Document:

Exhibit 10.5

 

 

 

Employment
Agreement for Robert H. Steinfeld

 

As Amended
and Restated as of February 11, 2003

 

 

 

IMS HEALTH
INCORPORATED

 

Employment
Agreement for Robert H. Steinfeld

 

As Amended
and Restated as of February 11, 2003

 

	
  1.

  	
  Employment

  
	
   

  	
   

  
	
  2.

  	
  Term

  
	
   

  	
   

  
	
  3.

  	
  Offices and Duties

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Generally.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Place of
  Employment

  
	
   

  	
   

  
	
  4.

  	
  Salary and
  Annual Incentive Compensation

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Base Salary

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Annual Incentive
  Compensation

  
	
   

  	
   

  
	
  5.

  	
  Long Term
  Compensation, Including Stock Options, Benefits, Deferred Compensation, and
  Expense Reimbursement

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Executive Compensation
  Plans

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Employee and
  Executive Benefit Plans

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Acceleration
  of Awards Upon a Change in Control

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Deferral
  of Compensation

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Company Registration
  Obligations

  
	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  Reimbursement of Expenses

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Termination
  Due to Retirement, Death or Disability

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Retirement

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Death

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Disability

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Other
  Terms of Payment Following Retirement, Death or Disability

  
	
   

  	
   

  
	
  7.

  	
  Termination
  of Employment For Reasons Other Than Retirement, Death, or Disability

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Termination by the
  Company for Cause

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Termination
  by Executive Other Than For Good Reason

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Termination
  by the Company Without Cause Prior to or More than Two Years After a Change
  in Control

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Termination
  by Executive for Good Reason Prior to or More than Two Years After a Change
  in Control

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Termination
  by the Company Without Cause Within Two Years After a Change in Control

  

 

i

 

	
   

  	
  (f)

  	
  Termination
  by Executive for Good Reason Within Two Years After a Change in Control

  
	
   

  	
   

  	
   

  
	
   

  	
  (g)

  	
  Other
  Terms Relating to Certain Terminations of Employment

  
	
   

  	
   

  
	
  8.

  	
  Definitions
  Relating to Termination Events

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  “Cause”

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  “Change in Control”

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  “Compensation
  Accrued at Termination”

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  “Disability”

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  “Good Reason

  
	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  “Potential Change in
  Control”

  
	
   

  	
   

  
	
  9.

  	
  Rabbi
  Trust Obligation Upon Potential Change in Control; Excise Tax Related
  Provisions

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Rabbi
  Trust Funded Upon Potential Change in Control

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Gross-up If Excise
  Tax Would Apply

  
	
   

  	
   

  
	
  10.

  	
  Non-Competition
  and Non-Disclosure; Executive Cooperation; Non-Disparagement; Certain
  Forfeitures

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Non-Competition

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Non-Disclosure;
  Ownership of Work

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Cooperation With
  Regard to Litigation

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Non-Disparagement

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Release of Employment
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  Forfeiture of
  Outstanding Options

  
	
   

  	
   

  	
   

  
	
   

  	
  (g)

  	
  Forfeiture of
  Certain Bonuses and Profits

  
	
   

  	
   

  	
   

  
	
   

  	
  (h)

  	
  Survival

  
	
   

  	
   

  
	
  11.

  	
  Governing Law;
  Disputes; Arbitration

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Governing Law

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Reimbursement
  of Expenses in Enforcing Rights

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Arbitration

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Interest on Unpaid Amounts

  
	
   

  	
   

  
	
  12.

  	
  Miscellaneous

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  Integration

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Successors; Transferability

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Beneficiaries

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Notices

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Reformation

  

 

ii

 

	
   

  	
  (f)

  	
  Headings

  
	
   

  	
   

  	
   

  
	
   

  	
  (g)

  	
  No General Waivers

  
	
   

  	
   

  	
   

  
	
   

  	
  (h)

  	
  No
  Obligation To Mitigate

  
	
   

  	
   

  	
   

  
	
   

  	
  (i)

  	
  Offsets;
  Withholding

  
	
   

  	
   

  	
   

  
	
   

  	
  (j)

  	
  Successors
  and Assigns

  
	
   

  	
   

  	
   

  
	
   

  	
  (k)

  	
  Counterparts

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Indemnification

  
	
   

  	
   

  	
   

  
	
  Attachment A

  

 

iii

 

IMS HEALTH INCORPORATED

 

Employment Agreement for
Robert H. Steinfeld

 

As Amended and Restated as
of February 11, 2003

 

 

THIS EMPLOYMENT AGREEMENT by
and between IMS HEALTH INCORPORATED, a Delaware corporation (the “Company”),
and Robert H. Steinfeld (“Executive”) shall become effective as of November 14,
2000 (the “Effective Date”), and the amendment and restatement hereof made this
22nd day of May, 2003 shall become effective as of February 11, 2003 (the
“Amendment Date”).

 

WITNESSETH

 

WHEREAS, Executive has
served the Company and its predecessors in executive capacities since February
24, 1997;

 

WHEREAS, the Company desires
to continue to employ Executive as Senior Vice President and General Counsel of
the Company, and Executive desires to accept such employment on the terms and
conditions herein set forth.

 

NOW, THEREFORE, in
consideration of the foregoing, the mutual covenants contained herein, and
other good and valuable consideration the receipt and adequacy of which the
Company and Executive each hereby acknowledge, the Company and Executive hereby
agree as follows:

 

1.                                       Employment.

 

The Company hereby agrees to
employ Executive as its Senior Vice President and General Counsel (with the
principal executive duties set forth below in Section 3), and Executive hereby
agrees to accept such employment and serve in such capacities, during the Term
as defined in Section 2 (subject to Section 7(c) and 7(e)) and upon the terms
and conditions set forth in this Employment Agreement (the “Agreement”).

 

2.                                       Term.

 

The term of employment of
Executive under this Agreement (the “Term”) shall be the period commencing on
the Effective Date and ending on December 31, 2002 and any period of extension
thereof in accordance with this Section 2, except that the Term will end
at a date, prior to the end of such period or extension thereof, specified in
Section 6 or 7 in the event of termination of Executive’s employment. The Term,
if not previously ended, shall be extended automatically without further action
by either party by one additional year (added to the end of the Term) first on
December 31, 2002 (extending the Term to December 31, 2003) and on each
succeeding December 31 thereafter, unless either party shall have served
written notice in accordance with Section 12(d) upon the other party on or
before the June 30 preceding a December 31 extension date electing not to
extend the Term further as of that December 31 extension date, in which case
employment shall terminate on that December 31 and the Term shall end at that
date, subject to earlier termination of employment and earlier termination of
the Term in accordance with Section 6 or 7. The foregoing notwithstanding, in
the event there occurs a Potential Change in Control during the period of 180
days prior to the December 31 on which the Term will terminate as a result of
notice given by the Executive or the Company hereunder, the Term shall be
extended automatically at that December 31 by an additional period such that
the Term will extend until the 180th day following such Potential Change in
Control.

 

 

3.                                       Offices and Duties.

 

The provisions of this
Section 3 will apply during the Term, except as otherwise provided in
Section 7(c) or 7(e):

 

(a)                                  Generally.  Executive shall serve as the Senior Vice President
and General Counsel of the Company. 
Executive shall have and perform such duties, responsibilities, and
authorities as are customary for the general counsel of a publicly held
corporation of the size, type, and nature of the Company as they may exist from
time to time.  In addition, Executive
shall have and perform such additional duties, responsibilities, and
authorities as may be from time to time assigned by the Chief Executive Officer
based on his assessment of the business needs of the Company, and the Company
reserves the right to change or modify these assignments and any positions and
titles associated therewith.  Executive
shall devote his full business time and attention, and his best efforts, abilities,
experience, and talent, to the positions of Senior Vice President and General
Counsel and other assignments hereunder, and for the business of the Company,
without commitment to other business endeavors, except that Executive (i) may
make personal investments which are not in conflict with his duties to the
Company and manage personal and family financial and legal affairs, (ii) may
undertake public speaking engagements, and (iii) may serve as a director of (or
similar position with) any other business or an educational, charitable, community,
civic, religious, or similar type of organization with the approval of the
Chief Executive Officer, so long as such activities (i.e., those listed in
clauses (i) through (iii)) do not preclude or render unlawful Executive’s
employment or service to the Company or otherwise materially inhibit the
performance of Executive’s duties under this Agreement or materially impair the
business of the Company or its subsidiaries.

 

(b)                                 Place of
Employment. 
Executive’s principal place of employment shall be at the Corporate
Offices of the Company which shall be in Fairfield County, Connecticut.

 

4.                                       Salary and Annual Incentive Compensation.

 

As partial compensation for
the services to be rendered hereunder by Executive, the Company agrees to pay
to Executive during the Term the compensation set forth in this Section 4.

 

(a)                                  Base Salary.
The Company will pay to Executive during the Term a base salary, the annual
rate of which shall be $275,000, payable in cash in substantially equal
semi-monthly installments commencing at the beginning of the Term, and
otherwise in accordance with the Company’s usual payroll practices with respect
to senior executives (except to the extent deferred under Section 5(d)).
Executive’s annual base salary shall be reviewed by the Compensation and
Benefits Committee (the “Committee”) of the Board of Directors (the “Board”) at
least once in each calendar year, and may be increased above, but may not be
reduced below, the then-current rate of such base salary. For purposes of this
Agreement, “Base Salary” means Executive’s then-current base salary.

 

(b)                                 Annual
Incentive Compensation. The Company will pay to Executive during
the Term annual incentive compensation which shall offer to Executive an
opportunity to earn additional compensation based upon performance in amounts
determined by the Committee in accordance with the applicable plan and
consistent with past practices of the Company; provided, however, that the
annual incentive opportunity during the Term shall be not less than the greater
of 51% of Base Salary or the annual target incentive opportunity for the prior
year for achievement of target level performance, with the nature of the
performance and the levels of performance triggering payments of such annual
target incentive compensation for each year to be established and communicated
to Executive during the first quarter of such year by the Committee; provided,
further, that annual incentive payable for performance in 2000 shall be based
on the amount of salary actually paid during the year.  In addition, the Committee (or the Board)
may determine, in its discretion, to increase the Executive’s annual target
incentive opportunity or provide an additional annual incentive opportunity, in
excess of the annual target incentive opportunity, payable for performance in
excess of or in addition to the performance required for payment of the annual
target incentive amount. Any annual incentive compensation payable to Executive
shall be paid in accordance with the Company’s usual practices with respect to
payment of incentive compensation to senior executives (except to the extent
deferred under Section 5(d)).

 

2

 

5.                                       Long-Term
Compensation, Including Stock Options, Benefits, Deferred Compensation, and Expense
Reimbursement

 

(a)                                  Executive
Compensation Plans. 
Executive shall be entitled during the Term to participate, without
discrimination or duplication, in executive compensation plans and programs
intended for general participation by senior executives of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, subject to the eligibility and other requirements of such plans
and programs, including without limitation any stock option plans, plans under
which restricted stock/restricted stock units, performance-based restricted
stock/restricted stock units (“PERS”) or performance-accelerated restricted
stock/restricted stock units (“PARS”) may be awarded, other annual and
long-term cash and/or equity incentive plans, and deferred compensation plans;
provided, however, that Executive’s participation in such plans and programs,
in the aggregate, shall provide him with compensation and incentive award
opportunities substantially no less favorable than those provided by the
Company to Executive under such plans and programs as in effect on the
Amendment Date.  The Company makes no
commitment under this Section 5(a) to provide participation opportunities
to Executive in all plans and programs or at levels equal to (or otherwise
comparable to) the participation opportunity of any other executive.  The foregoing notwithstanding, Executive
shall be entitled to participate in the PERS program based on annual
performance commencing with the 2001 performance year, and will not be granted
PERS with respect to the 2000 performance year.

 

(b)                                 Employee
and Executive Benefit Plans. 
Executive shall be entitled during the Term to participate, without
discrimination or duplication, in employee and executive benefit plans and
programs of the Company, as presently in effect or as they may be modified or
added to by the Company from time to time, subject to the eligibility and other
requirements of such plans and programs, including without limitation plans
providing pensions, supplemental pensions, supplemental and other retirement
benefits, medical insurance, life insurance, disability insurance, and
accidental death or dismemberment insurance, as well as savings,
profit-sharing, and stock ownership plans; provided, however, that Executive’s
participation in such benefit plans and programs, in the aggregate, shall
provide Executive with benefits and compensation substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Amendment Date. 
The Company makes no commitment under this Section 5(b) to provide
participation opportunities to Executive in all benefit plans and programs or
at levels equal to (or otherwise comparable to) the participation opportunity
of any other executive.  The foregoing
notwithstanding, Executive shall be eligible to participate or receive
compensation and benefits under the Company’s Employee Protection Plan and his
Change-in-Control Agreement, provided that any compensation and benefits to
Executive under the Employee Protection Plan and the Change-in-Control
Agreement shall be payable only if and to the extent that such benefits would
exceed the corresponding benefits payable under this Agreement.

 

In furtherance of and not in
limitation of the foregoing, during the Term:

 

(i)                                     Executive will participate as Senior Vice
President and General Counsel in all executive and employee vacation and
time-off programs;

 

(ii)                                  The Company will provide Executive with
coverage as Senior Vice President and General Counsel with respect to long-term
disability insurance and benefits substantially no less favorable (including
any required contributions by Executive) than such insurance and benefits in
effect on the Amendment Date;

 

(iii)                               Executive will be covered by Company-paid
group and individual term life insurance providing a death benefit no less than
the death benefit provided under Company-paid insurance in effect at the
Amendment Date; provided, however, that, with the consent of Executive, such insurance
may be combined with a supplementary retirement funding vehicle; and

 

(iv)                              Executive will be entitled to benefits under
the IMS Health Incorporated Executive Pension Plan (“EXPP”), with the effective
date of Executive’s participation therein to be February 11, 2003.  Notwithstanding anything to the contrary in
this Agreement or the EXPP, Executive’s years of service with the Company (and
its predecessor Cognizant Corporation) prior to the date that his participation
in the EXPP commenced shall be included as Service for purposes of
participation, vesting and accrual of benefits under the EXPP subject to the
special rules contained in this Section 5(b)(iv).  For the period from February 11, 2003 through January 31, 2006,
Executive

 

3

 

shall be deemed a
participant in both the EXPP and the IMS Health Incorporated U.S. Executive
Retirement Plan (the “USERP”), with Service 
apportioned between the two Plans; for this purpose, Executive shall be
credited with additional Service for purposes of the EXPP (the “Additional
Service Credits”), including without limitation, Sections 3.1(b)(i) and
3.2(b)(i) of the EXPP, with a corresponding reduction in Service for purposes
of Sections 3.1(b)(i) and 3.2(b)(i) of the USERP, as follows:

 

	
  Date

  	
   

  	
  Years of Service

  Under USERP

  	
   

  	
  Years of Service

  Under EXPP

  	
   

  	
  Total Years

  of Service

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Feb.
  11, 2003

  	
   

  	
  6.0833

  	
   

  	
  0

  	
   

  	
  6.0833

  	
   

  
	
  Jan.
  31, 2004

  	
   

  	
  4

  	
   

  	
  3

  	
   

  	
  7

  	
   

  
	
  Jan.
  31, 2005

  	
   

  	
  2

  	
   

  	
  6

  	
   

  	
  8

  	
   

  
	
  Jan.
  31, 2006

  	
   

  	
  0

  	
   

  	
  9

  	
   

  	
  9

  	
   

  

 

From and after January 31,
2006, such Additional Service Credits shall remain credited under the EXPP, and
Executive’s  benefits shall be
determined solely under the EXPP, with Executive’s further Service accruing in
accordance with the terms of the EXPP. 
The provisions governing the accrual of 
Service under the EXPP set forth herein shall take precedence over
any  inconsistent provision of the EXPP,
including without limitation Section 1.32(e) of the EXPP (providing phased-in
credit for pre-participation Service). 
Years of Service credited in accordance with the above table shall be
determined in accordance with the rules generally applicable to crediting
Service under the EXPP, including  the
rules which provide that Service shall be computed in 1/12ths of a year, with a
full month being granted for each completed or partial calendar month.  The foregoing notwithstanding, in the event
that Executive shall become eligible for Retirement Benefits or Deferred Vested
Benefits under the USERP and/or the EXPP, the aggregate benefit payable to
Executive under the USERP and/or the EXPP shall not be less than the Retirement
Benefit or Deferred Vested Benefit, as the case may be, that would have been
payable to Executive under the USERP had Executive continued to participate in
the USERP from February 11, 2003 until the date of his retirement or
termination of employment.  Moreover, in
the event that Executive’s Surviving Spouse shall become eligible for death
benefits under the USERP and/or the EXPP prior to the commencement of benefit
payments to Executive, the Surviving Spouse’s Benefit shall not be less than
the Surviving Spouse’s Benefit that would have been payable under the USERP had
Executive continued to participate in the USERP from February 11, 2003 until
the date of Executive’s death. 
Furthermore, for purposes of calculating Retirement Benefits, Deferred
Vested Benefits or Surviving Spouse’s Benefits payable under the USERP and/or
the EXPP, Executive’s Average Final Compensation shall not be less than
$465,000.  Capitalized terms used herein
and not otherwise defined shall have the meaning ascribed to them in the EXPP
(or if applicable, the USERP).

