more Employers participating in the
Plan.  Such action shall be taken by the
Board of Directors or its delegate.  In the event of a Termination of the Plan,
the Measurement Funds available to Participants following the Termination of
the Plan shall be comparable in number and type to those Measurement Funds
available to Participants in the Plan Year preceding the Plan Year in which the
Termination of the Plan is effective.  Following a Termination of the
Plan, Participant Account Balances shall remain in the Plan until the
Participant becomes eligible for the benefits provided in Articles 4, 5, 6, 7,
8 or 9 in accordance with the provisions of those Articles.  The
Termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under the
Plan as of the date of termination. 
Notwithstanding the foregoing, to the extent permissible under Code
Section 409A and related Treasury guidance or Regulations, during the 30 days preceding or within 12
months following a Change in Control, the Company shall be permitted to (i)
terminate the Plan, and (ii)
distribute the vested Account Balances to Participants in a lump sum no later than 12 months after
the Change in Control, provided that all other substantially similar
arrangements sponsored by such Company are also terminated and all balances in
such arrangements are distributed within 12 months of the termination of such
arrangements.

12.2                           Amendment.

(a)                                  The
Company, acting through its Board of Directors or a delegate of the Board of
Directors, may, at any time, amend or modify the Plan in whole or in part with
respect to the Company or a particular Employer.  Notwithstanding the foregoing, (i) no
amendment or modification shall be effective to decrease the value of a
Participant’s vested Account Balance in existence at the time the amendment or
modification is made, and (ii) no amendment or modification of this Section 12.2
or Section 13.2 of the Plan shall be effective.

(b)                                 Notwithstanding
any provision of the Plan to the contrary, in the event that the Company
determines that any provision of the Plan may cause amounts deferred under the
Plan to become immediately taxable to any Participant under Code Section 409A
and related Treasury guidance or Regulations, the Company may (i) adopt such
amendments to the Plan and appropriate policies and procedures, including
amendments and policies with retroactive effect, that the Company determines
necessary or appropriate to preserve the intended tax treatment of the Plan
benefits provided by the Plan and/or (ii) take such other actions as the
Company determines necessary or appropriate to comply with the requirements of
Code Section 409A and related Treasury guidance or Regulations.

12.3                           Plan Agreement.  Despite the provisions of Sections 12.1
and 12.2 above, if a Participant’s Plan Agreement contains benefits or
limitations that are not in this Plan document, the Company may only amend or
terminate such provisions with the written consent of the Participant.

12.4                           Effect of Payment.  The full payment of the Participant’s vested
Account Balance under Articles 4, 5, 6, 7, 8, or 9 of the Plan shall
completely discharge all obligations to a Participant and his or her designated
Beneficiaries under this Plan, and the Participant’s Plan Agreement shall
terminate.

 20
 

 

ARTICLE 13

Administration

13.1                           Committee Duties.  Except as otherwise provided in this Article
13, this Plan shall be administered by a Committee, which shall consist of the
Board, or such committee as the Board shall appoint.  Members of the Committee may be Participants
under this Plan.  The Committee shall
also have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administra­tion of this
Plan, and (ii) decide or resolve any and all ques­tions, including benefit
entitlement determinations and interpretations of this Plan, as may arise in
connection with the Plan.  Any individual
serving on the Committee who is a Participant shall not vote or act on any
matter relating solely to himself or herself. 
When making a determination or calculation, the Committee shall be
entitled to rely on information furnished by a Participant or the Company.