 

(c)                                  Acceleration
of Awards Upon a Change in Control.                In the event of a Change in Control (as
defined in Section 8(b)), all outstanding stock options, restricted stock, and
other equity-based awards then held by Executive shall become vested and
exercisable.

 

(d)                                 Deferral
of Compensation.  If
the Company has in effect or adopts any deferral program or arrangement
permitting executives to elect to defer any compensation, Executive will be
eligible to participate in such program. 
Any plan or program of the Company which provides benefits based on the
level of salary, annual incentive, or other compensation of Executive shall, in
determining Executive’s benefits, take into account the amount of salary,
annual incentive, or other compensation prior to any reduction for voluntary
contributions made by Executive under any deferral or similar contributory plan
or program of the Company (excluding compensation that would not be taken into
account even if not deferred), but shall not treat any payout or settlement
under such a deferral or similar contributory plan or program to be additional
salary, annual incentive, or other compensation for purposes of determining
such benefits, unless otherwise expressly provided under such plan or program.

 

(e)                                  Company
Registration Obligations.  The
Company will use its best efforts to file with the Securities and Exchange
Commission and thereafter maintain the effectiveness of one or more
registration

 

4

 

statements registering under
the Securities Act of 1933, as amended (the “1933 Act”), the offer and sale of
shares by the Company to Executive pursuant to stock options or other
equity-based awards granted to Executive under Company plans or otherwise or,
if shares are acquired by Executive in a transaction not involving an offer or
sale to Executive but resulting in the acquired shares being “restricted securities”
for purposes of the 1933 Act, registering the reoffer and resale of such shares
by Executive.

 

(f)                                    Reimbursement
of Expenses.  The
Company will promptly reimburse Executive for all reasonable business expenses
and disbursements incurred by Executive in the performance of Executive’s
duties during the Term in accordance with the Company’s reimbursement policies
as in effect from time to time.

 

6.                                       Termination
Due to Retirement, Death, or Disability.

 

(a)                                  Retirement.  Executive may elect to terminate employment
hereunder by retirement at or after age 55 or, upon the request of Executive,
at such earlier age as may be approved by the Board (in either case,
“Retirement”).  At the time Executive’s
employment terminates due to Retirement, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly
continue after termination of employment due to Retirement, and the Company
will pay Executive, and Executive will be entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination (as defined in Section 8(c));

 

(ii)                                  In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of annual incentive compensation that would have
become payable in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for that year if his employment had not
terminated, based on performance actually achieved in that year (determined by
the Committee following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iii)                               The vesting and exercisability of stock
options held by Executive at termination and all other terms of such options
shall be governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted (subject to Section 10(f)
hereof); and

 

(iv)                              All restricted stock and deferred stock
awards, including outstanding PERS awards, all other long-term incentive
awards, and all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or governing the
deferral, and all rights under the EXPP, USERP and any other benefit plan shall
be governed by such plan subject to, in the case of the EXPP and USERP, Section
5(b) hereof including without limitation that Additional Service Credits that
were credited as of Executive’s Retirement as provided in Section 5(b)(iv) of
this Agreement shall be fully reflected.

 

(v)                                 If Executive shall not be eligible upon
Retirement for retiree coverage under the Company’s Health Plan (the “Health
Plan”) and Executive elects in accordance with the applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”)
continued coverage under the Health Plan in accordance with the applicable
provisions of COBRA, the Company shall pay to Executive on a monthly basis
during such COBRA continuation period an amount equal on an after-tax basis to
the total cost of such coverage. Prior to the expiration of the maximum COBRA
continuation period available to Executive, provided that Executive theretofore
shall have complied with the conditions set forth in Section 10, the Company
shall make a good faith effort to obtain insured coverage for Executive (and
his spouse and eligible dependents, if any, for whom coverage had been provided
during the COBRA continuation period) that is substantially comparable to such
COBRA continuation coverage, which insured coverage shall begin on the date of
expiration of Executive’s COBRA continuation period and continue until the
earliest of:  (1) Executive’s
eligibility for medical coverage under the Company’s Health Plan, as a retiree
or active employee, (2) Executive’s eligibility for medical coverage under a
plan maintained by a subsequent employer or other entity to which Executive

 

5

 

provides services, (3)
Executive’s eligibility for Medicare, or (4) Executive’s attainment of age 65.
In the event that the Company determines, in its sole discretion, that it is
unable to obtain such insured coverage for Executive (and his spouse and
eligible dependents, if any, for whom coverage had been provided during the
COBRA continuation period) or in the event that Executive determines, in his
sole discretion, that any such insured coverage offered by the Company is not
substantially comparable to such COBRA continuation coverage, the Company shall
pay to Executive, provided that Executive shall not have become eligible for
medical coverage under (1) the Company’s Health Plan, as a retiree or active
employee, (2) a plan maintained by a subsequent employer or other entity to
which Executive provides services, or (3) Medicare and, provided further, that
Executive theretofore shall have complied with the conditions set forth in
Section 10, a lump sum amount equal on an after-tax basis to the present value
of  the total cost of retiree medical
coverage under the Health Plan that would have been incurred by both Executive
and the Company on behalf of Executive (and his spouse and eligible dependents,
if any, for whom coverage had been provided during the COBRA continuation
period) if Executive (and such spouse and dependents, if any) had been eligible
for such retiree medical coverage from the end of Executive’s COBRA
continuation period until Executive’s attainment of age 65, calculated on the
assumption that the cost of such coverage would remain unchanged from that in
effect for the year in which such lump sum is paid.  Such lump sum amount shall be calculated by the actuary for the
Health Plan and paid in cash as soon as administratively practicable following
the expiration of Executive’s COBRA continuation period and shall not be
subject to reduction or forfeiture by reason of any coverage for which
Executive may thereafter become eligible by reason of subsequent employment or
otherwise. For purposes of this Section 6(a)(v), present value shall be
calculated on the basis of the discount rate set forth in the EXPP for the
determination of lump sum payments.

 

(b)                                 Death.  In the event of Executive’s death which
results in the termination of Executive’s employment, the Term will terminate,
all obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly
continue after death, and the Company will pay Executive’s beneficiary or
estate, and Executive’s beneficiary or estate will be entitled to receive, the
following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s death occurred, an amount
equal to the portion of annual incentive compensation that would have become
payable in cash to Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for that year if his employment had not terminated,
based on performance actually achieved in that year (determined by the
Committee following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive was employed in
the year of his death and the denominator of which is the total number of days
in the year of death;

 

(iii)                               The vesting and exercisability of stock options
held by Executive at death and all other terms of such options shall be
governed by the plans and programs and the agreements and other documents
pursuant to which such options were granted;

 

(iv)                              All restricted stock and deferred stock
awards, including outstanding PERS awards, all other long-term incentive
awards, and all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or governing the
deferral, and all rights under the EXPP, USERP and any other benefit plan shall
be governed by such plan subject to, in the case of the EXPP and USERP, Section
5(b) hereof including without limitation that Additional Service Credits as
provided in Section 5(b)(iv) of this Agreement that were credited as of
Executive’s death shall be fully reflected and provided additionally that the
surviving spouse benefit under the USERP and/or the EXPP shall be  in an amount equal to 50% of the benefit
that would have been payable under Section 3.1 or 3.2 of the EXPP upon
Executive’s attainment of age 65 or Section 3.1 or 3.2 of the USERP upon
Executive’s attainment of age 55 (whichever is applicable or in the appropriate
combination thereof) without actuarial reduction or any other

 

6

 

discount except as provided
in Section 5.5 of the EXPP and the USERP with respect to a reduction on account
of a surviving spouse who is more than ten years younger than Executive, and
payments to Executive’s surviving spouse shall commence on the later of the
date of Executive’s death or the date on which Executive would have attained
age 55; and

 

(v)                                 If Executive’s surviving spouse (and eligible
dependents, if any) elects continued coverage under the Company’s Health Plan
in accordance with the applicable provisions of  COBRA, the Company shall pay to Executive’s surviving spouse on a
monthly basis during such COBRA continuation period an amount equal on an
after-tax basis to the total cost of such coverage.  No further benefits shall be paid under this Section 6(b)(v)
after the expiration of the maximum COBRA continuation period available to
Executive’s surviving spouse and eligible dependents, if any.

 

(c)                                  Disability.  The Company may terminate the employment of
Executive hereunder due to the Disability (as defined in Section 8(d)) of
Executive.  Upon termination of
employment, the Term will terminate, all obligations of the Company and
Executive under Sections 1 through 5 of this Agreement will immediately cease
except for obligations which expressly continue after termination of employment
due to Disability, and the Company will pay Executive, and Executive will be
entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of annual incentive compensation that would have
become payable in cash to Executive (i.e., excluding the portion payable in PERS
or in other non-cash awards) for that year if his employment had not
terminated, based on performance actually achieved in that year (determined by
the Committee following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iii)                               Stock options held by Executive at
termination shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;

 

(iv)                              Any performance objectives upon which the
earning of performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive awards is
conditioned shall be deemed to have been met at target level at the date of
termination, and restricted stock and deferred stock awards, including
outstanding PERS awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based awards) shall
become fully vested and non-forfeitable at the date of such termination, and,
in other respects, such awards shall be governed by the plans and programs and
the agreements and other documents pursuant to which such awards were granted;

 

(v)                                 Disability benefits shall be payable in
accordance with the Company’s plans, programs and policies, including the EXPP
and USERP, provided; however, that there shall be no duplication of disability
benefits provided under the EXPP and USERP and provided further that in the
event that disability benefits payable under the EXPP or USERP shall cease,
Executive’s retirement benefits under the USERP and/or EXPP shall fully reflect
the Additional Service Credits that were credited as of Executive’s retirement
as  provided in Section 5(b)(iv) of this
Agreement  and  the payment of such retirement benefits under the USERP and/or
EXPP  shall commence at the later of the
cessation of Executive’s disability benefits or Executive’s attainment of age
55 in an amount equal to 100% of the benefit under Sections 3.1 or 3.2 of  the EXPP or Sections 3.1 or 3.2 of the USERP
(whichever is applicable or in the appropriate combination thereof) without
actuarial reduction or any other discount.), and all deferral arrangements
under Section 5(d) will be settled in accordance with the plans and programs
governing the deferral; and

 

(vi)                              If Executive elects after termination of
employment continued coverage under the Health Plan in accordance with the
applicable provisions of COBRA, the Company shall pay to Executive on a

 

7

 

monthly basis during such
COBRA continuation period an amount equal on an after-tax basis to the total
cost of such coverage. Prior to the expiration of the maximum COBRA
continuation period available to Executive, provided that Executive theretofore
shall have complied with the conditions set forth in Section 10, the Company
shall make a good faith effort to obtain insured coverage for Executive (and
his spouse and eligible dependents, if any, for whom coverage had been provided
during the COBRA continuation period) that is substantially comparable to such
COBRA continuation coverage, which insured coverage shall begin on the date of
expiration of Executive’s COBRA continuation period and continue until the
earliest of:  (1) Executive’s
eligibility for medical coverage under the Company’s Health Plan, as a retiree
or active employee, (2) Executive’s eligibility for medical coverage under a
plan maintained by a subsequent employer or other entity to which Executive
provides services, (3) Executive’s eligibility for Medicare, or (4) Executive’s
attainment of age 65.  In the event that
the Company determines, in its sole discretion, that it is unable to obtain
such insured coverage for Executive (and his spouse and eligible dependents, if
any, for whom coverage had been provided during the COBRA continuation period)
or in the event that Executive determines, in his sole discretion, that any
such insured coverage offered by the Company is not substantially comparable to
such COBRA continuation coverage, the Company shall pay to Executive, provided
that Executive shall not have become eligible for medical coverage under (1) the
Company’s Health Plan, as a retiree or active employee, (2) a plan maintained
by a subsequent employer or other entity to which Executive provides services,
or (3) Medicare and, provided further, that Executive theretofore shall have
complied with the conditions set forth in Section 10, a lump sum amount equal
on an after-tax basis to the present value of 
the total cost of retiree medical coverage under the Health Plan that
would have been incurred by both Executive and the Company on behalf of
Executive (and his spouse and eligible dependents, if any, for whom coverage
had been provided during the COBRA continuation period) if Executive (and such
spouse and dependents, if any) had been eligible for such retiree medical
coverage from the end of Executive’s COBRA continuation period until
Executive’s attainment of age 65, calculated on the assumption that the cost of
such coverage would remain unchanged from that in effect for the year in which
such lump sum is paid.  Such lump sum
amount shall be calculated by the actuary for the Health Plan and paid in cash
as soon as administratively practicable following the expiration of Executive’s
COBRA continuation period and shall not be subject to reduction or forfeiture
by reason of any coverage for which Executive may thereafter become eligible by
reason of subsequent employment or otherwise. 
In addition, as soon as administratively practicable following
Executive’s termination of employment, provided that Executive shall have
complied with the conditions set forth in Section 10, the Company shall pay to
Executive a lump sum amount equal on an after-tax basis to the present value of
the sum of (1) the amount that Executive would have paid for coverage under the
Company’s group long-term disability policy from Executive’s termination of
employment until Executive’s attainment of age 65, calculated on the assumption
that the cost of such coverage would remain unchanged from that in effect for
the year in which Executive’s termination occurred; and (2)  the amount that the Company would have paid
to continue Executive’s group life insurance coverage from Executive’s
termination of employment until Executive’s attainment of age 65, calculated on
the assumption that the cost of such coverage would remain unchanged from that
in effect for the year in which Executive’s termination occurred.  For purposes of this Section 6(c)(vi),
present value shall be calculated on the basis of the discount rate set forth
in the EXPP for the determination of lump sum payments.

 

(d)                                 Other Terms of Payment Following Retirement, Death, or Disability. 
Nothing in this Section 6 shall limit the benefits payable or provided
In the event Executive’s employment terminates due to Retirement, death, or
Disability under the terms of plans or programs of the Company more favorable
to the Executive (or his beneficiaries) than the benefits payable or provided
under this Section 6 (except in the case of annual incentives in lieu of which
amounts are paid hereunder), including plans and programs adopted after the
date of this Agreement.  Amounts payable
under this Section 6 following Executive’s termination of employment, other
than those expressly payable following determination of performance for the
year of termination for purposes of annual incentive compensation or otherwise
expressly payable on a deferred basis, will be paid as promptly as practicable
after such termination of employment.

 

8

 

7.                                       Termination of Employment For Reasons Other Than
Retirement, Death or Disability.

 

(a)                                  Termination
by the Company for Cause.  The
Company may terminate the employment of Executive hereunder for Cause (as
defined in Section 8(a)) at any time. 
At the time Executive’s employment is terminated for Cause, the Term will
terminate, all obligations of the Company and Executive under Sections 1
through 5 of this Agreement will immediately cease except for obligations which
expressly continue after termination of employment by the Company for Cause,
and the Company will pay Executive, and Executive will be entitled to receive,
the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination (as defined in Section 8(c));

 

(ii)                                  All stock options, restricted stock and
deferred stock awards, including outstanding PERS awards, and all other
long-term incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and

 

(iii)                               All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral, and all rights, if any, under the EXPP and USERP and any other
benefit plan shall be governed by such plan.

 

(b)                                 Termination by Executive Other Than For Good Reason. 
Executive may terminate his employment hereunder voluntarily for reasons
other than Good Reason (as defined in Section 8(e)) at any time upon 90 days’
written notice to the Company.  An
election by Executive not to extend the Term pursuant to Section 2 hereof shall
be deemed to be a termination of employment by Executive for reasons other than
Good Reason at the date of expiration of the Term, unless a Change in Control
(as defined in Section 8(b)) occurs prior to, and there exists Good Reason at,
such date of expiration.  At the time Executive’s
employment is terminated by Executive other than for Good Reason the Term will
terminate, all obligations of the Company and Executive under Sections 1
through 5 of this Agreement will immediately cease, and the Company will pay
Executive, and Executive will be entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  All stock options, restricted stock and
deferred stock awards, including outstanding PERS awards, and all other
long-term incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and

 

(iii)                               All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral, and all rights under the EXPP, USERP and any other benefit plan shall
be governed by such plan, subject to Section 5(b) hereof, including without
limitation that Additional Service Credits that were credited as of Executive’s
termination as provided in Section 5(b)(iv) of this Agreement shall be fully
reflected.

 

(c)                                  Termination by the Company Without Cause Prior to or More than Two
Years After a Change in Control.  The
Company may terminate the employment of Executive hereunder without Cause, if
at the date of termination no Change in Control has occurred or such date of
termination is at least two years after the most recent Change in Control, upon
at least 90 days’ written notice to Executive. 
The foregoing notwithstanding, the Company may elect, by written notice
to Executive, to terminate Executive’s positions specified in Sections 1 and 3
and all other obligations of Executive and the Company under Section 3 at a
date earlier than the expiration of such 90-day period, if so specified by the
Company in the written notice, provided that Executive shall be treated as an
employee of the Company (without any assigned duties) for all other purposes of
this Agreement, including for purposes of Sections 4 and 5, from such specified
date until the expiration of such 90-day period.  An election by the Company not to extend the Term pursuant to
Section 2 hereof shall be deemed to be a termination of Executive’s employment
by the Company without Cause at the date of expiration of the Term and shall be
subject to this Section 7(c) if at the date of such termination no Change in
Control has occurred or such date of termination is at least two years after
the most recent Change in Control; provided, however, that, if Executive has
attained age 65 at such date of termination, such termination shall be deemed a
Retirement of Executive.  At the time
Executive’s employment is terminated by the Company (i.e., at the expiration of
such notice period), the Term will terminate, all remaining obligations of the
Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease (except for

 

9

 

obligations which continue
after termination of employment as expressly provided herein), and the Company
will pay Executive, and Executive will be entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  Cash in an aggregate amount equal to one
times the sum of (A) Executive’s Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater of (x) the portion
of Executive’s annual target incentive compensation potentially payable in cash
to Executive (i.e., excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of Executive’s annual
incentive compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards) for the
latest year preceding the year of termination based on performance actually
achieved in that latest year.  The
amount determined to be payable under this Section 7(c)(ii) shall be payable in
monthly installments over the 24 months following termination, without
interest, except the Company may elect to accelerate payment of  the remaining balance of such amount and to
pay it as a lump sum, without discount;

 

(iii)                               In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of Executive’s annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the portion payable
in PERS or in other non-cash awards) for the year of termination, multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iv)                              Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and
exercisable at the date of such termination, and, in other respects (including
the period following termination during which such options may be exercised),
such options shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;

 

(v)                                 Any performance objectives upon which the
earning of performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive awards is
conditioned shall be deemed to have been met at target level at the date of
termination, and restricted stock and deferred stock awards, including
outstanding PERS awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based awards) shall
become fully vested and non-forfeitable at the date of such termination, and,
in other respects, such awards shall be governed by the plans and programs and
the agreements and other documents pursuant to which such awards were granted;

 

(vi)                              All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral;

 

(vii)                           All rights under the EXPP and USERP shall be
governed by such plan, subject to Section 5(b) hereof including without
limitation that Additional Service Credits that were credited as of Executive’s
termination as provided in Section 5(b)(iv) of this Agreement shall be fully
reflected; and

 

(viii)                        If Executive elects after termination of
employment continued coverage under the Health Plan in accordance with the
applicable provisions of COBRA, the Company shall pay to Executive on a monthly
basis during such COBRA continuation period an amount equal on an after-tax
basis to the total cost of such coverage. If the maximum COBRA continuation
period available to Executive shall be less than two years, prior to the
expiration of the maximum COBRA continuation period available to Executive,
provided that Executive theretofore shall have complied with the conditions set
forth in Section 10, the Company shall make a good faith effort to obtain insured
coverage for Executive (and his spouse and eligible dependents, if any, for
whom coverage had been provided during the COBRA continuation period) that is
substantially comparable to such COBRA continuation coverage, which insured
coverage shall begin on the

 

10

 

date of expiration of
Executive’s COBRA continuation period and continue until the second anniversary
of Executive’s termination of employment. 
In the event that the Company determines, in its sole discretion, that
it is unable to obtain such insured coverage for Executive (and his spouse and
eligible dependents, if any, for whom coverage had been provided during the
COBRA continuation period) or in the event that Executive determines, in his sole
discretion, that any such insured coverage offered by the Company is not
substantially comparable to such COBRA continuation coverage, the Company shall
pay to Executive, provided that Executive shall not have become eligible for
medical coverage under (1) the Company’s Health Plan, as a retiree or active
employee, (2) a plan maintained by a subsequent employer or other entity to
which Executive provides services, or (3) Medicare and, provided further, that
Executive theretofore shall have complied with the conditions set forth in
Section 10, a lump sum amount equal on an after-tax basis to the present value
of  the total cost of retiree medical
coverage under the Health Plan that would have been incurred by both Executive
and the Company on behalf of Executive (and his spouse and eligible dependents,
if any, for whom coverage had been provided during the COBRA continuation
period) if Executive (and such spouse and dependents, if any) had been eligible
for such retiree medical coverage from the end of Executive’s COBRA
continuation period until the second anniversary of Executive’s termination of
employment, calculated on the assumption that the cost of such coverage would
remain unchanged from that in effect for the year in which such lump sum is
paid.  Such lump sum amount shall be
calculated by the actuary for the Health Plan and paid in cash as soon as
administratively practicable following the expiration of Executive’s COBRA
continuation period and shall not be subject to reduction or forfeiture by reason
of any coverage for which Executive may thereafter become eligible by reason of
subsequent employment or otherwise. In addition, as soon as administratively
practicable following Executive’s termination of employment, provided that
Executive shall have complied with the conditions set forth in Section 10, the
Company shall pay to Executive a lump sum amount equal on an after-tax basis to
the present value of the sum of (1) the amount that Executive would have paid,
had he remained employed, for coverage under the Company’s group long-term
disability policy from the date of Executive’s termination of employment until
the second anniversary of Executive’s termination of employment,
calculated  on the assumption that the
cost of such coverage would remain unchanged from that in effect for the year
in which Executive’s termination occurred; and (2) the amount that the Company
would have paid to continue Executive’s group life insurance coverage, had he
remained employed, from the date of Executive’s termination of employment until
the second anniversary of Executive’s termination of employment, calculated on
the assumption that the cost of such coverage would remain unchanged from that
in effect for the year in which Executive’s termination occurred.  For purposes of this Section 7(c)(viii),
present value shall be calculated on the basis of the discount rate set forth
in the EXPP for the determination of lump sum payments.

 

(d)                                 Termination by Executive for Good Reason Prior to or More than Two
Years After a Change in Control. 
Executive may terminate his employment hereunder for Good Reason, prior
to a Change in Control or after the second anniversary of the most recent
Change in Control, upon 90 days’ written notice to the Company; provided,
however, that, if the Company has corrected the basis for such Good Reason
within 30 days after receipt of such notice, Executive may not terminate his
employment for Good Reason, and therefore Executive’s notice of termination
will automatically become null and void. 
At the time Executive’s employment is terminated by Executive for Good
Reason (i.e., at the expiration of such notice period), the Term will
terminate, all obligations of the Company and Executive under Sections 1
through 5 of this Agreement will immediately cease (except for obligations
which continue after termination of employment as expressly provided herein),
and the Company will pay Executive, and Executive will be entitled to receive,
the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  Cash in an aggregate amount equal to one
times the sum of (A) Exe cutive’s Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater of (x) the portion
of Executive’s annual target incentive compensation potentially payable in cash
to Executive (i.e., excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of Executive’s annual
incentive compensation that became payable

 

11

 

in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards) for the
latest year preceding the year of termination based on performance actually
achieved in that latest year.  The amount
determined to be payable under this Section 7(d)(ii) shall be payable in
monthly installments over the 24 months following termination, without
interest, except the Company may elect to accelerate payment of  the remaining balance of such amount and to
pay it as a lump sum, without discount;

 

(iii)                               In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of Executive’s annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the portion payable
in PERS or in other non-cash awards) for the year of termination, multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iv)                              Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and
exercisable at the date of such termination, and, in other respects (including
the period following termination during which such options may be exercised),
such options shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;

 

(v)                                 Any performance objectives upon which the
earning of performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive awards is
conditioned shall be deemed to have been met at target level at the date of
termination, and restricted stock and deferred stock awards, including
outstanding PERS awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based awards) shall
become fully vested and non-forfeitable at the date of such termination, and,
in other respects, such awards shall be governed by the plans and programs and
the agreements and other documents pursuant to which such awards were granted;

 

(vi)                              All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral;

 

(vii)                           All rights under the EXPP and USERP shall be
governed by such plan, subject to Section 5(b) hereof including without
limitation that Additional Service Credits that were credited as of Executive’s
termination as provided in Section 5(b)(iv) of this Agreement shall be fully
reflected; and

 

(viii)                        If Executive elects after termination of
employment continued coverage under the Health Plan in accordance with the
applicable provisions of COBRA, the Company shall pay to Executive on a monthly
basis during such COBRA continuation period an amount equal on an after-tax
basis to the total cost of such coverage. If the maximum COBRA continuation
period available to Executive shall be less than two years, prior to the
expiration of the maximum COBRA continuation period available to Executive,
provided that Executive theretofore shall have complied with the conditions set
forth in Section 10, the Company shall make a good faith effort to obtain
insured coverage for Executive (and his spouse and eligible dependents, if any,
for whom coverage had been provided during the COBRA continuation period) that
is substantially comparable to such COBRA continuation coverage, which insured
coverage shall begin on the date of expiration of Executive’s COBRA
continuation period and continue until the second anniversary of Executive’s
termination of employment.  In the event
that the Company determines, in its sole discretion, that it is unable to
obtain such insured coverage for Executive (and his spouse and eligible
dependents, if any, for whom coverage had been provided during the COBRA
continuation period) or in the event that Executive determines, in his sole
discretion, that any such insured coverage offered by the Company is not
substantially comparable to such COBRA continuation coverage, the Company shall
pay to Executive, provided that Executive shall not have become eligible for
medical coverage under (1) the Company’s Health Plan, as a retiree or active
employee, (2) a plan maintained by a subsequent employer or other entity to
which Executive provides services, or (3) Medicare and, provided further, that
Executive

 

12

 

theretofore shall have
complied with the conditions set forth in Section 10, a lump sum amount equal
on an after-tax basis to the present value of 
the total cost of retiree medical coverage under the Health Plan that
would have been incurred by both Executive and the Company on behalf of
Executive (and his spouse and eligible dependents, if any, for whom coverage
had been provided during the COBRA continuation period) if Executive (and such
spouse and dependents, if any) had been eligible for such retiree medical
coverage from the end of Executive’s COBRA continuation period until the second
anniversary of Executive’s termination of employment, calculated on the
assumption that the cost of such coverage would remain unchanged from that in
effect for the year in which such lump sum is paid.  Such lump sum amount shall be calculated by the actuary for the
Health Plan and paid in cash as soon as administratively practicable following
the expiration of Executive’s COBRA continuation period and shall not be
subject to reduction or forfeiture by reason of any coverage for which
Executive may thereafter become eligible by reason of subsequent employment or
otherwise. In addition, as soon as administratively practicable following
Executive’s termination of employment, provided that Executive shall have
complied with the conditions set forth in Section 10, the Company shall pay to
Executive a lump sum amount equal on an after-tax basis to the present value of
the sum of (1) the amount that Executive would have paid, had he remained
employed, for coverage under the Company’s group long-term disability policy
from the date of Executive’s termination of employment until the second
anniversary of Executive’s termination of employment, calculated  on the assumption that the cost of such
coverage would remain unchanged from that in effect for the year in which
Executive’s termination occurred; and (2) the amount that the Company would
have paid to continue Executive’s group life insurance coverage, had he
remained employed, from the date of Executive’s termination of employment until
the second anniversary of Executive’s termination of employment, calculated on
the assumption that the cost of such coverage would remain unchanged from that
in effect for the year in which Executive’s termination occurred.  For purposes of this Section 7(d)(viii),
present value shall be calculated on the basis of the discount rate set forth
in the EXPP for the determination of lump sum payments.

 

If any payment or benefit
under this Section 7(d) is based on Base Salary or other level of compensation
or benefits at the time of Executive’s termination and if a reduction in such
Base Salary or other level of compensation or benefit was the basis for
Executive’s termination for Good Reason, then the Base Salary or other level of
compensation in effect before such reduction shall be used to calculate
payments or benefits under this Section 7(d).

 

(e)                                  Termination by the Company Without Cause
Within Two Years After a Change in Control.  The
Company may terminate the employment of Executive hereunder without Cause,
simultaneously with or within two years after a Change in Control, upon at
least 90 days’ written notice to Executive. 
The foregoing notwithstanding, the Company may elect, by written notice
to Executive, to terminate Executive’s positions specified in Sections 1 and 3
and all other obligations of Executive and the Company under Section 3 at a
date earlier than the expiration of such 90-day notice period, if so specified
by the Company in the written notice, provided that Executive shall be treated
as an employee of the Company (without any assigned duties) for all other
purposes of this Agreement, including for purposes of Sections 4 and 5, from
such specified date until the expiration of such 90-day period.  An election by the Company not to extend the
Term pursuant to Section 2 hereof shall be deemed to be a termination of
Executive’s employment by the Company without Cause at the date of expiration
of the Term and shall be subject to this Section 7(e) if the date of such termination
coincides with or is within two years after a Change in Control; provided,
however, that, if Executive has attained age 65 at such date of termination,
such termination shall be deemed a Retirement of Executive.  At the time Executive’s employment is terminated
by the Company (i.e., at the expiration of such notice period), the Term will
terminate, all remaining obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease (except for
obligations which continue after termination of employment as expressly
provided herein), and the Company will pay Executive, and Executive will be
entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  Cash in an aggregate amount equal to three
times the sum of (A) Executive’s Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater of (x) the portion
of Executive’s annual target incentive compensation potentially payable in cash
to

 

13

 

Executive (i.e., excluding
the portion payable in PERS or in other non-cash awards) for the year of
termination or (y) the portion of Executive’s annual incentive compensation
that became payable in cash to Executive (i.e., excluding the portion payable
in PERS or in other non-cash awards) for the latest year preceding the year of
termination based on performance actually achieved in that latest year.  The amount determined to be payable under
this Section 7(e)(ii) shall be paid by the Company not later than 15 days after
Executive’s termination;

 

(iii)                               In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of Executive’s annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the portion payable
in PERS or in other non-cash awards) for the year of termination, multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iv)                              Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and exercisable
at the date of such termination, and any such options granted on or after the
date hereof shall remain outstanding and exercisable until the stated
expiration date of the Option as though Executive’s employment did not
terminate, and, in other respects, such options shall be governed by the plans
and programs and the agreements and other documents pursuant to which such
options were granted;

 

(v)                                 Any performance objectives upon which the
earning of performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive awards is
conditioned shall be deemed to have been met at target level at the date of
termination, and restricted stock and deferred stock awards, including
outstanding PERS awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based awards) shall
become fully vested and non-forfeitable at the date of such termination, and,
in other respects, such awards shall be governed by the plans and programs and
the agreements and other documents pursuant to which such awards were granted;

 

(vi)                              All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral;

 

(vii)                           All rights under the EXPP and USERP shall be
governed by such plan, subject to Section 5(b) hereof including without
limitation that Additional Service Credits that were credited as of Executive’s
termination as provided in Section 5(b)(iv) of this Agreement shall be fully
reflected; provided additionally that (a) payments under the EXPP and USERP
shall commence as provided in Section 3.8 of the EXPP and the USERP in an
amount equal to 100% of the benefit under Section 3.1 or 3.2 of the EXPP or
Section 3.1 or 3.2 of the USERP (whichever is applicable or in the appropriate
combination thereof) without actuarial reduction or any other discount and (b)
if such termination occurs prior to January 31, 2006, any additional years of
Service credited as a result of Section 3.8 of the EXPP (governing Change in
Control) shall be credited in accordance with Section 5(b)(iv) of this
Agreement so that the Additional Service Credits are fully reflected in the
additional years of Service credited pursuant to Section 3.8 of the EXPP; and

 