13.2                           Administration Upon Change in Control.
Within 120 days following a Change in Control, an independent third party
administrator (the “Administrator”) may be selected by the individual who,
immediately prior to the Change in Control, was the Company’s Chief Executive
Officer (the “Ex-CEO”).  The Committee,
as constituted prior to the Change in Control, shall continue to be the
Administrator until the earlier of (i) the date on which such independent third
party is selected and approved, or (ii) the expiration of the 120 day period
following the Change in Control.  If an
independent third party is not selected within 120 days of such Change in
Control, the Committee, as described in Section 13.1 above, shall be the
Administrator.  The Administrator shall
have the discretionary power to determine all questions arising in connection
with the administration of the Plan and the interpretation of the Plan,
including, but not limited to, benefit entitlement determinations; provided,
however, upon and after the occurrence of a Change in Control, the
Administrator shall have no power to direct the investment of Plan assets or
select any investment manager or custodial firm for the Plan.  Upon and after the occurrence of a Change in
Control, the Company must: (1) pay all reasonable administrative expenses and
fees of the Administrator; (2) indemnify the Administrator against any costs,
expenses and liabilities including, without limitation, attorney’s fees and
expenses arising in connection with the performance of the Administrator
hereunder, except with respect to matters resulting from the gross negligence
or willful misconduct of the Administrator or its employees or agents; and (3)
supply full and timely information to the Administrator on all matters relating
to the Plan, the Participants and their Beneficiaries, the Account Balances of
the Participants, the date and circumstances of the Termination of Employment,
Disability, or death of the Participants, and such other pertinent information
as the Administrator may reasonably require. 
Upon and after a Change in Control, the Administrator may be terminated
(and a replacement appointed) by the Ex-CEO. 
Upon and after a Change in Control, the Administrator may not be
terminated by the Company.

13.3                           Agents. In the administration of
this Plan, the Committee or the Administrator, as applicable, may, from time to
time, employ agents and delegate to them such administrative duties as it sees
fit (including acting through a duly appointed representative) and may from
time to time consult with counsel.

13.4                           Binding Effect of Decisions.  The decision or action of the Committee or
Administrator, as applicable, with respect to any question arising out of or in
connection with the administration,

 21
 

 

interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and conclusive and binding upon all persons having any interest
in the Plan.

13.5                           Indemnity of Committee.  All Employers shall indemnify and hold
harmless the members of the Committee, any Employee to whom the duties of the
Committee may be delegated, and the Administrator against any and all claims,
losses, damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct by the
Committee, any of its members, any such Employee or the Administrator.

13.6                           Employer Information.  To enable the Committee and/or Administrator
to perform its functions, the Company and each Employer shall supply full and
timely information to the Committee and/or Administrator, as the case may be,
on all matters relating to the Plan, the Trust, the Participants and their
Beneficiaries, the Account Balances of the Participants, the compensation of
its Participants, the date and circum­stances of the Retirement, Disability,
death or Termination of Employment of its Participants, and such other
pertinent information as the Committee or Administrator may reasonably require.

ARTICLE 14

Other Benefits and Agreements

14.1                           Coordination with Other Benefits.  The benefits provided for a Participant and
Participant’s Beneficiary under the Plan are in addition to any other benefits
available to such Participant under any other plan or program for employees of
the Participant’s Employer.  The Plan
shall supplement and shall not supersede, modify or amend any other such plan
or program except as may otherwise be expressly provided.

ARTICLE 15

Claims Procedures

15.1                           Presentation of Claim.  Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a “Claimant”)
may deliver to the Committee a written claim for a determination with respect
to the amounts distributable to such Claimant from the Plan.  If such a claim relates to the contents of a
notice received by the Claimant, the claim must be made within 60 days
after such notice was received by the Claimant. 
All other claims must be made within 180 days of the date on which
the event that caused the claim to arise occurred.  The claim must state with particularity the
determination desired by the Claimant.

15.2                           Notification of Decision.  The Committee shall consider a Claimant’s
claim within a reasonable time, but no later than 90 days after receiving the
claim.  If the Committee determines that
special circumstances require an extension of time for processing the claim,
written notice of the extension shall be furnished to the Claimant prior to the
termination of the initial 90 day period. 
In no event shall such extension exceed a period of 90 days from the end
of the initial period.  The extension
notice shall indicate the special circumstances requiring an extension of time
and the date by which the Committee expects to render the benefit
determination.  The Committee shall
notify the Claimant in writing:

 22
 

 

(a)                                  that
the Claimant’s requested determination has been made, and that the claim has
been allowed in full; or

(b)                                 that
the Committee has reached a conclusion contrary, in whole or in part, to the
Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:

(i)                                     the
specific reason(s) for the denial of the claim, or any part of it;

(ii)                                  specific
reference(s) to pertinent provisions of the Plan upon which such denial was
based;

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

(iv)                              an
explanation of the claim review procedure set forth in Section 15.3 below;
and

(v)                                 a
statement of the Claimant’s right to bring a civil action under ERISA Section
502(a) following an adverse benefit determination on review.