(viii)                        If Executive elects after termination of
employment continued coverage under the Health Plan in accordance with the
applicable provisions of COBRA, the Company shall pay to Executive on a monthly
basis during such COBRA continuation period an amount equal on an after-tax
basis to the total cost of such coverage. If the maximum COBRA continuation
period available to Executive shall be less than three years, prior to the
expiration of the maximum COBRA continuation period available to Executive,
provided that Executive theretofore shall have complied with the conditions set
forth in Section 10, the Company shall make a good faith effort to obtain
insured coverage for Executive (and his spouse and eligible dependents, if any,
for whom coverage had been provided during the COBRA continuation period) that
is substantially comparable to such COBRA continuation coverage, which insured
coverage shall begin on the date of expiration of Executive’s COBRA
continuation period and continue until the third anniversary of Executive’s
termination of employment.  In the event
that the Company

 

14

 

determines, in its sole
discretion, that it is unable to obtain such insured coverage for Executive
(and his spouse and eligible dependents, if any, for whom coverage had been
provided during the COBRA continuation period) or in the event that Executive
determines, in his sole discretion, that any such insured coverage offered by
the Company is not substantially comparable to such COBRA continuation
coverage, the Company shall pay to Executive, provided that Executive shall not
have become eligible for medical coverage under (1) the Company’s Health Plan,
as a retiree or active employee, (2) a plan maintained by a subsequent employer
or other entity to which Executive provides services, or (3) Medicare and,
provided further, that Executive theretofore shall have complied with the
conditions set forth in Section 10, a lump sum amount equal on an after-tax
basis to the present value of  the total
cost of retiree medical coverage under the Health Plan that would have been
incurred by both Executive and the Company on behalf of Executive (and his
spouse and eligible dependents, if any, for whom coverage had been provided
during the COBRA continuation period) if Executive (and such spouse and
dependents, if any) had been eligible for such retiree medical coverage from
the end of Executive’s COBRA continuation period until the third anniversary of
Executive’s termination of employment, calculated on the assumption that the
cost of such coverage would remain unchanged from that in effect for the year
in which such lump sum is paid.  Such
lump sum amount shall be calculated by the actuary for the Health Plan and paid
in cash as soon as administratively practicable following the expiration of
Executive’s COBRA continuation period and shall not be subject to reduction or
forfeiture by reason of any coverage for which Executive may thereafter become
eligible by reason of subsequent employment or otherwise. In addition, as soon
as administratively practicable following Executive’s termination of
employment, provided that Executive shall have complied with the conditions set
forth in Section 10, the Company shall pay to Executive a lump sum amount equal
on an after-tax basis to the present value of the sum of (1) the amount that
Executive would have paid, had he remained employed, for coverage under the
Company’s group long-term disability policy from the date of Executive’s
termination of employment until the third anniversary of Executive’s
termination of employment, calculated 
on the assumption that the cost of such coverage would remain unchanged
from that in effect for the year in which Executive’s termination occurred; and
(2) the amount that the Company would have paid to continue Executive’s group
life insurance coverage, had he remained employed, from the date of Executive’s
termination of employment until the third anniversary of Executive’s
termination of employment, calculated on the assumption that the cost of such
coverage would remain unchanged from that in effect for the year in which
Executive’s termination occurred.  For
purposes of this Section 7(e)(viii), present value shall be calculated on the
basis of the discount rate set forth in the EXPP for the determination of lump
sum payments.

 

(f)                                    Termination by Executive for Good Reason Within Two Years After a
Change in Control. 
Executive may terminate his employment hereunder for Good Reason,
simultaneously with or within two years after a Change in Control, upon 90
days’ written notice to the Company; provided, however, that, if the Company
has corrected the basis for such Good Reason within 30 days after receipt of
such notice, Executive may not terminate his employment for Good Reason, and
therefore Executive’s notice of termination will automatically become null and
void.  At the time Executive’s
employment is terminated by Executive for Good Reason (i.e., at the expiration
of such notice period), the Term will terminate, all obligations of the Company
and Executive under Sections 1 through 5 of this Agreement will immediately
cease (except for obligations which continue after termination of employment as
expressly provided herein), and the Company will pay Executive, and Executive
will be entitled to receive, the following:

 

(i)                                     Executive’s Compensation Accrued at
Termination;

 

(ii)                                  Cash in an aggregate amount equal to three
times the sum of (A) Executive’s Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater of (x) the portion
of Executive’s annual target incentive compensation potentially payable in cash
to Executive (i.e., excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of Executive’s annual
incentive compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards) for the
latest year preceding the year of termination based on performance actually
achieved in that

 

15

 

latest year.  The amount determined to be payable under
this Section 7(f)(ii) shall be paid by the Company not later than 15 days after
Executive’s termination;

 

(iii)                               In lieu of any annual incentive compensation
under Section 4(b) for the year in which Executive’s employment terminated, an
amount equal to the portion of Executive’s annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the portion payable
in PERS or in other non-cash awards) for the year of termination, multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;

 

(iv)                              Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and
exercisable at the date of such termination, and any such options granted on or
after the date hereof shall remain outstanding and exercisable until the stated
expiration date of the Option as though Executive’s employment did not
terminate, and, in other respects, such options shall be governed by the plans
and programs and the agreements and other documents pursuant to which such
options were granted;

 

(v)                                 Any performance objectives upon which the
earning of performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive awards is
conditioned shall be deemed to have been met at target level at the date of
termination, and restricted stock and deferred stock awards, including
outstanding PERS awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based awards) shall
become fully vested and non-forfeitable at the date of such termination, and,
in other respects, such awards shall be governed by the plans and programs and
the agreements and other documents pursuant to which such awards were granted;

 

(vi)                              All deferral arrangements under Section 5(d)
will be settled in accordance with the plans and programs governing the
deferral;

 

(vii)                           All rights under the EXPP and USERP shall be
governed by such plan, subject to Section 5(b) hereof including without
limitation that Additional Service Credits that were credited as of Executive’s
termination as provided in Section 5(b)(iv) of this Agreement shall be fully
reflected; provided additionally that (a) payments under the EXPP and USERP
shall commence as provided in Section 3.8 of the EXPP and the USERP in an
amount equal to 100% of the benefit under Section 3.1 or 3.2 of the EXPP or
Section 3.1 or 3.2 of the USERP (whichever is applicable or in the appropriate
combination thereof) without actuarial reduction or any other discount and (b)
if such termination occurs prior to January 31, 2006 any additional years of
Service credited as a result of Section 3.8 of the EXPP (governing Change in
Control) shall be credited in accordance with Section 5(b)(iv) of this Agreement
so that the Additional Service Credits are fully reflected in the additional
years of Service credited pursuant to Section 3.8 of the EXPP; and

 

(viii)                        If Executive elects after termination of
employment continued coverage under the Health Plan in accordance with the
applicable provisions of COBRA, the Company shall pay to Executive on a monthly
basis during such COBRA continuation period an amount equal on an after-tax
basis to the total cost of such coverage. If the maximum COBRA continuation period
available to Executive shall be less than three years, prior to the expiration
of the maximum COBRA continuation period available to Executive, provided that
Executive theretofore shall have complied with the conditions set forth in
Section 10, the Company shall make a good faith effort to obtain insured
coverage for Executive (and his spouse and eligible dependents, if any, for
whom coverage had been provided during the COBRA continuation period) that is
substantially comparable to such COBRA continuation coverage, which insured
coverage shall begin on the date of expiration of Executive’s COBRA
continuation period and continue until the third anniversary of Executive’s
termination of employment.  In the event
that the Company determines, in its sole discretion, that it is unable to
obtain such insured coverage for Executive (and his spouse and eligible
dependents, if any, for whom coverage had been provided during the COBRA
continuation period) or in the event that Executive determines, in his sole discretion,
that any such insured coverage offered by the Company is not substantially
comparable to such

 

16

 

COBRA continuation coverage,
the Company shall pay to Executive, provided that Executive shall not have
become eligible for medical coverage under (1) the Company’s Health Plan, as a
retiree or active employee, (2) a plan maintained by a subsequent employer or
other entity to which Executive provides services, or (3) Medicare and,
provided further, that Executive theretofore shall have complied with the
conditions set forth in Section 10, a lump sum amount equal on an after-tax
basis to the present value of  the total
cost of retiree medical coverage under the Health Plan that would have been
incurred by both Executive and the Company on behalf of Executive (and his
spouse and eligible dependents, if any, for whom coverage had been provided
during the COBRA continuation period) if Executive (and such spouse and
dependents, if any) had been eligible for such retiree medical coverage from
the end of Executive’s COBRA continuation period until the third anniversary of
Executive’s termination of employment, calculated on the assumption that the
cost of such coverage would remain unchanged from that in effect for the year
in which such lump sum is paid.  Such
lump sum amount shall be calculated by the actuary for the Health Plan and paid
in cash as soon as administratively practicable following the expiration of
Executive’s COBRA continuation period and shall not be subject to reduction or
forfeiture by reason of any coverage for which Executive may thereafter become
eligible by reason of subsequent employment or otherwise. In addition, as soon
as administratively practicable following Executive’s termination of employment,
provided that Executive shall have complied with the conditions set forth in
Section 10, the Company shall pay to Executive a lump sum amount equal on an
after-tax basis to the present value of the sum of (1) the amount that
Executive would have paid, had he remained employed, for coverage under the
Company’s group long-term disability policy from the date of Executive’s
termination of employment until the third anniversary of Executive’s
termination of employment, calculated 
on the assumption that the cost of such coverage would remain unchanged
from that in effect for the year in which Executive’s termination occurred; and
(2) the amount that the Company would have paid to continue Executive’s group
life insurance coverage, had he remained employed, from the date of Executive’s
termination of employment until the third anniversary of Executive’s
termination of employment, calculated on the assumption that the cost of such
coverage would remain unchanged from that in effect for the year in which Executive’s
termination occurred.  For purposes of
this Section 7(f)(viii), present value shall be calculated on the basis of the
discount rate set forth in the EXPP for the determination of lump sum payments.

 

If any payment or benefit
under this Section 7(f) is based on Base Salary or other level of compensation
or benefits at the time of Executive’s termination and if a reduction in such
Base Salary or other level of compensation or benefit was the basis for
Executive’s termination for Good Reason, then the Base Salary or other level of
compensation in effect before such reduction shall be used to calculate
payments or benefits under this Section 7(f).

 

(g)                                 Other Terms Relating to Certain Terminations of Employment. 
Whether a termination is deemed to be at or within two years after a
Change in Control for purposes of Sections 7(c), (d), (e), or (f) is determined
at the date of termination, regardless of whether the Change in Control had
occurred at the time a notice of termination was given.  In the event Executive’s employment
terminates for any reason set forth in Section 7(b) through (f), Executive will
be entitled to the benefit of any terms of plans or agreements applicable to
Executive which are more favorable than those specified in this Section 7 (except
in the case of annual incentives in lieu of which amounts are paid
hereunder).  Amounts payable under this
Section 7 following Executive’s termination of employment, other than those
expressly payable on a deferred basis, will be paid as promptly as practicable
after such a termination of employment, and such amounts payable under Section
7(e) or 7(f) will be paid in no event later than 15 days after Executive’s
termination of employment unless not determinable within such period.

 

8.                                       Definitions Relating to Termination Events.

 

(a)                                  “Cause.”  For purposes of this Agreement, “Cause”
shall mean Executive’s

 

(i)                                     willful and continued failure to
substantially perform his duties hereunder (other than any such failure
resulting from incapacity due to physical or mental illness or Disability or
any failure after the issuance of a notice of termination by Executive for Good
Reason) which failure is demonstrably and materially damaging to the financial
condition or reputation of the Company and/or its subsidiaries, and which
failure continues more than 48 hours after a written demand for

 

17

 

substantial performance is
delivered to Executive by the Board, which demand specifically identifies the
manner in which the Board believes that Executive has not substantially
performed his duties hereunder and the demonstrable and material damage caused
thereby; or

 

(ii)                                  the willful engaging by Executive in conduct
which is demonstrably and materially injurious to the Company, monetarily or
otherwise.

 

No act, or failure to act,
on the part of Executive shall be deemed “willful” unless done, or omitted to
be done, by Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.  Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Executive a copy of the resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after reasonable notice to
Executive and an opportunity for Executive, together with Executive’s counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this definition and
specifying the particulars thereof in detail.

 

(b)                                 “Change in Control.”  For
purposes of this Agreement, a “Change in Control” shall be deemed to have
occurred if, during the term of this Agreement:

 

(i)                                     any “Person,” as such term is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company’s
then-outstanding securities;

 

(ii)                                  during any period of twenty-four months (not
including any period prior to the effectiveness of this Agreement), individuals
who at the beginning of such period constitute the Board, and any new director
(other than (A) a director nominated by a Person who has entered into an
agreement with the Company to effect a transaction described in Sections
(8)(b)(i), (iii) or (iv) hereof, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or threatened
proxy contest) which if consummated would constitute a Change in Control or (C)
a director nominated by any Person who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company’s securities) whose election by the Board
or nomination for election by the Company’s stockholders was approved in
advance by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;

 

(iii)                               the stockholders of the Company approve any
transaction or series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or consolidation (A)
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation and (B) after which no Person holds 20% or more of the
combined voting power of the then-outstanding securities of the Company or such
surviving entity;

 

(iv)                              the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company’s assets;
or

 

(v)                                 the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Change in Control has occurred.

 

18

 

(c)                                  “Compensation
Accrued at Termination.”  For purposes of this Agreement,
“Compensation Accrued at Termination” means the following:

 

(i)                                     The unpaid portion of annual base salary at
the rate payable, in accordance with Section 4(a) hereof, at the date of
Executive’s termination of employment, pro rated through such date of
termination, payable in accordance with the Company’s regular pay schedule;

 

(ii)                                  All vested, nonforfeitable amounts owing or
accrued at the date of Executive’s termination of employment under any
compensation and benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof (including any earned and
vested annual incentive compensation and long-term incentive award) in which
Executive theretofore participated, payable in accordance with the terms and
conditions of the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and benefits were
granted or accrued; and

 

(iii)                               Reasonable business expenses and
disbursements incurred by Executive prior to Executive’s termination of
employment, to be reimbursed to Executive, as authorized under Section 5(f), in
accordance the Company’s reimbursement policies as in effect at the date of such
termination.

 

(d)                                 “Disability.”  For
purposes of this Agreement, “Disability” shall have the meaning ascribed to it
under the EXPP.

 

(e)                                  “Good Reason.”  For
purposes of this Agreement, “Good Reason” shall mean, without Executive’s
express written consent, the occurrence of any of the following circumstances
unless, in the case of subsections (i), (iv), (vi) or (viii) hereof, such
circumstances are fully corrected prior to the date of termination specified in
the notice of termination given in respect thereof:

 

(i)                                     the assignment to Executive of duties  inconsistent with Executive’s position and
status as Senior Vice President and General Counsel, or an alteration,  adverse to Executive, in Executive’s
position and status as Senior Vice President and General Counsel or in the
nature of Executive’s duties, responsibilities, and authorities or conditions
of Executive’s employment from those relating to Executive position and status
as Senior Vice President and General Counsel (excluding changes in assignments
permitted under Section 3 and excluding inadvertent actions which are promptly
remedied); except the foregoing shall not constitute Good Reason if occurring
in connection with the termination of Executive’s employment for Cause,
Disability, Retirement, as a result of Executive’s death, or as a result of
action by or with the consent of Executive; for purposes of this Section
8(e)(i), references to the Company (and the Board and stockholders of the
Company) refer to the ultimate parent company (and its board and stockholders)
succeeding the Company following an acquisition in which the corporate
existence of the Company continues, in accordance with Section 12(b);

 

(ii)                                  (A) a reduction by the Company in Executive’s
Base Salary, (B) the setting of Executive’s annual target incentive opportunity
or payment of earned annual incentive in amounts less than specified under or
otherwise not in conformity with Section 4 hereof, (C) a change in compensation
or benefits not in conformity with Section 5, or (D) a reduction, after a
Change in Control in perquisites from the level of such perquisites as in
effect immediately prior to the Change in Control or as the same may have been
increased from time to time after the Change in Control except for
across-the-board perquisite reductions similarly affecting all senior
executives of the Company and all senior executives of any Person in control of
the Company;

 

(iii)                               the relocation of the principal place of
Executive’s employment not in conformity with Section 3(b) hereof; for this
purpose, required travel on the Company’s business will not constitute a
relocation so long as the extent of such travel is substantially consistent
with Executive’s customary business travel obligations in periods prior to the
Effective Date;

 

19

 

(iv)                              the failure by the Company to pay to
Executive any portion of Executive’s compensation or to pay to Executive any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within seven days of the date such
compensation is due;

 

(v)                                 the failure by the Company to continue in
effect any material compensation or benefit plan in which Executive
participated immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Company to continue
Executive’s participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amounts of
compensation or benefits provided and the level of Executive’s participation
relative to other participants, as existed at the time of the Change in
Control;

 

(vi)                              the failure of the Company to obtain a
satisfactory agreement from any successor to the Company to fully assume the
Company’s obligations and to perform under this Agreement, as contemplated in
Section 12(b) hereof, in a form reasonably acceptable to Executive;

 

(vii)                           any election by the Company not to extend the
Term of this Agreement at the next possible extension date under Section 2
hereof, unless Executive will have attained age 65 at or before such extension
date; or

 

(viii)                        any other failure by the Company to perform
any material obligation under, or breach by the Company of any material
provision of, this Agreement;

 

provided, however, that a
forfeiture under Section 10(f) or (g) shall not constitute “Good Reason.”

 

(f)                                    “Potential
Change in Control”  For purposes
of this Agreement, a “Change in Control” shall be deemed to have occurred if,
during the term of this Agreement:

 

(i)                                     the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in Control;

 

(ii)                                  any Person (including the Company) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control; or

 

(iii)                               the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has occurred.

 

9.                                       Rabbi Trust Obligation Upon Potential Change in
Control; Excise Tax-Related Provisions.

 

(a)                                  Rabbi Trust Funded Upon Potential Change in Control. In the event of a Potential Change in
Control or Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit therein
cash in an amount sufficient to provide for full payment of all potential
obligations of the Company that would arise assuming consummation of a Change
in Control, or has arisen in the case of an actual Change in Control, and a
subsequent termination of Executive’s employment under Section 7(e) or (f).
Such rabbi trust(s) shall be irrevocable and shall provide that the Company may
not, directly or indirectly, use or recover any assets of the trust(s) until
such time as all obligations which potentially could arise hereunder have been
settled and paid in full, subject only to the claims of creditors of the
Company in the event of insolvency or bankruptcy of the Company; provided,
however, that if no Change in Control has occurred within two years after such
Potential Change in Control, such rabbi trust(s) shall at the end of such
two-year period become revocable and may thereafter be revoked by the Company.

 

(b)                                 Gross-up
If Excise Tax Would Apply.  In
the event Executive becomes entitled to any amounts or benefits payable in
connection with a Change in Control or other change in control (whether or not
such amounts are payable pursuant to this Agreement) (the “Severance
Payments”), if any of such Severance Payments are subject to the tax (the
“Excise Tax”) imposed by Section 4999 of the Internal Revenue Code (or any
similar federal, state or local tax that may hereafter be imposed) (the
“Code”), the Company shall pay to Executive at the time specified in Section
9(b)(iii) hereof an additional amount (the “Gross-Up Payment”) such that the
net amount retained by Executive, after deduction of any Excise Tax on the
Total Payments (as hereinafter defined) and any federal, state

 

20

 

and local income tax and
Excise Tax upon the payment provided for by Section 9(b)(i), shall be equal to
the Total Payments.

 

(i)                                     For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the amount of such
Excise Tax:

 

(A)                              any other payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive’s
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any Person whose
actions result in a Change in Control or any Person affiliated with the Company
or such Person) (which, together with the Severance Payments, constitute the
“Total Payments”) shall be treated as “parachute payments” within the meaning
of Section 280G(b)(2) of the Code, and all “excess parachute payments” within
the meaning of Section 280G(b)(1) of the Code shall be treated as subject to
the Excise Tax, unless in the opinion of nationally-recognized tax counsel
selected by Executive such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the base
amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise
not subject to the Excise Tax;

 

(B)                                the amount of the Total Payments which shall
be treated as subject to the Excise Tax shall be equal to the lesser of (x) the
total amount of the Total Payments and (y) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after applying
Section 9(b)(i)(A) hereof); and

 

(C)                                the value of any non-cash benefits or any
deferred payments or benefit shall be determined by a nationally-recognized
accounting firm selected by Executive in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.

 

(ii)                                  For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of Executive’s
residence on the Date of Termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of Executive’s
employment, Executive shall repay to the Company within ten days after the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the Gross-Up Payment being repaid by
Executive if such repayment results in a reduction in Excise Tax and/or federal
and state and local income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.  In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
termination of Executive’s employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional gross-up payment in respect of
such excess within ten days after the time that the amount of such excess is
finally determined.

 

(iii)                               The payments provided for in this Section
9(b) shall be made not later than the fifteenth day following the date of
Executive’s termination of employment; provided, however, that if the
amount of such payments cannot be finally determined on or before such day, the
Company shall pay to Executive on such day an estimate, as determined in good
faith by the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the date of
Executive’s termination of employment. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the

 

21

 

Company to Executive,
payable on the fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).

 

(iv)                              All determinations under this Section 9(b)
shall be made at the expense of the Company by a nationally recognized public
accounting firm selected by Executive, and such determination shall be binding
upon Executive and the Company.

 

10.                                 Non-Competition and Non-Disclosure; Executive
Cooperation; Non-Disparagement; Certain Forfeitures.

 

(a)                                  Non-Competition. Without the consent in writing of the Board, Executive will not, at
any time during the Term and for a period of two years following termination of
Executive’s employment for any reason, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in which he has been directly engaged on behalf of the Company or any
affiliate, or has supervised as an executive thereof, during the last two years
prior to such termination, or which was engaged in or planned by the Company or
an affiliate at the time of such termination, in any geographic area in which
such business was conducted or planned to be conducted; (ii) induce any
customers of the Company or any of its affiliates with whom Executive has had
contacts or relationships, directly or indirectly, during and within the scope
of his employment with the Company or any of its affiliates, to curtail or
cancel their business with the Company or any such affiliate; (iii) induce, or
attempt to influence, any employee of the Company or any of its affiliates to
terminate employment; or (iv) solicit, hire or retain as an employee or
independent contractor, or assist any third party in the solicitation, hire, or
retention as an employee or independent contractor, any person who during the
previous 12 months was an employee of the Company or any affiliate; provided,
however, that the limitation contained in clause (i) above shall not apply
if Executive’s employment is terminated as a result of a termination by the
Company without Cause within two years following a Change in Control or is
terminated by Executive for Good Reason within two years following a Change in
Control, and provided further, that activities engaged in by or on behalf of
the Company are not restricted by this covenant. The provisions of
subparagraphs (i), (ii), (iii), and (iv) above are separate and distinct
commitments independent of each of the other subparagraphs.  It is agreed that the ownership of not more
than one percent of the equity securities of any company having securities
listed on an exchange or regularly traded in the over-the-counter market shall
not, of itself, be deemed inconsistent with clause (i) of this Section 10(a).

 

(b)                                 Non-Disclosure;
Ownership of Work. Executive shall not, at any time during the
Term and thereafter (including following Executive’s termination of employment
for any reason), disclose, use, transfer, or sell, except in the course of
employment with or other service to the Company, any proprietary information,
secrets, organizational or employee information, or other confidential
information belonging or relating to the Company and its affiliates and
customers so long as such information has not otherwise been disclosed or is
not otherwise in the public domain, except as required by law or pursuant to
legal process. In addition, upon termination of employment for any reason,
Executive will return to the Company or its affiliates all documents and other
media containing information belonging or relating to the Company or its
affiliates. Executive will promptly disclose in writing to the Company all inventions,
discoveries, developments, improvements and innovations (collectively referred
to as “Inventions”) that Executive has conceived or made during the Term; provided,
however, that in this context “Inventions” are limited to those which (i)
relate in any manner to the existing or contemplated business or research
activities of the Company and its affiliates; (ii) are suggested by or result
from Executive’s work at the Company; or (iii) result from the use of the time,
materials or facilities of the Company and its affiliates. All Inventions will
be the Company’s property rather than Executive’s. Should the Company request
it, Executive agrees to sign any document that the Company may reasonably
require to establish ownership in any Invention.

 

(c)                                  Cooperation
With Regard to Litigation. Executive agrees to cooperate with the
Company, during the Term and thereafter (including following Executive’s
termination of employment for any reason), by making herself available to
testify on behalf of the Company or any subsidiary or affiliate of the Company,
in any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board or its representatives or counsel, or
representatives or counsel to the Company, or any subsidiary or affiliate of
the Company, as requested.  The Company
agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with her provision of testimony or assistance.

 

22

 

(d)                                 Non-Disparagement. Executive shall not, at any time during the Term and thereafter, make
statements or representations, or otherwise communicate, directly or
indirectly, in writing, orally, or otherwise, or take any action which may,
directly or indirectly, disparage the Company or any of its subsidiaries or
affiliates or their respective officers, directors, employees, advisors,
businesses or reputations. 
Notwithstanding the foregoing, nothing in this Agreement shall preclude
Executive from making truthful statements that are required by applicable law,
regulation or legal process.

 

(e)                                  Release
of Employment Claims. 
Executive agrees, as a condition to receipt of any termination payments
and benefits provided for in Sections 6 and 7 herein (other than Compensation
Accrued at Termination), that he will execute a general release agreement, in
substantially the form set forth in Attachment A to this Agreement, releasing
any and all claims arising out of Executive’s employment other than enforcement
of this Agreement and rights to indemnification under any agreement, law,
Company organizational document or policy, or otherwise.

 

(f)                                    Forfeiture
of Outstanding Options.  The
provisions of Sections 6 and 7 notwithstanding, if Executive willfully and
materially fails to substantially comply with any restrictive covenant under
this Section 10 or willfully and materially fails to substantially comply with
any material obligation under this Agreement, all options to purchase Common
Stock granted by the Company and then held by Executive or a transferee of
Executive shall be immediately forfeited and thereupon such options shall be
cancelled. Notwithstanding the foregoing, Executive shall not forfeit any
option unless and until there shall have been delivered to him, within six
months after the Board (i) had knowledge of conduct or an event allegedly
constituting grounds for such forfeiture and (ii) had reason to believe that
such conduct or event could be grounds for such forfeiture, a copy of a
resolution duly adopted by a majority affirmative vote of the membership of the
Board (excluding Executive) at a meeting of the Board called and held for such
purpose (after giving Executive reasonable notice specifying the nature of the
grounds for such forfeiture and not less than 30 days to correct the acts or
omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive has engaged and
continues to engage in conduct set forth in this Section 10(f) which
constitutes grounds for forfeiture of Executive’s options; provided, however,
that if any option is exercised after delivery of such notice and the Board
subsequently makes the determination described in this sentence, Executive
shall be required to pay to the Company an amount equal to the difference
between the aggregate value of the shares acquired upon such exercise at the
date of the Board determination and the aggregate exercise price paid by
Executive. Any such forfeiture shall apply to such options notwithstanding any
term or provision of any option agreement. In addition, options granted to
Executive on or after January 1, 2000, and gains resulting from the exercise of
such options, shall be subject to forfeiture in accordance with the Company’s
standard policies relating to such forfeitures and clawbacks, as such policies
are in effect at the time of grant of such options.

 

(g)                                 Forfeiture of Certain Bonuses and Profits.  If
the Company is required to prepare an accounting restatement due to the
material noncompliance of the Company, as a result of misconduct, with any
financial reporting requirement under the securities laws, and if Executive,
knowingly or through gross negligence, caused or failed to prevent such
misconduct, Executive shall reimburse the Company for (1) any bonus or other
incentive based or equity-based compensation received by Executive from the
Company during the 12-month period following the first public issuance or
filing with the Securities and Exchange Commission (whichever first occurs) of
the financial document embodying such financial reporting requirement; and (2)
any profits realized from the sale of securities of the Company during that
12-month period.

 

(h)                                 Survival.
The provisions of this Section 10 shall survive the termination of the Term and
any termination or expiration of this Agreement.

 

11.                                 Governing
Law; Disputes; Arbitration.

 

(a)                                  Governing Law.  Anything in the USERP or the EXPP to the
contrary notwithstanding, this Agreement and the rights and obligations of the
Company and Executive under the USERP and the EXPP are governed by and are to
be construed, administered, and enforced in accordance with the laws of the
State of Connecticut, without regard to conflicts of law principles, except
insofar as federal laws and regulations and the Delaware General Corporation
Law may be applicable. If under the governing law, any portion of this
Agreement or the USERP or the EXPP is at any time deemed to be in conflict with
any applicable statute, rule, regulation, ordinance, or other principle of law,
such portion shall be deemed to be modified or altered to the extent necessary
to conform thereto or, if that is not possible, to be omitted therefrom . The
invalidity of any such portion shall not

 

23

 

affect the force, effect,
and validity of the remaining portion thereof. If any court determines that any
provision of Section 10 of this Agreement is unenforceable because of the
duration or geographic scope of such provision, it is the parties’ intent that
such court shall have the power to modify the duration or geographic scope of
such provision, as the case may be, to the extent necessary to render the
provision enforceable and, in its modified form, such provision shall be
enforced.

 

(b)                                 Reimbursement of Expenses in Enforcing Rights. 
Upon submission of invoices, the Company shall promptly pay or reimburse
all reasonable costs and expenses (including fees and disbursements of counsel
and pension experts) incurred by Executive or Executive’s surviving spouse in
seeking to interpret this Agreement or enforce rights pursuant to this
Agreement or in any proceeding in connection therewith brought by Executive or
Executive’s surviving spouse, whether or not Executive or Executive’s surviving
spouse is ultimately successful in enforcing such rights or in such proceeding;
provided, however, that no reimbursement shall be owed with respect to expenses
relating to any unsuccessful assertion of rights or proceeding if and to the
extent that such assertion or proceeding 
was initiated or maintained in bad faith or was frivolous, as determined
by the arbitrators in accordance with Section 11(c) or a court having
jurisdiction over the matter, in which case any amounts previously paid by the
Company shall be promptly repaid.

 

(c)                                  Arbitration.  Anything in the USERP or the EXPP to the
contrary notwithstanding, any dispute or controversy arising under or in
connection with this Agreement or the USERP or the EXPP shall be settled
exclusively by arbitration in  Fairfield,
CT, by three arbitrators in accordance with the rules of the American
Arbitration Association in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators’ award in any court having
jurisdiction. For purposes of entering any judgment upon an award rendered by
the arbitrators, the Company and Executive hereby consent to the jurisdiction
of any or all of the following courts: (i) the United States District Court for
the District of Connecticut, (ii) any of the courts of the State of
Connecticut, or (iii) any other court having jurisdiction. The Company and
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
it may now or hereafter have to such jurisdiction and any defense of
inconvenient forum. The Company and Executive hereby agree that a judgment upon
an award rendered by the arbitrators may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Subject to Section
11(b) of this Agreement, the Company shall bear all costs and expenses arising
in connection with any arbitration proceeding pursuant to this Section 11.
Notwithstanding any provision in this Section 11, Executive shall be entitled
to seek specific performance of Executive’s right to be paid during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.

 

(d)                                 Interest
on Unpaid Amounts.  Any
amount which has become payable pursuant to the terms of this Agreement or any
decision by arbitrators or judgment by a court of law pursuant to this Section
11 but which has not been timely paid shall bear interest at the prime rate in
effect at the time such amount first becomes payable, as quoted by the
Company’s principal bank.

 

12.                                 Miscellaneous.

 

(a)                                  Integration.  This Agreement cancels and supersedes any
and all prior employment agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company, any parent
or predecessor company, and the Company’s subsidiaries during the Term, except
for contracts relating to compensation under executive compensation and
employee benefit plans of the Company and its subsidiaries.  The foregoing notwithstanding, in the event
of any conflict or ambiguity between this Agreement and the Employee Protection
Plan as applicable to Executive or the Change-in-Control Agreement executed by
Executive and the Company or the EXPP or USERP, the provisions of this
Agreement shall govern except that Executive shall remain entitled to any right
or benefit under the Employee Protection Plan or the Change-in-Control
Agreement or the EXPP or USERP for so long as such Plan or Agreement remains in
effect, if and to the extent that such right or benefit is more favorable to
Executive than a corresponding provision of this Agreement; but no payment or
benefit under the Employee Protection Plan or Change-in-Control Agreement or
the EXPP or USERP shall be made or extended which duplicates any payment or
benefit hereunder.  If and to the extent
that this Agreement may provide enhanced benefits to Executive under the EXPP
or USERP which benefits are not explicitly provided for under the EXPP or
USERP, the EXPP or USERP shall be deemed amended by this Agreement (but only
insofar as it pertains to Executive). 
This Agreement constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by

 

24

 

the parties hereto.
Executive shall not be entitled to any payment or benefit under this Agreement
which duplicates a payment or benefit received or receivable by Executive under
any prior agreements and understandings or under any benefit or compensation
plan of the Company which are in effect.

 

(b)                                 Successors;
Transferability. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.

 

As used in this Agreement,
“Company” shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise and, in the case of an
acquisition of the Company in which the corporate existence of the Company continues,
the ultimate parent company following such acquisition. Subject to the
foregoing, the Company may transfer and assign this Agreement and the Company’s
rights and obligations hereunder. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution or
as specified in Section 12(c).