15.3                           Review of a Denied Claim.  On or before 60 days after receiving a
notice from the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant’s duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim.  The Claimant (or the Claimant’s duly
authorized representative):

(a)                                  may,
upon request and free of charge, have reasonable access to, and copies of, all
documents, records and other information relevant (as defined in applicable
ERISA regulations) to the claim for benefits;

(b)                                 may
submit written comments or other documents; and/or

(c)                                  may
request a hearing, which the Committee, in its sole discretion, may grant.

15.4                           Decision on Review.  The Committee shall render its decision on
review promptly, and no later than 60 days after the Committee receives
the Claimant’s written request for a review of the denial of the claim.  If the Committee determines that special
circumstances require an extension of time for processing the claim, written
notice of the extension shall be furnished to the Claimant prior to the
termination of the initial 60 day period. 
In no event shall such extension exceed a period of 60 days from the end
of the initial period.  The extension
notice shall indicate the special circumstances requiring an extension of time
and the date by which the Committee expects to render the benefit
determination.  In rendering its
decision, the Committee shall take into account all comments, documents,
records and other information submitted by the Claimant relating to the claim,
without regard to whether such information was submitted or considered in the
initial benefit determination.  The
decision must be written in a manner calculated to be understood by the
Claimant, and it must contain:

(a)                                  specific
reasons for the decision;

(b)                                 specific
reference(s) to the pertinent Plan provisions upon which the decision was
based;

 23
 

 

(c)                                  a
statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the
Claimant’s claim for benefits; and

(d)                                 a
statement of the Claimant’s right to bring a civil action under ERISA Section
502(a).

15.5                            Arbitration/Interest on Unpaid
Amounts/Controlling Law.

(a)                                  The
Participant or Beneficiary may submit the controversy to final and binding
arbitration pursuant to the then most applicable Rules of the American
Arbitration Association (“AAA”); provided, however, that unless the parties
otherwise agree, the arbitration shall be before a single arbitrator selected
either by mutual agreement or, failing agreement, from a list of seven
arbitrators provided by AAA, (1) four of whom shall be retired judges of the
Superior or Appellate Courts of California who are residents of Santa Clara,
counties adjoining to Santa Clara County, or San Francisco County, and, if such
list exists at the time of the dispute, who are members of the Independent List
of Retired Judges, and (2) three of whom shall be members of the National Academy
of Arbitrators, resident in Santa Clara, counties adjoining to Santa Clara
County, or San Francisco County.  In the
event the parties are unable to agree upon such an arbitrator from such list of
seven, each party shall strike one name in turn with the first to strike being
chosen by lot.  When only one name
remains, that person shall be the parties’ arbitrator.  The parties hereto expressly waive their
rights, if any, to have such matters heard by a jury or a judge, whether in
state or federal court.  The cost of the
arbitration, including, but not limited to, any reasonable legal fees or other
expenses incident thereto incurred in connection with such arbitration, shall
be borne by the Employer unless the arbitrators(s) determines that the
Participant’s or Beneficiary’s claim is frivolous, in which case the
Participant or Beneficiary shall bear his own legal fees.  In the arbitration the Committee’s decision
on appeal shall be upheld unless the arbitrator(s) determine that the decision
constitutes an abuse of discretion.

(b)                                         The
Employer agrees to pay interest on any amounts payable to a Participant or
Beneficiary under this Plan which are not paid within 30 days after the date
when due and on any money judgment which is awarded to the Participant or Beneficiary
following a proceeding to enforce any portion of this Plan from the date that
payments should have been made under this Plan. 
Such interest shall be calculated at the prime rate offered by a bank
designated by the Committee, or its successor, from the date that payments
should have been made under this Plan to the time of actual payment.

ARTICLE 16

Trust

16.1                           Establishment of the Trust.  In
order to provide assets from which to fulfill its obligations to the
Participants and their Beneficiaries under the Plan, the Company may establish
a trust by a trust agreement with a third party, the trustee, to which each
Employer may, in its discretion, contribute cash or other property, including
securities issued by the Company, to provide for the benefit payments under the
Plan, (the “Trust”).