 

(c)                                  Beneficiaries.
Executive shall be entitled to designate (and change, to the extent permitted
under applicable law) a beneficiary or beneficiaries to receive any
compensation or benefits provided hereunder following Executive’s death.

 

(d)                                 Notices.
Whenever under this Agreement it becomes necessary to give notice, such notice
shall be in writing, signed by the party or parties giving or making the same,
and shall be served on the person or persons for whom it is intended or who
should be advised or notified, by Federal Express or other similar overnight
service or by certified or registered mail, return receipt requested, postage
prepaid and addressed to such party at the address set forth below or at such
other address as may be designated by such party by like notice:

 

If to the Company:

 

IMS HEALTH INCORPORATED

1499 Post Road

Fairfield, CT  06824

Attention: Chief Executive Officer

 

If to Executive:

 

Mr. Robert H. Steinfeld

Senior Vice President and
General Counsel

IMS Health Incorporated

1499 Post Road

Fairfield, CT  06824

 

If the parties by mutual
agreement supply each other with telecopier numbers for the purposes of
providing notice by facsimile, such notice shall also be proper notice under
this Agreement. In the case of Federal Express or other similar overnight
service, such notice or advice shall be effective when sent, and, in the cases
of certified or registered mail, shall be effective two days after deposit into
the mails by delivery to the U.S. Post Office.

 

(e)                                  Reformation.
The invalidity of any portion of this Agreement shall not be deemed to render
the remainder of this Agreement invalid.

 

(f)                                    Headings.
The headings of this Agreement are for convenience of reference only and do not
constitute a part hereof.

 

(g)                                 No General
Waivers. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach

 

25

 

of such provisions. No such
waiver shall be effective unless in writing and signed by the party against
whom such waiver is sought to be enforced.

 

(h)                                 No
Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive’s damages upon any
termination of employment, and any compensation or benefits received from any
other employment of Executive shall not mitigate or reduce the obligations of
the Company or the rights of Executive hereunder, except that, to the extent
Executive receives from a subsequent employer health or other insurance
benefits that are similar to the benefits referred to in Section 5(b) hereof,
any such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.

 

(i)                                     Offsets;
Withholding. The amounts required to be paid by the
Company to Executive pursuant to this Agreement shall not be subject to offset
other than with respect to any amounts that are owed to the Company by
Executive due to his receipt of funds as a result of his fraudulent activity.
The foregoing and other provisions of this Agreement notwithstanding, all payments
to be made to Executive under this Agreement, including under Sections 6 and 7,
or otherwise by the Company, will be subject to withholding to satisfy required
withholding taxes and other required deductions.

 

(j)                                     Successors
and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of Executive, his heirs, executors, administrators
and beneficiaries, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.

 

(k)                                  Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same
instrument.

 

13.                                 Indemnification.

 

All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company’s Certificate of Incorporation or By-laws or pursuant
to other agreements in effect on or immediately prior to the Effective Date
shall continue in full force and effect from the Effective Date (including all
periods after the expiration of the Term), and the Company shall also advance
expenses for which indemnification may be ultimately claimed as such expenses
are incurred to the fullest extent permitted under applicable law, subject to
any requirement that the Executive provide an undertaking to repay such
advances if it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive’s conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company’s Certificate of Incorporation, By-laws,
or other agreement shall be made by independent counsel mutually acceptable to
the Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law.  In addition, the Company will maintain
directors’ and officers’ liability insurance in effect and covering acts and
omissions of Executive during the Term and for a period of six years thereafter
on terms substantially no less favorable than those in effect on the Effective
Date.

 

IN WITNESS WHEREOF,
Executive has hereunto set his hand and the Company has caused this instrument
to be duly executed as of the date of this Agreement set forth in Section 1
hereof.

 

	
   

  	
  IMS HEALTH INCORPORATED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ David M. Thomas

  
	
   

  	
   

  	
  Name: David M. Thomas

  
	
   

  	
   

  	
  Title: Chairman of the
  Board and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert H. Steinfeld

  
	
   

  	
  Robert H. Steinfeld

  

 

26<PAGE>

                                                                   Exhibit 4.10

                            STOCK PURCHASE AGREEMENT

                                 BY AND BETWEEN

                          MERCATOR MOMENTUM FUND, L.P.

                                       AND

                               FAMOUS FIXINS, INC.

                          DATED AS OF December 27, 2002

<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                               Page
<S>                                                                                                            <C>
ARTICLE I: CERTAIN DEFINITIONS....................................................................................6
    Section 1.1      "Adjustment Price"...........................................................................6
    Section 1.2      "Adjustment Shares"..........................................................................6
    Section 1.3      "Bid Price"..................................................................................6
    Section 1.4      "Capital Shares".............................................................................6
    Section 1.5      "Closing"....................................................................................6
    Section 1.6      "Closing Date"...............................................................................6
    Section 1.7      "Commitment Period"..........................................................................7
    Section 1.8      "Commitment Shares"..........................................................................7
    Section 1.9      "Common Stock"...............................................................................7
    Section 1.10     "Condition Satisfaction Date"................................................................7
    Section 1.11     "Daily Trading Value"........................................................................7
    Section 1.12     "Damages"....................................................................................7
    Section 1.13     "Effective Date".............................................................................7
    Section 1.14     "Exchange Act"...............................................................................7
    Section 1.15     "Investment Amount"..........................................................................7
    Section 1.16     "Legend".....................................................................................8
    Section 1.17     "Lowest Price"...............................................................................8
    Section 1.18     "Material Adverse Effect"....................................................................8
    Section 1.19     "Material Adverse Market Event"..............................................................8
    Section 1.20     "Maximum Commitment Amount"..................................................................8
    Section 1.21     "Maximum Put Amount".........................................................................8
    Section 1.22     "Minimum Bid Price"..........................................................................8
    Section 1.23     "Minimum Put Amount".........................................................................8
    Section 1.24     "Minimum Time Interval"......................................................................8
    Section 1.25     "NASD".......................................................................................9
    Section 1.26     "Outstanding"................................................................................9
    Section 1.27     "Person".....................................................................................9
    Section 1.28     "Principal Market"...........................................................................9
    Section 1.29     "Purchase Price".............................................................................9
    Section 1.30     "Put"........................................................................................9
    Section 1.31     "Put Date"...................................................................................9
    Section 1.32     "Put Notice".................................................................................9
    Section 1.33     "Put Notice Period"..........................................................................9
    Section 1.34     "Put Shares".................................................................................9
    Section 1.35     "Registrable Securities"....................................................................10
    Section 1.36     "Registration Rights Agreement".............................................................10
    Section 1.37     "Registration Statement"....................................................................10
    Section 1.38     "Regulation D"..............................................................................10
    Section 1.39     "SEC".......................................................................................11
    Section 1.40     "SEC Documents".............................................................................11
    Section 1.41     "Section 4(2)"..............................................................................11
    Section 1.42     "Securities Act"............................................................................11
    Section 1.43     "Subscription Date".........................................................................11
</TABLE>

                                       -2-
<PAGE>
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                               Page
<S>                                                                                                            <C>

    Section 1.44     "Subsidiary"................................................................................11
    Section 1.45     "Trading Day"...............................................................................11
    Section 1.46     "Underwriter"...............................................................................11
    Section 1.47     "Valuation Period"..........................................................................11

ARTICLE II: PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF OBLIGATIONS........................................11
    Section 2.1      Investments.................................................................................11
    Section 2.2      Mechanics...................................................................................12
    Section 2.3      Closings....................................................................................12
    Section 2.4      Termination of Agreement and Investment Obligation..........................................12
    Section 2.5      The Commitment Fee..........................................................................13
    Section 2.6      Adjustment Shares...........................................................................13

ARTICLE III: REPRESENTATIONS AND WARRANTIES OF INVESTOR..........................................................13
    Section 3.1      Intent......................................................................................13
    Section 3.2      Sophisticated Investor......................................................................13
    Section 3.3      Authority...................................................................................14
    Section 3.4      Not an Affiliate............................................................................14
    Section 3.5      Organization and Standing...................................................................14
    Section 3.6      Absence of Conflicts........................................................................14
    Section 3.7      Disclosure; Access to Information...........................................................14
    Section 3.8      Manner of Sale..............................................................................14

ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................14
    Section 4.1      Organization of the Company.................................................................15
    Section 4.2      Authority...................................................................................15
    Section 4.3      Corporate Documents.........................................................................15
    Section 4.4      Books and Records...........................................................................15
    Section 4.5      Capitalization..............................................................................16
    Section 4.6      Registration and Listing of Common Stock....................................................16
    Section 4.7      Financial Statements........................................................................16
    Section 4.8      SEC Documents...............................................................................16
    Section 4.9      Exemption from Registration; Valid Issuances; New Issuances.................................17
    Section 4.10     No General Solicitation or Advertising in Regard to this Transaction........................17
    Section 4.11     No Conflicts................................................................................18
    Section 4.12     No Material Adverse Change..................................................................18
    Section 4.13     No Undisclosed Liabilities..................................................................18
    Section 4.14     No Undisclosed Events or Circumstances......................................................19
    Section 4.15     No Integrated Offering......................................................................19
    Section 4.16     Litigation and Other Proceedings............................................................19
    Section 4.17     No Misleading or Untrue Communication.......................................................19
    Section 4.18     Material Non-Public Information.............................................................19
</TABLE>

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ARTICLE V: COVENANTS OF THE INVESTOR.............................................................................19
    Section 5.1      No Short Sales..............................................................................19

ARTICLE VI: COVENANTS OF THE COMPANY.............................................................................20
    Section 6.1      Registration Rights.........................................................................20
    Section 6.2      Reservation of Common Stock.................................................................20
    Section 6.3      Listing of Common Stock.....................................................................20
    Section 6.4      Exchange Act Registration...................................................................20
    Section 6.5      Legends.....................................................................................20
    Section 6.6      Corporate Existence.........................................................................21
    Section 6.7      Additional SEC Documents....................................................................21
    Section 6.8      Notice of Certain Events Affecting Registration; Suspension of Right to Make a Put..........21
    Section 6.9      Consolidation; Merger.......................................................................22
    Section 6.10     Legal Opinion on Subscription Date..........................................................22
    Section 6.11     No Similar Arrangement; Right of First Refusal..............................................22

ARTICLE VII: CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS TO CLOSING.....................................22
    Section 7.1      Conditions Precedent to the Obligation of the Company to Issue and Sell Common Stock........23
    Section 7.2      Conditions Precedent to the Right of the Company to Deliver a Put Notice and the Obligation
                     of the Investor to Purchase Put Shares......................................................23
    Section 7.3      Due Diligence Review; Non-Disclosure of Non-Public Information..............................25

ARTICLE VIII: LEGENDS............................................................................................26
    Section 8.1      Legends.....................................................................................26
    Section 8.2      No Other Legend or Stock Transfer Restrictions..............................................27
    Section 8.3      Investor's Compliance.......................................................................28

ARTICLE IX: INDEMNIFICATION; ARBITRATION.........................................................................28
    Section 9.1      Indemnification.............................................................................28
    Section 9.2      Method of Asserting Indemnification Claims..................................................28
    Section 9.3      Arbitration.................................................................................31

ARTICLE X: MISCELLANEOUS.........................................................................................31
    Section 10.1     Transaction Costs...........................................................................31
    Section 10.2     Reporting Entity for the Common Stock.......................................................32
    Section 10.3     Brokerage...................................................................................32
    Section 10.4     Notices.....................................................................................32
    Section 10.5     Assignment..................................................................................33
    Section 10.6     Amendment; No Waiver........................................................................33
    Section 10.7     Annexes and Exhibits; Entire Agreement......................................................33
    Section 10.8     Survival....................................................................................33
    Section 10.9     Severability................................................................................33
</TABLE>

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                                TABLE OF CONTENTS

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    Section 10.10    Title and Subtitles.........................................................................33
    Section 10.11    Counterparts................................................................................34
    Section 10.12    Choice of Law...............................................................................34
    Section 10.13    Other Expenses..............................................................................34

</TABLE>

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<PAGE>

                            STOCK PURCHASE AGREEMENT

                                 BY AND BETWEEN

                          MERCATOR MOMENTUM FUND, L.P.

                                       AND

                               FAMOUS FIXINS, INC.

This STOCK PURCHASE AGREEMENT is entered into as of the __th day of December,
2002 (this "Agreement"), by and between MERCATOR MOMENTUM FUND, L.P., a limited
partnership organized and existing under the laws of California and affiliates
it may designate as co-investors (collectively the "Investor") and FAMOUS
FIXINS, INC., a corporation organized and existing under the laws of the State
of New York (the "Company").

WHEREAS, the parties desire that, subject to the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$2,000,000 of shares of the Company's Common Stock (as defined below); and

WHEREAS, such investments will be made in reliance upon the private offering
exemption under Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D")
of the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.

NOW, THEREFORE, the parties hereto agree as follows:

                         ARTICLE I: CERTAIN DEFINITIONS

         SECTION 1.1 "ADJUSTMENT PRICE" shall mean ninety-two percent (92%) of
the lowest closing Bid Price of the Company's Common Stock during the 15 Trading
Days following each Closing Date.

         SECTION 1.2 "ADJUSTMENT SHARES" shall mean all shares issued pursuant
to Section 2.6 below.

         SECTION 1.3 "BID PRICE" shall mean the closing bid price as reported
under Section 10.2 of this Agreement.

         SECTION 1.4 "CAPITAL SHARES" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of dividends (as and when declared)
and assets (upon liquidation of the Company).

         SECTION 1.5 "CLOSING" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.

         SECTION 1.6 "CLOSING DATE" shall mean, with respect to a Closing, the
Trading Day specified in the Put Notice related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.

                                       -6-
<PAGE>

         SECTION 1.7 "COMMITMENT PERIOD" shall mean the period commencing on the
effectiveness of the Registration Statement and expiring on the earlier to occur
of (i) the date on which the Investor shall have purchased Put Shares pursuant
to this Agreement for an aggregate Purchase Price of the Maximum Commitment
Amount, (ii) the date this Agreement is terminated pursuant to Section 2.4, or
(iii) the date occurring three years from the Subscription Date.

         SECTION 1.8 "COMMITMENT SHARES" shall mean any shares of Common Stock
which may be issued pursuant to Section 2.5 below.

         SECTION 1.9 "COMMON STOCK" shall mean the Company's common stock, no
par value per share.

         SECTION 1.10 "CONDITION SATISFACTION DATE" shall have the meaning set
forth in Section 7.2 of this Agreement.

         SECTION 1.11 "DAILY TRADING VALUE" shall mean, on any Trading Day, the
Bid Price multiplied by the trading volume of the Common Stock.

         SECTION 1.12 "DAMAGES" shall mean any and all losses, claims, damages,
liabilities, costs and expenses (including, without limitation, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in defense or settlement of, any action, suit or
proceeding between any indemnified party and any indemnifying party or between
any indemnified party and any third party, or otherwise, or any claim asserted).

         SECTION 1.13 "EFFECTIVE DATE" shall mean the earlier to occur of: (i)
the date on which the SEC has declared effective a Registration Statement
registering resale of Registrable Securities as set forth in Section 7.2(a); and
(ii) the date on which such Registrable Securities first become eligible for
resale pursuant to Rule 144 of the Securities Act.

         SECTION 1.14 "EXCHANGE ACT" shall mean the United States Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder.

         SECTION 1.15 "INVESTMENT AMOUNT" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor in accordance with Section 2.2 hereof.

         SECTION 1.16 "LEGEND" shall have the meaning specified in Section 8.1.

         SECTION 1.17 "LOWEST PRICE" shall mean the lowest closing Bid Prices
during the applicable Valuation Period.

         SECTION 1.18 "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement or (ii) the Registration Rights
Agreement. Material Adverse Effect shall include, but not be limited to, any
qualification of the Company's financial statements by its

                                       -7-

<PAGE>

auditor, any restatement of prior financial results, resignation by any Director
or failure to timely file any SEC documents.

         SECTION 1.19 "MATERIAL ADVERSE MARKET EVENT" shall mean a fall in the
Nasdaq Composite Index or Standard and Poors 500 index in excess of 10% in any
Trading Day or in excess of 20% over any 5 consecutive Trading Days.

         SECTION 1.20 "MAXIMUM COMMITMENT AMOUNT" shall mean $2,000,000.

         SECTION 1.21 "MAXIMUM PUT AMOUNT" shall be limited to the lessor of (a)
$150,000; (b) the remaining amounts available under the line; (c) an amount
equal to 10% of the total dollar trading volume in Company common stock (based
on the closing bid prices) during the month in questions; or (d) the maximum
amount which the Investor could purchase without being required to file a Form
13D under the Securities Exchange Act of 1934.