 24
 

 

16.2                           Interrelationship of the Plan and the Trust.  The provisions of the Plan and the Plan
Agreement shall govern the rights of a Participant to receive distributions
pursuant to the Plan.  The provisions of
the Trust shall govern the rights of the Employers, Participants and the
creditors of the Employers to the assets transferred to the Trust.  Each Employer shall at all times remain
liable to carry out its obligations under the Plan.

16.3                           Distributions From the Trust.  Each Employer’s obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer’s obligations under
this Plan.

ARTICLE 17

Miscellaneous

17.1                           Status of Plan.  The Plan is intended to be a plan that is not
qualified within the meaning of Code Section 401(a) and that “is unfunded and
is maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees”
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1).  The Plan shall be administered and
interpreted (i) to the extent possible in a manner consistent with the intent
described in the preceding sentence, and (ii) in accordance with Code Section
409A and related Treasury guidance and Regulations.

17.2                           Unsecured General Creditor.  Participants and their Bene­ficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or
claims in any property or assets of an Employer.  For purposes of the payment of benefits under
this Plan, any and all of an Employer’s assets shall be, and remain, the
general, unpledged unrestricted assets of the Employer.  An Employer’s obligation under the Plan shall
be merely that of an unfunded and unsecured promise to pay money in the future.

17.3                           Employer’s Liability.  An Employer’s liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as entered
into between the Employer and a Participant. 
An Employer shall have no obliga­tion to a Participant under the Plan
except as expressly provided in the Plan and his or her Plan Agreement.

17.4                           Nonassignability.  Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transfer­able.  No
part of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, be transferable by operation of law in the event of a Participant’s or
any other person’s bankruptcy or insolvency or be transferable to a spouse as a
result of a property settlement or otherwise.

17.5                           Not a Contract of Employment.  The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer and
the Participant.  Such employment is
hereby acknowledged to be an “at will” employment relationship that can be
terminated at any time for any reason, or no reason, with or without cause, and
with or without notice, unless expressly provided in a written employment
agreement.  The Participant’s 

 25
 

 

participation in the Plan shall not create a right to
further employment with any Employer and shall not interfere with any ability
of any Employer to terminate the Participant’s employment relationship at any
time with or without cause.

17.6                           Furnishing Information.  A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administra­tion of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as
the Committee may deem necessary.

17.7                           Terms.  Whenever any words are used herein in the
masculine, they shall be construed as though they were in the feminine in all
cases where they would so apply; and whenever any words are used herein in the
singular or in the plural, they shall be construed as though they were used in
the plural or the singular, as the case may be, in all cases where they would
so apply.

17.8                           Captions.  The captions of the articles, sections and paragraphs
of this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.

17.9                           Governing Law.  Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal laws of the State
of California without regard to its conflicts of laws principles.

17.10                     Notice.  Any notice or filing required or permitted to
be given to the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address below: 

	
  Adobe Systems Incorporated

  
	
  Attn: Senior Director of Compensation and Benefits

  
	
  345 Park Avenue

  
	
  San Jose, CA 95110-2704

  

A second copy
shall also be sent to the General Counsel for the Company, at the same address
listed above.  Such notice shall be
deemed given as of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark on the receipt for registration or
certification.

Any notice or
filing required or permitted to be given to a Participant under this Plan shall
be sufficient if in writing and hand-delivered, or sent by mail, to the last
known address of the Participant.

17.11                     Successors.  The provisions of this Plan shall bind and
inure to the benefit of the Participant’s Employer and its successors and
assigns and the Participant and the Participant’s designated Beneficiaries.

17.12                     Spouse’s Interest.  The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in any
manner, including but not limited to such spouse’s will, nor shall such
interest pass under the laws of intestate succession.

 26
 

 

17.13                     Validity.  In case any provision of this Plan shall be
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been inserted
herein.

17.14                     Incompetent.  If the Committee determines in its discretion
that a benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that person’s
property, the Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of such minor,
incompetent or incapable person.  The
Committee may require proof of minority, incompetence, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit.  Any payment of a benefit shall
be a payment for the account of the Participant and the Participant’s
Beneficiary, as the case may be, and shall be a complete discharge of any
liability under the Plan for such payment amount.