         SECTION 1.22 "MINIMUM BID PRICE" shall have the meaning set forth in
Section 7.2(j) of this Agreement.

         SECTION 1.23 "MINIMUM PUT AMOUNT" shall mean $50,000.

         SECTION 1.24 "MINIMUM TIME INTERVAL" shall mean the mandatory
twenty-two (22) Trading Days between any two Put Dates.

         SECTION 1.25 "NASD" shall mean the National Association of Securities
Dealers, Inc.

         SECTION 1.26 "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares then
directly or indirectly owned or held by or for the account of the Company.

         SECTION 1.27 "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

         SECTION 1.28 "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq Small Cap Market, the American Stock Exchange, the OTC Bulletin Board
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.

         SECTION 1.29 "PURCHASE PRICE" shall mean, with respect to a Put,
ninety-two percent (92%) of the Lowest Price.

         SECTION 1.30 "PUT" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms and
conditions of this Agreement.

         SECTION 1.31 "PUT DATE" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.

         SECTION 1.32 "PUT NOTICE" shall mean a written notice to the Investor
setting forth the: (i) intended Closing Date, which shall not be

                                       -8-

<PAGE>

less than  seven (7) nor more than ten (10)  Trading  Days from the date the Put
Notice is delivered to the Investor; and (ii) Investment Amount that the Company
intends  to require  the  Investor  to  purchase  pursuant  to the terms of this
Agreement.

         SECTION 1.33 "PUT NOTICE PERIOD" shall mean a period beginning on a Put
Date and ending on a Closing Date; provided that in no event shall a Put Notice
Period be less than seven (7) nor more than ten (10) Trading Days.

         SECTION 1.34 "PUT SHARES" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement and, in respect of
representations and warranties of the Company and any ongoing registration
obligations, shall also include any Commitment Shares and any Adjustment Shares,
whether or not those are specified or not below.

         SECTION 1.35 "REGISTRABLE SECURITIES" shall mean (i) the Put Shares,
(ii) any Commitment Shares; (ii) any Adjustment Shares and (iv) any securities
issued or issuable with respect to any of the foregoing by way of exchange,
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As
to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (w) the applicable Registration
Statement has been declared effective by the SEC and all such Registrable
Securities have been disposed of pursuant to the applicable Registration
Statement, (x) all such Registrable Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act("Rule 144") are met,
(y) such time as all such Registrable Securities have been otherwise transferred
to holders who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (z) in the
opinion of counsel to the Company, which counsel shall be reasonably acceptable
to the Investor, all such Registrable Securities may be sold without
registration or the need for an exemption from any registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.

         SECTION 1.36 "REGISTRATION RIGHTS AGREEMENT" shall mean the
registration rights agreement in the form of Exhibit A hereto.

         SECTION 1.37 "REGISTRATION STATEMENT" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.

         SECTION 1.38 "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.

         SECTION 1.39 "SEC" shall mean the Securities and Exchange Commission.

                                       -9-

<PAGE>

         Section 1.40 "SEC Documents" shall mean the Company's latest Form 10-K
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.

         SECTION 1.41 "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.

         SECTION 1.42 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.

         SECTION 1.43 "SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.

         SECTION 1.44 "SUBSIDIARY" shall mean any Person in which the Company,
directly or indirectly through Subsidiaries or otherwise, beneficially owns more
than fifty percent (50%) of either the equity interests in, or the voting
control of, such Person.

         SECTION 1.45 "TRADING DAY" shall mean any day during which the
Principal Market shall be open for business.

         SECTION 1.46 "UNDERWRITER" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to a Registration Statement.

         SECTION 1.47 "VALUATION PERIOD" shall mean: (i) with respect to an
Effective Date, the five Trading Day period immediately preceding such Effective
Date; and (ii) with respect to a Closing Date, the five Trading Day period
immediately preceding the applicable Put Date, during which the Purchase Price
of the Common Stock is determined.

                 ARTICLE II: PURCHASE AND SALE OF COMMON STOCK;
                           TERMINATION OF OBLIGATIONS

     Section 2.1 INVESTMENTS.

         (a) PUTS. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date the
Company may exercise a Put by the delivery of a Put Notice. The number of Put
Shares that the Investor shall receive pursuant to such Put shall be determined
by dividing the Investment Amount specified in the Put Notice by the Purchase
Price with respect to such Put Date.

         (b) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the requisite
approval of its shareholders in accordance with the corporate laws of any State
or regulatory or self regulatory authority which may be applicable, no more than
19.9% of the Outstanding shares of Common Stock may be issued and sold pursuant
to Puts without shareholder approval. The Investor's obligation to purchase
shares of the Company's Common Stock under this Agreement during any 30-day
period shall be the lesser of: (i) $150,000; (ii) the remaining amounts
available under the line; (iii) an amount equal to 10% of the total dollar
trading volume in the Company's Common Stock (based on the closing bid prices)
during the
                                      -10-

<PAGE>

30-days in questions; or (iv) the maximum amount which the Investor could
purchase without being required to file a Form 13D under the Securities Exchange
Act of 1934.

     Section 2.2 MECHANICS.

         (a) PUT NOTICE. At any time during the Commitment Period, the Company
may deliver a Put Notice to the Investor, subject to the conditions set forth in
Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.

         (b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon New York time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 9:00 a.m. Pacific Coast time on a Trading Day or at any time on
a day which is not a Trading Day. No Put Notice may be deemed delivered, on a
day that is not a Trading Day.

         Section 2.3 CLOSINGS. The Closing Date shall not be less than seven (7)
nor more than ten (10) Trading Days from the date the Put Notice is delivered to
the Investor. On each Closing Date for a Put, (i) the Company shall deliver
irrevocable instructions to the transfer agent to promptly prepare and deliver
to the Investor a share certificate in the name of the Investor and in the
amount of the applicable Put Shares and (ii) the Investor shall deliver to the
Company the Investment Amount specified in the Put Notice by wire transfer of
immediately available funds to the account designated in the Put Notice. In
addition, on or prior to such Closing Date, each of the Company and the Investor
shall deliver to the other party all documents, instruments and writings
required to be delivered or reasonably requested by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein.

         SECTION 2.4 TERMINATION OF AGREEMENT AND INVESTMENT OBLIGATION. The
Company shall have the right to terminate this Agreement at any time upon thirty
(30) days' written notice to the Investor. The Investor shall have the right to
immediately terminate this Agreement (including with respect to any Put, notice
of which has been given but the applicable Closing Date has not yet occurred) in
the event that: (i) the Registration Statement with respect to the Registrable
Securities is not effective within one hundred and eighty (180) days following
the Subscription Date ( The Company shall use all available resources to have
Registration Statement declared effective within 180 days following the
Subscription Date); (ii) a Registration Statement with respect to Registrable
Securities is no longer effective or current at any point during the Commitment
Period; (iii) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period; (iv) the Company shall at any time
fail to comply with the requirements of Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8 or
6.9; (v) a Material Adverse Market Event has occurred; (vi) a regulatory
authority of the self regulatory organization governing broker-dealers takes the
position that the intended purchase of the Common Stock contemplated herein and
its resale by the Investor may cause the Investor to be a statutory underwriter
subject alone or with its agents to the restrictions of Regulation M as
promulgated by the SEC or otherwise

                                      -11-

<PAGE>

restrict or prohibit the resale of the Common Stock; or (vii) the Company shall
otherwise breach the terms of this Agreement, including payment of the
commitment fee provided for in Section 2.5.

         SECTION 2.5 THE COMMITMENT FEE. A Commitment Fee of $100,000 is due and
payable by the Company to the Investor at the time the parties sign this
Agreement.

         SECTION 2.6 ADJUSTMENT SHARES. If the Adjustment Price shall fall more
than two and a half percent (2.5%) below the Purchase Price in respect of shares
of Common Stock purchased by the Investor on any Closing Date, then the Investor
shall be issued Adjustment Shares equal to the difference between the number of
shares purchased on the last Closing Date and the amount that would have been
purchased if the Purchase Price had been the Adjustment Price. The Adjustment
Shares shall be promptly issued to Investor within 12 Trading Days of the
determination more shares are due the Investor.

            ARTICLE III: REPRESENTATIONS AND WARRANTIES OF INVESTOR

     The Investor represents and warrants to the Company that:

         SECTION 3.1 INTENT. The Investor is entering into this Agreement for
its own account and has no present arrangement (whether or not legally binding)
at any time to sell the Registrable Securities to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Registrable Securities for any minimum or
other specific term and reserves the right to dispose of the Registrable
Securities at any time pursuant to the Registration Statement and in accordance
with federal and state securities laws applicable to such disposition.

         SECTION 3.2 SOPHISTICATED INVESTOR. The Investor is an accredited
investor (as defined in Rule 501 of Regulation D), and has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. The Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.

         SECTION 3.3 AUTHORITY. Each of this Agreement and the Registration
Rights Agreement has been duly authorized by all necessary action and no further
consent or authorization of the Investor, or its partners, is required. Each of
this Agreement and the Registration Rights Agreement was validly executed and
delivered by the Investor and each is a valid and binding agreement of the
Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

         SECTION 3.4 NOT AN AFFILIATE. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.

         SECTION 3.5 ORGANIZATION AND STANDING. Investor is duly organized,
validly existing, and in good standing under the laws of California.

         SECTION 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not (a) violate any law, rule, regulation,

                                      -12-
<PAGE>

order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (c) conflict with or constitute a material default
thereunder, (d) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (e) require the
approval of any third-party (that has not been obtained) pursuant to any
material contract to which Investor is subject or to which any of its assets,
operations or management may be subject.

         SECTION 3.7 DISCLOSURE; Access to Information. Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Investor has
received and reviewed copies of the SEC Documents.

         SECTION 3.8 MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.

           ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Investor that:

         SECTION 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Except as set forth in the SEC Documents, the Company does not own more than
fifty percent (50%) of the outstanding capital stock of or control any other
business entity. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.

         SECTION 4.2 AUTHORITY. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to issue the Put Shares, the
Commitment Shares and the Additional Shares; (ii) the execution and delivery of
this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

         SECTION 4.3 CORPORATE DOCUMENTS. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the

                                      -13-
<PAGE>

"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").

         SECTION 4.4 BOOKS AND RECORDS. The minute books and other similar
records of the Company and its subsidiaries as made available to Investor prior
to the execution of this Agreement contain a true and complete record, in all
material respects, of all action taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and the subsidiaries. The
stock transfer ledgers and other similar records of the Company and the
subsidiaries as made available to Investor prior to the execution of this
Agreement accurately reflect all record transfers prior to the execution of this
Agreement in the capital stock of the Company and the subsidiaries. Neither the
Company nor any subsidiary has any of its Books and Records recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which(including all means of access thereto and there from)
are not under the exclusive ownership and direct control of the Company or a
subsidiary.

         SECTION 4.5 CAPITALIZATION. The authorized capital stock of the Company
consists of 200,000,000 shares of Common Stock, of which 23,360,179 shares are
issued and outstanding, and 0 shares of preferred stock of a wholly-owned
subsidiary, none of which are issued and outstanding. Except for options to
purchase not more than _________ shares of Common Stock with purchase prices
between $.___ and $___ per share, there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.

         SECTION 4.6 REGISTRATION AND LISTING OF COMMON STOCK. The Company has
registered its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange
Act and is in full compliance with all reporting requirements of the Exchange
Act, and the Company has maintained all requirements for the continued listing
or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the OTC Bulletin Board.

         SECTION 4.7 FINANCIAL STATEMENTS. Prior to the execution of this
Agreement, the Company has delivered to the Investor true and complete copies of
the following financial statements:

         (a) the audited balance sheets of the Company and its consolidated
subsidiaries as of December 31, 2001, and reviewed for September 30, 2002, and
the related audited consolidated statements of operations, stockholders' equity
and cash flows for each of the fiscal years then ended, together with a true and
correct copy of the report of such audited information by Brad Beckstead, CPA
and all letters from such accountants with respect to the results of such
audits; and

         (b) the unaudited balance sheets of the Company and its consolidated
subsidiaries as of September 30, 2002, found in the Company's 10-Q filed on
November 14, 2002 for the quarterly period ended September 30, 2002 and the
related unaudited consolidated statements of operations and stockholders' equity
for the portion of the fiscal year then ended. The financial statements of the
Company delivered to the Investor have been prepared in

                                      -14-
<PAGE>

accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended(subject, in the case of
unaudited statements, to normal year-end audit adjustments).

         SECTION 4.8 SEC DOCUMENTS. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may include summary notes
and may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).

         SECTION 4.9 EXEMPTION FROM REGISTRATION; Valid Issuances; New
Issuances. The sale and issuance of the Put Shares, the Commitment Shares and
the Additional Shares in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued and paid for as herein provided, the Put Shares, the Commitment
Shares and the Additional Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares or the Additional Shares
pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (i) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Put
Shares or the Additional Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares, the Commitment Shares and the Additional Shares shall
not subject the Investor to personal liability by reason of the ownership
thereof. The Put Shares, the Commitment Shares and the Additional Shares have
been duly authorized by the Company, but have not been issued (whether or not
subsequently repurchased by the Company) to any Person, and when issued to the
Investor in accordance with

                                      -15-
<PAGE>

this Agreement and will not have been issued(whether or not subsequently
repurchased by the Company) to any Person other than the Investor.

         SECTION 4.10 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Common Stock
under the Securities Act.

         SECTION 4.11 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Commitment Shares and the Additional Shares do not and will
not (i) result in a violation of the Certificate or By-Laws, or (ii) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect) nor is the
Company otherwise in violation of, conflict with or in default under any of the
foregoing; provided, however, that for purposes of the Company's representations
and warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.

         SECTION 4.12 NO MATERIAL ADVERSE CHANGE. Since September 30, 2002, no
event has occurred that would have a Material Adverse Effect on the Company.

                                      -16-
<PAGE>

         SECTION 4.13 NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations that are material, individually or in the aggregate, other than
those incurred in the ordinary course of the Company's businesses since
September 30, 2002, and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.

         SECTION 4.14 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September
30, 2002, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced.

         SECTION 4.15 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement and the registration
statement required by the 10% Secured Convertible Debenture and Related
Registration Rights Agreement dated December ___, 2002, under circumstances that
would require registration of the Common Stock under the Securities Act.

         SECTION 4.16 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.

         SECTION 4.17 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Put Shares, the Commitment Shares and the
Additional Shares in connection with the transactions contemplated by this
Agreement, have not made, at any time, any oral communication in connection with
the offer or sale of the same which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.

         SECTION 4.18 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock, or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.

                      ARTICLE V: COVENANTS OF THE INVESTOR

         SECTION 5.1 NO SHORT SALES. During the thirty (30) days prior to the
Subscription Date, neither the Investor nor any affiliate of the Investor has,
and during the Commitment Period neither the Investor nor any affiliate of the
Investor will (i) engage in any short sale of the Common Stock of the Company
unless Investor has given prior written notice to the Company. Nothing in this
Section 5.1 shall prohibit the Investor or any affiliate from making regular
sales of the Common Stock acquired pursuant to this Agreement or to require any
approvals from the Company.

                                      -17-
<PAGE>

                      ARTICLE VI: COVENANTS OF THE COMPANY

         SECTION 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.

         SECTION 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares, the
Commitment Shares and the Additional Shares; such amount of shares of Common
Stock to be reserved shall be calculated based upon the minimum Purchase Price
for the Put Shares under the terms and conditions of this Agreement. The number
of shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered.

         SECTION 6.3 LISTING OF COMMON STOCK. The Company shall exercise best
efforts to maintain the listing of the Common Stock on a Principal Market, and
as soon as practicable (but in any event prior to the Closing Date for any Put)
will cause the Put Shares, the Commitment Shares and the Additional Shares with
respect to such Put to be listed on the Principal Market. The Company further
shall, if the Company applies to have the Common Stock traded on any other
Principal Market, include in such application the Put Shares, the Commitment
Shares and the Additional Shares, and shall take such other action as is
necessary or desirable in the opinion of the Investor to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
shall use commercially reasonable efforts to continue the listing and trading of
its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and the Principal Market.

         SECTION 6.4 EXCHANGE ACT REGISTRATION. After each Registration
Statement becomes effective, the Company shall cause the Common Stock covered by
such Registration Statement to continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act.

         SECTION 6.5 LEGENDS. The certificates evidencing the Put Shares, the
Commitment Shares and the Additional Shares shall be free of legends, except as
provided for in Article VIII.

         SECTION 6.6 CORPORATE EXISTENCE. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.

         SECTION 6.7 ADDITIONAL SEC DOCUMENTS. During the Commitment Period, the
Company shall promptly deliver to the Investor, as and when the originals
thereof are submitted to the SEC for filing, copies of all SEC Documents so
furnished or submitted to the SEC.

                                      -18-
<PAGE>

         SECTION 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO MAKE A PUT. The Company shall immediately notify the Investor, but
in no event later than two (2) business days by facsimile and by overnight
courier, upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events. While in possession of material non-public
information received from the Company, the Investor shall not dispose of any
Registrable Securities until such information is disclosed to the public (a
"Restricted Period"); provided that, if such Restricted Period exceeds one
hundred twenty (120) days, the liquidated damages described in Section 1.1(c) of
the Registration Rights Agreement shall be increased to three percent (3.0%)
until such Restricted Period shall have elapsed.

         SECTION 6.9 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Investor
such shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.

         SECTION 6.10 LEGAL OPINION ON SUBSCRIPTION DATE. The Company's
independent counsel shall deliver to the Investor on the Subscription Date an
opinion in the form of Exhibit B, except for paragraph 7 thereof.

         SECTION 6.11 NO SIMILAR ARRANGEMENT; RIGHT OF FIRST REFUSAL. The
Company shall refrain from entering into any other agreements, arrangements or
understandings granting to the Company the right to sell shares of its
securities to one or more investors in similar (Equity Line) placements

                                      -19-
<PAGE>

exempt from registration under the Securities Act until thirty (30) calendar
days after this Agreement is terminated pursuant to Section 2.4 hereof (the
"Exclusivity Period"). The Exclusivity Period shall not apply to an issuance of
securities exempt from registration under the Securities Act by the Company in
connection with any strategic investment, corporate partnering arrangements, or
other situations in which the investment in the Company is not strictly a
financial one. If the Company, for the purpose of obtaining any additional
financing, wishes to sell shares of its securities in placements exempt from
registration under the Securities Act during the Exclusivity Period (a "Sale")
to a party other than the Investor (the "Third Party"), the Company shall first
offer (the "Offer") to the Investor, in writing, the right to purchase such
shares (the "Offered Shares") at the bona fide price offered by the Third Party
(the "Offer Price").The Offer shall grant the Investor the right during the five
(5) Trading Days immediately following the date of the Offer to elect to
purchase any or all of the Offered Shares. The Company, in connection with such
a Sale, shall refrain from circumventing or attempting to circumvent the
Investor's right of first refusal by way of making such a Sale to any of its
affiliates without first making an Offer to the Investor. If the Investor so
exercises its right to purchase any or all of the Offered Shares, the purchase
will be treated as a Put except that the purchase price for the Offered Shares
shall be the Offer Price. The closing and method of payment shall be as provided
for in Section 2.2 hereof and the Closing Date shall be seven (7) Trading Days
after the Investor exercises such right. If the Investor fails to exercise its
right to purchase any or all of the Offered Shares, then during the thirty (30)
calendar days immediately following the expiration of such right, the Company
shall be free to sell any or all of the Offered Shares to a purchaser for a
purchase price not lower than the Offer Price payable on terms and conditions
that are not more favorable to such purchaser than those contained in the Offer.
In the event that the Company effects a Sale to a Third Party, the Investor may
immediately terminate this Agreement.

               ARTICLE VII: CONDITIONS TO DELIVERY OF PUT NOTICES
                            AND CONDITIONS TO CLOSING

         SECTION 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue
and sell the Put Shares, the Commitment Shares and the Additional Shares to the
Investor incident to each Closing is subject to the satisfaction, at or before
each such Closing, of each of the conditions set forth below.

               (a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Investor herein shall be true and correct
in all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.

               (b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.

         SECTION 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER
A PUT NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE PUT SHARES.
Following completion of the Early Put, the right of the Company to deliver a Put
Notice and the obligation of the Investor

                                      -20-
<PAGE>

hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (i) the applicable Put Date and (ii) the applicable
Closing Date (each a "Condition Satisfaction Date"), of each of the following
conditions:

               (a) TERMINATION EVENTS. None of the Events which are listed in
Section 2.4 which would allow the Investor to terminate this Agreement has
occurred.

               (B) EFFECTIVE REGISTRATION STATEMENT. As set forth in the
Registration Rights Agreement, the Registration Statement(s) shall have
previously become effective and shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Investor shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to a Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of a Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and the Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action), (ii) no other suspension
of the use or withdrawal of the effectiveness of such Registration Statement or
related prospectus shall exist, and (iii) at least 30 days shall have elapsed
since the Initial Registration Statement (as defined in the Registration Rights
Agreement) has been declared effective by the SEC.

               (c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct as of
each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date).

               (d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.

               (e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits the transactions contemplated by this Agreement or otherwise has a
Material Adverse Effect, and no actions, suits or proceedings shall be in
progress, pending or threatened by any Person, that seek to enjoin or prohibit
the transactions contemplated by this Agreement or otherwise could reasonably be
expected to have a Material Adverse Effect. For purposes of this paragraph (e),
no proceeding shall be deemed pending or threatened unless one of the parties
has received written or oral notification thereof prior to the applicable
Closing Date.

               (f) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.

                                      -21-

<PAGE>

               (g) LEGAL OPINION. The Company shall have caused to be delivered
to the Investor, within five (5) Trading Days of the effective date of a
Registration Statement, an opinion of the Company's independent counsel in the
form of Exhibit D hereto, addressed to the Investor.

               (h) DUE DILIGENCE. Pursuant to Section 7.3, the Investor shall
not have a material dispute with the Company as to the adequacy of the
disclosure contained in the Registration Statement.

               (i) FIVE PERCENT LIMITATION. On each Closing Date, the number of
Put Shares, the Commitment Shares and the Additional Shares then to be purchased
by the Investor shall not exceed the number of such shares that, when aggregated
with all other shares of Common Stock and Registrable Securities then owned by
the Investor beneficially or deemed beneficially owned by the Investor, would
result in the Investor owning no more than 4.9% of all of such Common Stock as
would be outstanding on such Closing Date, as determined in accordance with
Section 13(d) of the Exchange Act and the regulations promulgated thereunder.
For purposes of this Section, in the event that the amount of Common Stock
outstanding as determined in accordance with Section 13(d) of the Exchange Act
and the regulations promulgated thereunder is greater on a Closing Date than on
the date upon which the Put Notice associated with such Closing Date is given,
the amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and would own more than 4.9% of the
Common Stock following such Closing Date.

               (j) MINIMUM BID PRICE. The Bid Price equals or exceeds $.05 on
each of the seven (7) Trading Days immediately preceding the Subscription Date
and on each Trading Day during any Put Notice Period.

               (k) MINIMUM AVERAGE DAILY TRADING VALUE. The average of the Daily
Trading Value during the twenty-two (22) Trading Days immediately preceding the
applicable Put Notice Period equals or exceeds $50,000.

               (l) NO KNOWLEDGE. The Company shall have no knowledge of any
event more likely than not to have the effect of causing any Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the 15 Trading Days following the Trading Day on which
such notice is deemed delivered).

               (m) MINIMUM TIME INTERVAL. The Minimum Time Interval shall have
elapsed since the immediately preceding Put Date.

               (n) SHAREHOLDER VOTE. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.

               (o) OTHER. On each Condition Satisfaction Date, the Investor
shall have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without

                                      -22-
<PAGE>

limitation, a certificate in substantially the form and substance of Exhibit C
hereto, executed in either case by an executive officer of the Company and to
the effect that all the conditions to such Closing shall have been satisfied as
at the date of each such certificate.

         SECTION 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.

               (a) The Company shall make available for inspection and review by
the Investor, advisors to and representatives of the Investor (who may or may
not be affiliated with the Investor and who are reasonably acceptable to the
Company), and any Underwriter, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or Underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of such
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and Underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.

               (b) Each of the Company, its officers, directors, employees and
agents shall in no event disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.

               (c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that notwithstanding
anything herein to the contrary, the Company shall, as herein above provided,
immediately notify the advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
applicable Registration Statement would cause such prospectus to include a
material misstatement or to omit a material fact required to be stated therein
in order to make the statements, therein, in light of the circumstances in which
they were made, not misleading. Nothing contained in this Section 7.3 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in

                                      -23-

<PAGE>

accordance with the terms and conditions of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that such
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in such Registration Statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.

                             ARTICLE VIII: LEGENDS

         SECTION 8.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):

                  THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
                  (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
                  LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
                  THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
                  OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
                  OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
                  TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
                  DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
                  TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
                  REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
                  BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN
                  A STOCK PURCHASE AGREEMENT, DATED AS OF DECEMBER __, 2002. A
                  COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH
                  OBLIGATIONS MAY BE OBTAINED FROM THE ISSUER'S EXECUTIVE
                  OFFICES.

As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days hereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions, with a copy to the Investor. Other
than as required as a result of change in law, such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Registrable Securities by the Investor to issue certificates
evidencing such Registrable Securities free of the Legend during the following
periods and under the

                                      -24-
<PAGE>

following circumstances and without consultation by the transfer agent with the
Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:

               (a) At any time after the applicable Effective Date, upon
surrender of one or more certificates evidencing Common Stock that bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered; provided that (i)
the applicable Registration Statement shall then be effective and (ii) if
reasonably requested by the transfer agent the Investor confirms to the transfer
agent that the Investor has transferred the Registrable Securities pursuant to
such Registration Statement and has complied with the prospectus delivery
requirement.

               (b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that the
Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act.

         SECTION 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.

         SECTION 8.3.INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.

                    ARTICLE IX: INDEMNIFICATION; ARBITRATION

         SECTION 9.1 INDEMNIFICATION.

               (a) The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with its controlling persons from and against any
Damages, joint or several, and any action in respect thereof to which the
Investor, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and any such controlling person becomes subject to, resulting
from, arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, unless such
Damages result primarily from the Investor's gross negligence, recklessness or
bad faith in performing its obligations under this Agreement; provided, however,
that the maximum aggregate liability of the Company shall be limited to the
amount actually invested by the Investor under this Agreement, and provided,
further, that in no event shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.

                                      -25-

<PAGE>

               (b) The Investor agrees to indemnify and hold harmless the
Company, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with its controlling persons from and against any
Damages, joint or several, and any action in respect thereof to which the
Company, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and any such controlling person becomes subject to, resulting
from, arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
the Investor contained in this Agreement, as such Damages are incurred, unless
such Damages result primarily from the Company's gross negligence, recklessness
or bad faith in performing its obligations under this Agreement; provided,
however, that the maximum aggregate liability of the Investor shall be limited
to the amount actually invested by the Investor under this Agreement, and
provided, further, that in no event shall this provision be deemed to limit any
rights to indemnification arising under the Registration Rights Agreement.

Section 9.2 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:

               (a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.1 (an
"Indemnified Party") might seek indemnity under Section 9.1 is asserted against
or sought to be collected from such Indemnified Party by a person other than the
Company, the Investor or any affiliate of the Company (a "Third Party Claim"),
the Indemnified Party shall deliver a written notification, enclosing a copy of
all papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 9.1 against any person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 9.1 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.

                   (i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
9.2(a), then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying

                                      -26-

<PAGE>

Party (but only with the consent of the Indemnified Party in the case of any
settlement that provides for any relief other than the payment of monetary
damages or that provides for the payment of monetary damages as to which the
Indemnified Party shall not be indemnified in full pursuant to Section 9.1). The
Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified Party, at
any time prior to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause (i), file any motion, answer or other
pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate to protect its interests; and provided
further, that if requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim that
the Indemnifying Party elects to contest. The Indemnified Party may participate
in, but not control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this clause (i), and except as
provided in the preceding sentence, the Indemnified Party shall bear its own
costs and expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the defense or
settlement of a Third Party Claim at any time if it irrevocably waives its right
to indemnity under Section 9.1 with respect to such Third Party Claim.

                    (ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.2(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause (ii) or of
the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.

                                      -27-

<PAGE>

                    (iii) If the Indemnifying Party notifies the Indemnified
Party that it does not dispute its liability or the amount of its liability to
the Indemnified Party with respect to the Third Party Claim under Section 9.1 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the Damages in the
amount specified in the Claim Notice shall be conclusively deemed a liability of
the Indemnifying Party under Section 9.1 and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute shall be resolved by
arbitration in accordance with Section 9.3.

               (b) In the event any Indemnified Party should have a claim under
Section 9.1 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9.1 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Damages in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 9.1 and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute shall be resolved by
arbitration in accordance with Section 9.3.

         SECTION 9.3 ARBITRATION. Any dispute under or related to this Agreement
(including, without limitation, pursuant to Section 9.2) or the Registration
Rights Agreement shall be submitted to arbitration and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (the "Board of Arbitration") selected as hereinafter provided.
Each of the Company, on the one hand, and the Investor and/or any other
Indemnified Party, on the other hand, shall select one (1) member and the third
member shall be selected by mutual agreement of the other members, or if the
other members fail to reach agreement on a third member within twenty (20) days
after their selection, such third member shall thereafter be selected by the
American Arbitration Association upon application made to it for such purpose by
the other members. The Board of Arbitration shall meet on consecutive business
days in Los Angeles or such other place as a majority of the members of the
Board of Arbitration determines more appropriate, and shall reach and render a
decision in writing

                                      -28-

<PAGE>

(concurred in by a majority of the members of the Board of Arbitration). In
connection with rendering its decision, the Board of Arbitration shall adopt and
follow such rules and procedures as a majority of the members of the Board of
Arbitration deems necessary or appropriate. To the extent practicable, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to the Company and
the Investor and/or any other Indemnified Party. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the Company and
the Investor and/or any other Indemnified Party and entitled to be enforced to
the fullest extent permitted by law and entered in any court of competent
jurisdiction. The non-prevailing party to any arbitration shall bear the expense
of both parties in relation thereto, including but not limited to the parties'
attorneys' fees, if any, and the expenses and fees of the Board of Arbitration.

                            ARTICLE X: MISCELLANEOUS

         SECTION 10.1 TRANSACTION COSTS. Each party shall bear its own legal
fees and other out of pocket costs in connecting with the negotiation and
execution of this Agreement. The Company agrees to pay its own expenses incident
to the performance of its obligations hereunder, including, but not limited to,
any registration of securities or delivery of documentation.

         SECTION 10.2 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the OTC Bulletin Board/ Bloomberg. The
written mutual consent of the Investor and the Company shall be required to
employ any other reporting entity.

         SECTION 10.3 BROKERAGE. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker which would impose a legal obligation to pay any fee or commission. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

         SECTION 10.4 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally
served,(ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice given in accordance
herewith. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where

                                      -29-

<PAGE>

such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:

                  If to the Company:
                                          FAMOUS FIXINS, INC..
                                          1325 Howard Avenue, Suite #422,
                                          Burlingame, California 94010

                                          Telephone:  650-340-9585
                                          Facsimile:   650-340-8015

                  If to the Investor:
                                          Mercator Advisory Group
                                          555 South Flower Street, Suite 4500
                                          Los Angeles, CA 90071
                                          Attention:  David Firestone
                                          Telephone:  213-533-8288
                                          Facsimile:   213-533-8285

Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.

         SECTION 10.5 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any affiliate of the
Investor or co-investor, provided, however, that any such assignment or transfer
shall relieve the Investor of its duties under this Agreement only upon
performance thereof by any such assignee or transferee.

         SECTION 10.6 AMENDMENT; NO WAIVER. No party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.

         SECTION 10.7 ANNEXES AND EXHIBITS; ENTIRE AGREEMENT. All annexes and
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.

                                      -30-

<PAGE>

         SECTION 10.8 SURVIVAL. The provisions of Articles VI, VIII, IX and X,
and of Section 7.3, shall survive the termination of this Agreement.

         SECTION 10.9 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.

         SECTION 10.10 TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.

         SECTION 10.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

         SECTION 10.12 CHOICE OF LAW. This Agreement shall be construed under
the laws of the State of California.

         SECTION 10.13 OTHER EXPENSES. In the event that a dispute between the
parties is not determined by a Board of Arbitration, the non-prevailing party in
any action, suit or proceeding shall bear all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
defense or settlement of such action, suit or proceeding, including of the other
party to this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the undersigned, there unto duly authorized, as of the date first set forth
above.

                               FAMOUS FIXINS, INC.

                                        /s/ S. Michael Rudolph
                               By:
                                        ---------------------------------------
                                        Name: S. Michael Rudolph
                                        Title:  Chief Executive Officer

                               MERCATOR MOMENTUM FUND, L.P.

                               By Its General Partner- Mercator Advisory Group
                                        /s/ David Firestone
                               By:
                                        ---------------------------------------
                                        David Firestone
                                        Managing Partner

                                      -31-

<PAGE>

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