17.15                     Court Order.  The Committee is authorized to comply with
any court order in any action in which the Plan or the Committee has been named
as a party, including any action involving a determination of the rights or
interests in a Participant’s benefits under the Plan.  Notwithstanding the foregoing, the Committee
shall interpret this provision in a manner that is consistent with Code Section
409A and other applicable tax law.  In
addition, if necessary to comply with a qualified domestic relations order, as
defined in Code Section 414(p)(1)(B), pursuant to which a court has determined
that a spouse or former spouse of a Participant has an interest in the
Participant’s benefits under the Plan, the Committee, in its sole discretion,
shall have the right to immediately distribute the spouse’s or former spouse’s
interest in the Participant’s benefits under the Plan to such spouse or former
spouse.

17.16                     Distribution in the Event of Income Inclusion
Under 409A.  If any
portion of a Participant’s Account Balance under this Plan is required to be
included in income by the Participant prior to receipt due to a failure of this
Plan to meet the requirement of Code Section 409A and related Treasury guidance
or Regulations, the Participant may petition the Committee or Administrator, as
applicable, for a distribution of that portion of his or her Account Balance
that is required to be included in his or her income.  Upon the grant of such a petition, which grant shall not be unreasonably withheld, the
Participant’s Employer shall distribute to the Participant
immediately-available funds in an amount equal to the portion of his or her
Account Balance required to be included in income as a result of the failure of
the Plan to meet the requirements of Code Section 409A and related Treasury
guidance or Regulations, which amount shall not exceed the Participant’s unpaid
vested Account Balance under the Plan. 
If the petition is granted, such distribution shall be made within 90
days of the date when the Participant’s petition is granted.  Such a distribution shall affect and reduce
the Participant’s benefits to be paid under this Plan.  Notwithstanding the preceding sentences of
this section, if the Committee determines that Code Section 409A requires that
distribution of Account Balances be automatic in order to comply with Code
Section 409A, the portion of a Participant’s Account Balance that fails to
comply with the requirements of Code Section 409A shall be automatically
distributed.

17.17                     Deduction Limitation on Benefit Payments.  If an Employer reasonably anticipates
that the Employer’s deduction with respect to any distribution from this Plan
would be limited or eliminated by application of Code Section 162(m), then to
the extent deemed necessary by the Employer to ensure that the entire amount of
any distribution from this Plan is deductible, the

 27
 

 

Employer may delay
payment of any amount that would otherwise be distributed from this Plan.  Any amounts for which distribution is delayed
pursuant to this Section shall continue to be credited/debited with additional
amounts in accordance with Section 3.9 above. 
The delayed amounts (and any amounts credited thereon) shall be
distributed to the Participant (or his or her Beneficiary in the event of the
Participant’s death) at the earliest date the Employer reasonably anticipates
that the deduction of the payment of the amount will not be limited or
eliminated by application of Code Section 162(m).

17.18                     Insurance.  The Employers, on their own behalf or on
behalf of the trustee of the Trust, and, in their sole discretion, may apply
for and procure insurance on the life of a Participant, in such amounts and in
such forms as the Trust may choose.  The
Employers or the trustee of the Trust, as the case may be, shall be the sole
owner and beneficiary of any such insurance. 
The Participant shall have no interest whatsoever in any such policy or
policies.  Any application and procurement
of insurance shall comply with Section 101(j) of the Code, including the
requirements requiring proper notification to and consent by Participants.  A Participant who has elected to be insured
shall supply such information and execute such documents as may be required by
the insurance company or companies to whom the Employers have applied for
insurance.

IN WITNESS WHEREOF, the Company has signed this Plan
document as of September 25, 2006.

	
   

  	
  “Company”

  
	
   

  	
  Adobe Systems Incorporated, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randy Furr

  	
   

  
	
   

  	
   

  	
  Randy Furr

  
	
   

  	
   

  	
  Executive Vice
  President and

  
	
   

  	
   

  	
  Chief Financial
  Officer

  

 

 28

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